How Expats Can Fix Their Problems With the IRS

Every US citizen or permanent resident is required to file a tax return every year, no matter where they reside.

Failure to file a US personal income tax return could result in a loss of the Foreign Earned Income Exclusion, which can create a difficult situation US citizens living abroad. This exclusion legally eliminates the tax on income earned outside of the US.
The Foreign Earned Income Exclusion requires qualification through the Bona Fide Residency Test or the Physical Presence Test.

The Physical Presence Test states that you must be outside the US for at least Protected content of any Protected content period.
The Bona Fide Residency Test states one full calendar year and a move to a country with the intention of residency for the foreseeable future.
Those living overseas are required to file a Foreign Bank Account Report with the US Treasury as well. Failure to file this results in severe penalties of up to $100,000 per violation.

It is common for people working or living abroad to neglect to file income tax returns for many years. As such, the IRS has created Voluntary Disclosure Programs designed to convince expats to come forward with voluntary reporting of offshore activities in exchange for lowering the risk of civil penalties.

Voluntary Disclosure Programs have several benefits for “low-risk” expats taxpayers. Low risk is US citizens, or dual-citizens, who reside overseas, who owe very little or no US taxes.
Low-risk expats can file 3 years of back tax returns and six years of FBARs without program penalties.
The definition of low risk usually means less than $1,500 in taxes owed per year and that there were no steps taken to conceal the income.
This procedure provides no protection criminal prosecution risks.
Most expats or foreign residents qualify as low risk because the tax amount in the IRS Voluntary Disclosure Program considers the Foreign Earned Income Exclusion and Foreign Tax Credit.
At risk will be entrepreneurs residing in low tax rate countries, high net worth individuals with untaxed passive income or capital gains, and just about any self-employed person who was not operating through a foreign corporation and is thus subject to self-employment tax. Click here to keep reading: Protected content

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