In IRS Publication 54, the IRS gives "advice" to US expats with unfiled tax returns. In this article we will discuss that advice and why it is often incorrect.
Listed on www.irs.gov, IRS Publication 54 "Tax Guide for U.S. Citizens and Resident Aliens Abroad " has a 'Common questions and answers' section in the back of the publication. One of the answers caused me distress, as taking the advice at face value could expose a US expatriate to IRS penalties.
The question is in bold, the answer in italics:
I am a U.S. citizen. I have lived abroad for a number of years and recently realized that I should have been filing U.S. income tax returns. How do I correct this oversight in not having filed returns for these years?
File the late returns as soon as possible, stating your reason for filing late. For advice on filing the returns, you should contact an Internal Revenue Service representative.
This is interesting advice, and I can think of circumstances in which it is even correct. But for many expats, this answer is at best incomplete, and at worst horribly wrong. If you are unfiled for the past three years and do not have any delinquent reporting forms (i.e. missing Form 8938, Form 5471, Form 3520, Form 3520-A, or Form 8865) then this advice is probably correct.
However, if you have more than 3 years unfiled, and do have missing Foreign Account Tax Compliance Act (FATCA) Form 8938, a foreign corporation, foreign life insurance, foreign pension, foreign mutual funds, or foreign bank accounts over $10,000, then this advice is probably not correct. In this case, you would likely want to enter into some sort of streamlined disclosure program.
And what is my source?
Why, the IRS. This screenshot is from https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states:
Do you see how these instructions are different than "File the late returns as soon as possible, stating your reason for filing late. For advice on filing the returns, you should contact an Internal Revenue Service representative"?
We find it extremely frustrating when the IRS provides conflicting information. The tax code is complicated enough, especially for expats. If you're confused, or concerned about possible issues with unfiled foreign accounts, contact us. We can help. Call us at 888-727-8796 or email firstname.lastname@example.org.