Did you properly report your foreign income and assets? U.S. citizens are required to report income on their tax returns, irrespective of where the income is earned or where they live. This means that a U.S. citizen abroad could be required to file tax returns in more than one country. Generally, the tax rules provide an offset to U.S. tax for foreign tax paid.
For several years, the IRS has focused on increasing compliance in reporting both foreign-based assets and income for U.S. citizens. Penalties for noncompliance have been raised and enforced (to the extent that the IRS contacts the taxpayer). In order to encourage compliance the IRS created the Offshore Voluntary Disclosure Program and several other disclosure options with low or no penalties.
Although the IRS closed the Offshore Voluntary Disclosure Program in late September, the Streamlined Compliance and Delinquent Information Returns options remain in place. For U.S. citizens living abroad, it is possible to become compliant through these processes, pay any tax an interest due, without incurring any penalties. U.S. residents would be subject to a small 5% penalty on undisclosed assets, but this is much lower than the normal penalties which can actually exceed the value of the unreported assets.
There are specific eligibility requirements for these programs and it is unclear how long the IRS will maintain these programs. In today’s digital age, it is likely that the IRS will begin searching for taxpayers who haven’t properly reported.
Don’t wait to be contacted by the IRS; Schneider Downs can assist you with your compliance efforts.