This series of posts developed from my “Educational Outreach” program for Americans abroad. It is an effort to respond in a practical way to the questions that people have.
The chapters of “Coming Into U.S. Tax Compliance Book” are:
Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship”
Chapter 2 – “But wait, I can’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”
Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes”
Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”
Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person”
Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce”
FATCA, non-U.S. banks and the tax compliance industry have unleashed a “witch hunt” for Americans abroad. Those who have never filed U.S. taxes will find themselves under pressure to become U.S. tax compliant. In most cases, those who have never attempted U.S. tax compliance will be able to come into compliance relatively easily.
For those who have attempted U.S. tax compliance and have made mistakes, it is NOT quite as easy. Although all problems are fixable, caution is warranted. Depending on the seriousness of the mistake or omission, specialized counseling may be appropriate.
The first question is: MUST you “fix past filing errors”?
The answer appears to be no. A recent discussion of this problem included:
Neither the federal tax law nor the Treasury Regulations provide that a taxpayer has an affirmative statutory duty to file an amended income tax return, as long the original return reflects a good faith effort to comply with the law at the time the tax return was originally filed. The Treasury Regulations, which are drafted by the IRS, instruct that a taxpayer “should,” within the period of limitation, amend to correct prior errors in a tax return, but not that a taxpayer “must” amend. See Treas. Reg. § 1.451-1(a).
I have included the above as a “beginning” to your thought process. This is a question that you should explore with your adviser.
The second question is: SHOULD you “fix past filing errors”?
There is no way to even give “general advice” in this post. What I can do is refer you to the current guidelines posted by the IRS.
Start here. Click on the link in the above tweet and then seek specialized counseling.
Okay, our detour is over. Let’s return to the general principles for “Coming Clean” for those who are lucky enough to have never filed U.S. tax returns.
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