Oh no… I haven’t filed my US tax returns

A guide to coming clean to the IRS and getting up to date with your taxes

Fix it, fix it quickly, and don’t do it again. That’s what an IRS agent once said to me when I asked her how I can help my clients get up to date with the IRS when such terrifying stories of penalties are reported in the press. Every day I answer the same call. The US citizen who has been living in the UK for such a long time… “I’m afraid I haven’t filed my taxes”. The good news is that this story is more common than you think.

If you are an American citizen or a US green card holder, you have a requirement to file annual tax returns with the IRS regardless of whether or not you live there.

But I’ve no tax to pay so it’s probably not necessary?” In some cases, information returns need to be filed regardless of the obligation to tax and nasty penalties may apply for non compliance.

In September 2012, the IRS introduced a new streamlined filing compliance procedure for taxpayers with a “low compliance risk”. The procedure is available to US taxpayers who have resided outside of the US since January 1 2009 and who have not filed a US tax return in that period.

In order to be considered a low compliance risk, the return should be “simple” with less than $1,500 of tax due in each year of question.

IRS Guidance

IRS guidance suggests that the level of risk would rise if any of the following are present:

  • If any of the returns submitted through this program claim a refund;
  • If there is material economic activity in the United States;
  • If the taxpayer has not declared all of his/her income in his/her country of residence;
  • If the taxpayer is under audit or investigation by the IRS;
  • If Foreign Bank Account Report “FBAR” penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
  • If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
  • If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
  • If there is U.S. source income; or
  • If there are indications of sophisticated tax planning or avoidance.

The level of compliance risk is at the IRS discretion and will be considered based on the factors above, information provided on the returns filed and on additional information provided on the questionnaire available on the IRS website. As is usually the case with the IRS, no news is good news and eligible submissions will be processed without assessment of penalties or follow up actions.

Getting up to date

So, how does one come up to date under this procedure?

  1. Submit tax returns for the last three years including any related information returns and pay the tax due
  2. Submit Reports of Foreign Bank accounts for the last six years
  3. Complete and submit a questionnaire:
    http://www.irs.gov/file_source/pub/irs-utl/non-resident_questionnaire.pdf

If you would like any further information or assistance with your tax filings please contact us.


U.S. Treasury Circular 230 Disclosure: Any U.S. tax advice contained in this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.