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Danish Our mission at Expatax is to make tax-related issues more understandable for expats and retirees. This article focuses on the potential pitfalls US citizens living in Italy face if they miss or delay their tax filings. Keep in mind that you are welcome to use our 'TAX AI' at the end of the post should you have additional queries.
Overview of US Expat Tax Duties
Being an expat can sometimes resemble running a marathon on a legal and financial occasion. An unexpected stumbling block is the US obligation for its citizens living abroad to file annual tax returns. Indeed, even if you reside in a country with a US tax treaty or pay taxes there, you still have to report *all income*, not exclusively US sourced ones. Complexity is added due to additional filings like the IRS Form 8938 and the FinCEN Form 114 if you meet certain criteria. If you ignore these obligations, you may face significant monetary penalties.
Hazardous Consequences of Non-Compliance
Non-compliance with tax obligation can lead to dire consequences. Foreign governments and financial firms provide relevant information pertaining to US citizens to the IRS, so evading detection is unlikely. It is vital to remember that lack of awareness about these obligations doesn't qualify as a valid excuse for failure to file. We stridently advise US expats to get acquainted and comply with their tax obligations post-haste.
The Price of Non-Compliance
The ramifications of non-compliance can be heavy, varying with the individual circumstances. Not filing any returns when no taxes are due usually invites no penalties, but late filings are encouraged nonetheless. If you do owe tax and are late, the financial consequences can be difficult to handle, with interest commencing to accrue immediately after the deadline with additional penalties in place as well. Similarly, filing a return but not paying the full amount on time also has its accompanying penalties. Non-filing is subject to penalties as well as interest - the maximum total penalty is 47.5% (22.5% late filing and 25% late payment) but, if your return is over 60 days late, the minimum failure to file penalty is the smaller of $450 (for 2023). Therefore even if you have little or no income to report, it is best to file promptly and avoid any future issues.
Seeking "Forgiveness" from the IRS for Non-Compliant US Expats
Non-compliant expats who weren't previously aware of their obligation should take note - the IRS's "Streamlined Filing Compliance Procedures" may be the lifeline you need to steer clear of penalties. You'll need to certify your ignorance of the laws was unintentional, file the last three years of outstanding income tax returns, and submit FBARs for the past six years. Thus, if suitably executed, this procedure can actually help in claiming any refunds owed, offsetting, or even clearing your tax debt. You can do this at the links provided below.
Don't Forget To Report Foreign Assets, Too
The requirement to file an FBAR (Foreign Bank Account Report) applies to U.S. residents who either own or have control over foreign financial accounts. Importantly, this includes joint accounts that you may share with a spouse. If the total value of all your foreign accounts crosses the $10,000 threshold at any time during the year, you're obligated to file an FBAR. You can conveniently file this form online, and there's no need to set up a special account to do so.
Sources
IRS tax guide for US citizens resident abroad
IRS Streamlined Filing Compliance Procedures
IRS guide: how to file Streamlined Filing Compliance Procedures
