By Veronica Pamoukaghlian, Senior Journalist
By US law, taxation is dependent upon citizenship rather than residency. In spite of this, on migrating out of the US, many Americans assume that they do not have to keep paying US taxes. While there are certain foreign income exclusions that may apply, no matter where you live, if you are a US citizen, you need to maintain compliance with the IRS. Now that FATCA is making data about US account-holders at financial institutions all over the world readily available to the US Government, expats are at an increasingly higher risk of being targeted by the IRS.
A recent study from the Treasury Inspector General for Tax Administration found the IRS´s international collection program to be weak and ineffective. According to the study, the IRS doesn´t have an efficient system in place to select which cases to pursue, nor reliable statistics to measure the effectiveness of the collection system.
One of the ways in which the IRS is trying to turn this situation around is by implementing Customs Hold for delinquent taxpayers. When a taxpayer has a recognized debt to the IRS, his name is added to a list, which is then shared with the Customs Department. When the taxpayer enters the US, a customs officer interviews him and asks for contact information, which the IRS will use to try to collect the tax debt.
Today, there are about 1,700 names on the delinquent taxpayer list. Taxpayers living abroad owe about $1.1 billion of the total $1.7 billion owed by all the names on the list. This makes expatriates a very significant group for the IRS to target.
Delinquent taxpayers on the Customs Hold list owe an average $941,176. In fact, the IRS is not simply putting any average Joe on the delinquent taxpayers list. As of today, it is very unlikely that you will be stopped at the border because you moved to Mexico a year ago and assumed you no longer had to pay your taxes: the focus is generally on the big fish. But the landscape of tax compliance in the US is changing fast. The IRS may not be targeting you today, but if a bank at which you have an account releases information to the IRS voluntarily, as per FATCA, you may face significant fines.
There are many ways in which the IRS can become aware that you are not in compliance regarding your taxes. If you live and earn your money abroad, you may be eligible for the Foreign Income Exclusion, which can make your life a lot easier, as it can exclude up to $100,000 from the income on which you are taxed. There are, however many exceptions that apply, and not every expatriate is entitled to this benefit.
To be on the safe side, it is best to consult a tax attorney who can assess your legal status with the IRS and recommend the best course of action to achieve full compliance, while also minimizing penalties. We have helped hundreds of expatriates navigate US tax bureaucracy in many different scenarios, preventing double taxation, and reducing the overall costs of achieving compliance. If you haven´t paid your taxes or reported your foreign bank accounts in several years, you may face sizable penalties. A tax attorney can help you minimize them and find the best course for voluntary reporting. Contact us to receive an assessment of your legal status and your current obligations to the IRS, as well as professional counsel to become a fully compliant US taxpayer.
Need more information about FATCA or other tax issues? Give us a call. All inquiries are completely confidential (only calls with lawyers are protected by the attorney – client privilege) and without obligation. Initial inquiries are without cost and our services are available worldwide. For more information, contact attorney Beth Canfield at or by telephone at (414) 223-0464.