IJ Zemelman Apr-15-2015
1) If you are behind on filing your US expat tax returns, you have the opportunity to get caught up.
Have you received a notice from the IRS for one or more delinquent tax returns? There are many reasons why you may have fallen behind on filing your US expat tax return(s).
If – for any reason – you have failed to file your taxes for one or more previous years, there are steps you can take to become current on your US expat tax obligations.
2) It’s recommended to respond to the IRS as soon as humanly possible.
If the IRS has contacted you about delinquent taxes, it’s important to respond immediately. If you are unable to acquire the required forms or you need time to gather documentation, you should speak with the IRS right away and request an extension. The longer you put off communicating with the IRS, the worse your situation will become.
Adopting the ‘Ostrich Strategy’ and hoping the issue will go away is ill-advised. It will not and the trouble will only compound with time.
3) Get help from an experienced US expat tax professional who is in good standing with the IRS and dealt with similar cases before.
We have a specific service for individuals in your situation - please see: http://www.taxesforexpats.com/services/irs-letter.html.
We will analyze the letter you received and present you with a clear analysis and action plan that will include the following deliverables:
- Providing to you in plain English a concise summary of the IRS letter
- Pinpointing the page(s) which you have to focus on, disregarding the rest
- Explaining the level of escalation of your case within the IRS system as of the letter issuance date
- Providing advice on handling the past-due date for responding to the letter (very common situation for expats)
- Explaining the options available to you under the circumstances
- Suggesting an action plan
Filing back taxes can be an overwhelming undertaking. If you are already contacted by the IRS, we strongly recommend that you obtain help of a qualified US expat tax consultant to help you get caught up. You are already at a disadvantage - there is no need to make it worse.
4) When it comes to filing back taxes, you have options as to how you’re going to get caught up with the IRS.
If you know that you haven’t filed a tax return for multiple years, it’s best to file for all years in which you are delinquent – even if the IRS has only identified one year. If you have fallen behind on your US expat tax filing obligations, it’s best to file back taxes for up to 6 years.
The best method for becoming current on your US expat tax obligations is to take advantage of the Streamlined Tax Filing Procedures through which you can file up to 3 years of tax returns and 6 years of missing FBARs. This is our preferred method for getting clients compliant who have not filed for an extended period.
5) If the IRS has made a mistake, inform them immediately.
Sometimes the IRS makes mistakes. There are situations in which a tax return hasn’t been filed, so the IRS files a US expat tax return on your behalf based on records they have. When the IRS does this, it does not take into consideration any deductions which may be available to you.
You may have a tax return owed to you (or at least not have any liability) once you file an official return claiming all of your deductions. If you receive a tax notice from the IRS for a year in which you were not required to file, contact the representative assigned to your case by phone or mail to let him/her know.
6) Make sure to compile all of the documentation for each tax year in which you are delinquent in filing the returns.
Once you know how many years of back taxes you need to file, start gathering all the documentation you will need to file factual US expat tax returns. If you had received W2s, 1099s, or any other statements which were issued by a US employer(s), you may request copies of these forms by contacting the IRS by phone or by filling out and mailing Form 4506-T. Keep in mind that it can take up to 45 days for the IRS to respond to your request, so make sure you stay in contact with the IRS representative assigned to your case.
You also have the option of working with a US expat tax professional who is able to access the IRS e-services program. A US expat tax professional with access to the e-services program can help you get your required documents inside of 1 week. This is especially beneficial if you are a foreign resident who has not received standard documents from the United States.
7) If you are going to file your own back taxes, make sure you have the appropriate forms to file.
If you are going to prepare your own late tax returns, you will be required to file the appropriate forms for each year. Make sure to find the tax forms for each specific year you failed to file a US expat tax return. Remember, too, that if you are claiming any carryover deductions such as capital losses or tax credits, you should file the earliest years first and fill out all subsequent tax years in order. You can find the appropriate tax forms on the IRS website Forms and Pubs page.
8) If you can’t file all of your previously unfiled US expat tax returns, file what you can as soon as possible.
Sometimes, it’s not possible to file all back taxes which are due. If there are circumstances preventing you from filing a US expat tax return for one or more years, file what you can so that you remain in good standing with the IRS. Make sure to pay attention to the filing address on the notice you received, as it may be different than the IRS address listed in the instructions. If the addresses are different, always mail your late tax returns to the address indicated in your notification letter.
9) File your delinquent tax returns, even if you owe money and are unable to pay right away.
If you have US income tax liability and you are unable to pay the full amount, pay what you are able when you file your delinquent US expat tax return(s). Communicate honestly with the IRS representative assigned to your case to keep your options open. You may be able to negotiate an Offer in Compromise and settle your tax debt for an amount which is less than you actually owe.
If you aren’t able to settle through an Offer in Compromise, you will most likely qualify for an installment plan. When establishing a payment installment plan, the IRS will work with you by reviewing your income and expenses to determine an acceptable monthly payment. Remember that interest and fees are assessed regularly on unpaid tax debt, so it’s in your best interest to pay as much as you possibly can as early as possible.
10) You can ask the IRS to waive penalties and interest. If you have a valid reason for not having filed your US expat tax return, an abatement of interest and penalties may be available to you.
Once you have filed your back taxes and the IRS has had a chance to process your past due returns, you may write a formal letter requesting an abatement of interest and penalties. Include in your letter the reason for your delinquency and express a sincere desire to become and remain compliant. Your request won’t always be granted, but it’s worth trying.
I.J. Zemelman, EA is the founder of Taxes for Expats