Our readers in California will be interested to learn that the IRS recently took steps to separate hard-working ex-patriots who are behind on their taxes from those individuals and companies who may be seeking to hide money in foreign accounts. Previously, the IRS had not made a clear distinction between Americans living abroad who were either behind on their taxes or unaware of their tax obligations from those individuals believed to be committing tax fraud.
IRS tax requirements call for foreign accounts to be reported annually through a previously little-known form called a Report of Foreign Bank and Financial Account, or FBAR. In the past, failing to file this form could have given the U.S. Treasury the right to confiscate virtually everything in an individual’s foreign account. What seems to have confused some U.S. citizens living abroad is that they are required to file an FBAR even when they are not receiving U.S.-based income.
Unfortunately, that means that many of these individuals have faced extremely high penalties and back taxes. Those penalties are often beyond what middle-income ex-patriots can afford. But now the IRS has announced that, starting Sept. 1, special tax relief will be offered to ex-patriots, dual citizens living abroad and green card holders who owe less than $1,500 on unfiled 1040s. These individuals will still be required to file three years’ worth of back tax returns and six years of back FBARS, but on the bright side, the IRS will not slam these taxpayers with penalties for failing to file the back FBARS.
Former California residents now living abroad who didn’t know about their requirement to file an FBAR each year will want to look into their options for protecting against any possible tax penalties.
Source: Forbes, “IRS Cuts Middle Class Expats Big (And Deserved) Penalty Break,” Janet Novack, June 26, 2012
