Streamlined Filing Procedures

Back Taxes If you’re behind in filing taxes with the IRS, you may be eligible to catch up using Streamlined Filing Procedures.  Streamlined is intended for taxpayers that acted non-willfully and do not have criminal exposure or exposure to civil fraud penalties and willful FBAR penalties.   Streamlined Procedures Streamlined Filing Procedures were updated in 2014 to create Streamlined Foreign Offshore (SFO) and Streamlined Domestic Offshore (SDO).  The eligibility requirements for SFO: US Individuals and estates only Failed to report Foreign Financial Assets and pay all tax due in respect of those assets Able to certify failures are related to non-willful conduct Not currently under IRS examination Have a valid Taxpayer Identification Number (ITIN/SSN) NOTE:  If you do not have an ITIN, you may submit an application for ITIN along with the required tax returns.  For more information on how to apply for ITIN, contact ITIN4U.com SFO Streamlined Foreign Offshore requirements: Meet non-residency requirement must not have US abode AND physically outside the U.S. for at least 330 full days in a calendar year in ONE of the last 3 years in your streamline submission period. IF married filing jointly, both taxpayers must meet the non-residency requirement. You can be a non-filer. If you have not filed US Federal tax return, you can catch up and come into compliance with the IRS.  You may also amend previously filed US Federal tax returns  Non-Willful Non-Willful conduct is defined as: “conduct that is due to negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” Must provide a Non-Willful Certification: Provide...

US Filing Deadline, Citizen filing from Overseas

Filing Deadline Act quickly!  As a US Citizen filing with the IRS from overseas, the filing deadline for your 2015 tax year is June 15, 2016. If you require more time to complete and file your US Federal tax return, you may file Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return – prior to June 15, 2016.  This extension will allow you to timely file if you file by October 15, 2016.  Remember this is an extension of time to file only.  In the event you have a tax owing, you may be subject to late payment fees and interest from April 18, 2016. Is every US Citizen (or Green Card Holder) living abroad, required to file a tax return?  Yes, if your gross income exceeds the filing threshold for your filing status (see below).  If your earned income is below the Foreign Earned Income Exclusion, you still must file to claim the exclusion. Filing Thresholds If for 2015 your filing status is: Single and under 65 you are required to file a US tax return if your gross income was at least $10,300USD Single and over 65, you are required to file a US tax return if your gross income was at least $11,850 USD Married filing jointly and under 65 you are required to file a US tax return if your gross income was at least $20,600 USD Married filing jointly and 1 spouse was over 65 you are required to file a US tax return if your gross income was at least $21,850 USD Married filing jointly and...

IRS Penalty Abatement

IRS Penalty Panic! You just received a notice from the IRS.  The fees and penalties are high.  Good news, you may be eligible to have the penalties removed.  Sometimes, despite your best efforts, you end up filing your taxes late and paying late.  The Internal Revenue Service assesses late penalties which might be removed on a case by case basis provided you can show Reasonable Cause.  Any reason that establishes a taxpayer exercised ordinary business care and prudence but was unable to comply with the tax law may be considered for penalty abatement. Ordinary business care and prudence include making provision for business obligations to be met when reasonably foreseeable events occur.  A taxpayer may establish reasonable cause by providing facts and circumstances showing you exercised ordinary business care and prudence, but nevertheless were unable to comply with the law. Some of the questions you will be asked include: What happened? When did it happen? Where did it happen? Who is responsible? Why couldn’t the taxpayer comply? How did the taxpayer try to comply? Your reason should clearly address the penalty imposed.  To show reasonable cause, your dates and explanations should clearly correspond with events on which the penalties are based. In determining if you, the taxpayer, exercised ordinary business care and prudence, the IRS will check your compliance history for payment patterns (generally the previous 3 years).  The same penalty previously assessed may indicate you are not exercising ordinary business care. The IRS will consider the length of time between the event cited as reason for the noncompliance and your subsequent compliance. Were the circumstances beyond your control?...

“GOTCHA” — UNANTICIPATED AUDIT ISSUES AFTER QUIET DISCLOSURES

I. Introduction Some taxpayers not willing to pay the 27.5% penalty that otherwise applied under the traditional Offshore Voluntary Disclosure Programs have made quiet disclosures or entered into the Streamlined Filing Compliance Procedures (“Streamlined Program”). Many of these taxpayers rejected the protections of the Offshore Voluntary Disclosure Programs in favor of what they perceived to be a more cost-effective quiet or streamlined disclosure. These taxpayers have subjected themselves to criminal liability and audit adjustments which, depending upon the source of the unreported income, could easily eclipse the 27.5% penalty under the traditional program. In this regard, audits of returns submitted as quiet disclosures or under the Streamlined Program have been (and should be) troubling to both practitioners and clients. This article discusses common audit adjustments that can apply to returns for taxpayers with international activities, including: the disallowance of deductions and credits for U.S. citizens, resident aliens, and nonresident aliens; the disallowance of the foreign earned income exclusion for U.S. citizens and resident aliens; and the Internal Revenue Service’s ability to recharacterize as ordinary income purported gifts and bequests from a partnership or a foreign corporation under Treas. Reg. § 1.672(f)-4. This article also highlights those taxpayers who are most likely to be negatively affected by each type of adjustment.  Finally, for taxpayers who imprudently made a quiet disclosure, this article discusses how to transition the taxpayer from a quiet disclosure to a traditional Offshore Voluntary Disclosure Program. II. Audits of Offshore Returns Generally The audit risk to a taxpayer who corrected errors related to his or her foreign activities often depends upon whether the taxpayer came into compliance...

Investment Mistakes Made By Americans Abroad

Top Twelve Investment Mistakes Made By Americans Abroad David Kuenzi, CFP®, Founding Partner, Thun Financial Advisors (www.thunfinancial.com)   1)  Buying foreign mutual funds.  Foreign mutual funds may seem attractive to an American living abroad. However, in the view of the IRS, a foreign mutual fund is considered a Passive Foreign Investment Company (PFIC) and is a tax nightmare for U.S. tax filers. If you are a U.S. citizen or a U.S. permanent resident who has been living and working outside the U.S. and investing your savings through a non-U.S. financial institution, you need to understand PFICs quickly. PFICs are subject to special, highly punitive tax treatment by the U.S. tax code. Not only will the tax rate applied to these investments be much higher than the tax rate applied to a similar or identical U.S. registered investments, but the cost of required accounting/record-keeping for reporting PFIC investments on IRS Form 8621 can easily run into the thousands of dollars per investment each year. 2) Doing Nothing. Many American expats find themselves so overwhelmed by the complex rules and many horror stories they have heard about investing while living abroad that they are cowered into taking no action at all. However, remaining in cash will not provide for a comfortable retirement for yourself or a college education for your kids.  Investing efficiently and compliantly while living abroad can be daunting, but it does not have to be overwhelming.   A little research can go a long way. Qualified advisors can be found.  Do not give up. This is too important. 3)  Not understanding the underlying currency exposures of their portfolio.  Expat...

Hiding Money or Income Offshore

This post courtesy of IRS News Release: “Hiding Money or Income Offshore Resides on the IRS ‘Dirty Dozen’ List” IR-2016-17, Feb. 5, 2016 WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season. “Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said IRS Commissioner John Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.” Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. Through the years, offshore accounts have been used to lure taxpayers into scams and schemes. Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes. Illegal scams...

Non-US author, do I need ITIN?

Non-US Author, do I need an ITIN? I am a resident from Australia and I have no ties (work or personal) to the USA.  I would like to publish my books on Amazon KDP, Createspace, Smashwords, etc. and complete my tax interview. But the form requires me to provide a US ITIN. Is this really required?  Please advice, thanks! Maybe not!  On Form W-8 BEN, you may submit your non-US tax identification number if there’s a tax treaty with your country. For Australia, use your TFN (Tax File Number) and claim a reduced tax withholding rate for royalties – per the US/Australia tax treaty.  Also the tax interview on Amazon KDP, Createspace, etc will complete Form W-8 BEN for you. Amazon and Smashwords are required by law to withhold 30% of the royalties earned by non-US authors unless there’s a US tax treaty in place for reduced withholding rates.  Australia is one of those countries and the Royalties withholding rate is 5%. If you do not have a tax file number for some reason, you will have to get an ITIN or EIN. Sometimes an ITIN (Individual Taxpayer Identification Number) is required for withholding after you’ve reached a certain threshold of sales.  The ITIN is often confused with a SSN because it is exactly the same format, but it begins with a ‘9’. If you’ve had withholding at 30%, you’ll want to file a US tax return to claim any refund owing.  You’ll require an ITIN to complete Form 1040NR.  This form can be obtained from the IRS Forms & Publications page. All this US tax stuff is confusing and could...

Expats: 10 tax tips for 2016

Expats: 10 tax tips for 2016 Expats here’s a list of 10 facts you need to know when filing your 2015 US tax return.  Filing season opens January 19.   Do you really need to file US taxes?  If you’re an American with income in excess of your filing threshold (converted to USD), the answer is YES!  What about the Earned Income Exclusion you ask?  You must file to claim it. Tax Identification Number.  Did you get married in 2015?  Even if your spouse is not an American, you can still claim their personal exemption on your Married Filing Separate tax return – but you need to apply for an Individual Tax Identification Number (ITIN) for your spouse. New Baby ?  Depending on your circumstances, a child born abroad may be eligible for a social security number – or not.  Either way, you’ll need a Tax ID Number (TIN) to claim your dependent on your US tax return. Filing Status – consider your options:   Married to Non-Resident Alien (NRA) Spouse?  Could file Married Filing Separate or Married Filing Jointly, and report worldwide income, consider your personal goals.  Married to NRA spouse with child(ren) – could be Head of Household or Married Filing Separate. Personal exemption has been increased to $4,000 up from $3950. Physical Presence Test or Bona Fide Residence to qualify for Foreign Earned Income Exclusion (FEIE).  For 2015, FEIE has reached 6 figures – $100,800 (up from $99,200 in 2014) Foreign Tax Credit (FTC) – apply tax paid to foreign country to your IRS tax Extension – Expats have an automatic extension to June 15, 2016 to file...

Taxpayer Bill of Rights

Taxpayer Bill of Rights   The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are: The Right to Be Informed The Right to Quality Service The Right to Pay No More than the Correct Amount of Tax The Right to Challenge the IRS’s Position and Be Heard The Right to Appeal an IRS Decision in an Independent Forum The Right to Finality The Right to Privacy The Right to Confidentiality The Right to Retain Representation The Right to a Fair and Just Tax System The rights have been incorporated into a redesigned version of Publication 1, a document that is routinely included in IRS correspondence with taxpayers. Millions of these mailings go out each year. The new version has been added to IRS.gov, and print copies will start being included in IRS correspondence in the near future. PATH Act The PATH Act, passed recently includes provision for the Tax Commissioner to ensure that IRS employees are familiar with and act in accordance with the Taxpayer Bill of Rights. In addition, taxpayers who have been victimized by the IRS, for example  through the unauthorized disclosure of private tax information, to find out basic facts, such as whether the case is being investigated or whether the case has been referred to the Justice Department for prosecution. Taxpayer Advocate Service The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service, an independent office inside the...