US Advisory

The range of advice we can offer includes, but is not limited to, the following:

•  US taxpayers based overseas tend to be able to offset their US liability on foreign income by means of credits of foreign tax paid on overseas income. Following advice as to the payment dates of foreign taxes should lead to a reduced US tax liability across current, as well as prior, tax years.  

•  The Expatriation Rules (under s.877 of the Internal Revenue Code (IRC)) apply when a US citizen renounces their citizenship or a long-term resident decides to give up their Green Card. The American Jobs Creation Act (AJCA) of 2004 amended IRC s.877, so that the rules are substantially altered for those seeking to expatriate on or after June 4, 2004. Under the expatriation provisions taxpayers need to continue to file US tax returns for a period of 10 years, reporting their income in a specific manner. Link: http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html

•  Many non-resident aliens have a US filing requirement based on US sourced assets, and this is something that should be looked at closely for those who have any concerns. In addition Brits or other non-US nationals who are going on assignment to, or have been on assignment in, the US need to ensure that they are filing the correct type of Federal tax return: http://www.usembassy.org.uk/irs/resident_alien_form.pdf

•  For those going to the US on a permanent or semi-permanent basis, it is imperative to speak to an advisor in advance of leaving the UK in order to ensure that the upcoming US taxation of all personal assets is fully understood and action can be taken to revise current arrangements in advance of establishing US residency.  

Other Services

•  Reporting requirements with regard to non-US companies and trusts

• Social security and income tax planning for internationally mobile employees
• Advice on cash and equity based incentive packages, as well as tax-efficient pay and benefits
• Flexible benefit schemes

 

IRS Federal Deadlines – assuming a calendar tax year. Most state, local & city filings follow these dates, but should be checked. Where a deadline falls at the weekend or on a public holiday, the due date is extended to the following Monday.

April 15 th

Deadline for submission of Tax Returns for those based in the US

Filing of Form 4868 to obtain extension of time to file until October 15 th for those based in the US

Interest starts running on any balance due for ALL taxpayers

1 st Estimated Tax Payment due for the following year (if applicable)

June 15 th

Deadline for submission of Tax Returns for those based overseas (automatic 2 month extension)

Filing of Form 4868 to obtain extension of time to file until October 15 th for those based overseas

2 nd Estimated Tax Payment due for the following year (if applicable)

September 15 th

3 rd Estimated Tax Payment due for the following year (if applicable)

October 15 th

Deadline for submission of Tax Returns for those based in the US (with Form 4868 extension in place)

US filers based overseas can submit a letter to the IRS explaining why they require 2 further months to 12/15

December 15 th

Deadline for submission of Tax Returns for those based overseas (provided Form 4868 & letter extension request are in place)

January 15 th

4 th Estimated Tax Payment due for the following year (if applicable)

January 30 th

Taxpayers claiming a first year ‘foreign earned income exclusion' need to wait to file their taxes until after the end of December in order to qualify. Provided a Form 2350, extension of time to file, is in place they are given until January 30 to do so.    

Penalties for Non Compliance

The IRS takes a rather dim view of the late payment of tax and late filing of tax returns, and ensures that those who transgress are financially penalized to a far greater extent than HMRC. Whilst these issues do not tend to arise for taxpayers based in the US who are subject to tax withholding on their wages and are duly reminded of their filing requirements as April 15 th approaches; taxpayers based abroad have more of tendency to take an ‘out of sight, out of mind approach' and can end up paying the price.    

http://www.irs.gov/taxtopics/tc653.html

Interest

Interest is charged on any unpaid tax from the original due date of the tax return until the date payment is received by the IRS. The interest rate is reset periodically and is the federal short-term rate + 3 percent. Interest is compounded daily and runs from April 15 th (even for those based overseas).

http://www.irs.gov/pub/irs-news/ir-08-111.pdf

Late Payment Penalty

A late payment penalty of 0.5% of the tax due is chargeable for every month (or portion thereof) that the tax is left unpaid. This penalty runs until the tax is paid in full, or the 25% maximum penalty is reached.

Late Filing Penalty

A late filing penalty of 4.5% of the tax due is chargeable for every month (or portion thereof) that the tax return remains outstanding. This penalty runs until the tax return is filed or for a maximum of 5 months, for a total of 22.5% possible late filing penalty.

Taken together the late filing and payment penalties can total 47.5% of the tax due at April 15 th . This makes it well worth making estimated tax payments each year or filing early.

Late Filers Beware!

Often taxpayers make a last minute payment of tax before the final due date of their Federal tax returns even though the tax return will not be filed by that deadline. Many believe that this action is enough to prevent the IRS from charging late filing penalties; based presumably on the assumption that if the tax is paid before the tax return is late, there is no basis on which to charge a 4.5% late filing penalty. It is worth noting that whilst this approach may work in some cases; for late filed tax returns, the IRS is perfectly within its rights to charge a late filing penalty from the final due date, or in the worst case scenario, from the original due date of the tax return, without regard for timely filed extensions. A word to the wise therefore: overpay your tax by April 15 th , or simply file early!   

The shape of things to come?

It is estimated that 1/3 of US citizens based abroad are currently neglecting, either through ignorance or ‘forgetfulness', to meet their US filing obligations. With budget deficits to consider, the extra tax and penalties this group could generate may serve to animate the IRS.

Starting April 7, 2008 Kelli Winegardner has been the new face in the role of tax attaché at the IRS Office at the US Embassy in London. Ms Winegardner was previously employed in the Office of Penalties & Interest Administration and rumoured to have also been involved with information and exchange agreements.

Those in the know are hypothesising that this appointment signals the IRS' intention to tighten up affairs in the overseas compliance arena.