US Citizen Abroad: Which IRS Forms Should I Have Been Filing?
If you have ever lived outside of the United States you may have noticed that some American calendar dates like Martin Luther King’s Birthday, Columbus Day, or maybe even July 4th start becoming easier to forget. If you are a “US Person” (i.e. a US citizen or green card holder) living abroad or with business or financial interests overseas, though, there are two dates that you cannot afford to get sloppy about:
1) American Mother’s Day. It is easy to mix up the foreign country’s Mother Day with American Mother’s Day if they happen to be different.
2) April 15th – the deadline for US Persons to file their US income tax return no matter where they happen to be in the world. Let’s call it Uncle Sam’s Day.
In fact, US persons living outside the US can automatically take an extra couple of months (see information here) to file theirs as long as they attach a short explanation. But April 15th is the primary reference date after which you can take two months.
If you missed Mother’s Day, we can’t help you. There are some areas where even lawyers fear to tread. If you missed Uncle Sam’s Day, we can talk.
In fact the chances are pretty good you didn’t miss April 15th all together and you knew, in one way or another, about the US-citizens-always-file-US-tax-returns idea and you have been trying to stay on top of it.
In case you have a feeling that something was missing and are worried that you’ll get a letter from the IRS one day, though, we have put together a “packing list” of forms that U.S. Persons commonly encounter (or should have encountered) when living or doing business overseas. You can check if you left anything at home or not.
Note that we will not get into the specifics of each form although you are welcome to
go down the rabbit hole click the links to the official IRS guidance for each form.
The IRS Form “Packing List” for US Expats
Just about every US Person whether resident in the US or abroad. It is the “base” form for calculating personal income
Also known as the FBAR (Report of Foreign Bank and Financial Accounts). The main requirement to remember is that a US citizen holding more than $10,000 in a non-U.S. financial account (e.g. a bank account) is obliged to report it electronically to the IRS with this form.
Similar to the FBAR except a higher threshold of $50,000 (or even $200,000 if you are a resident outside the US) applies to financial accounts and asset values.
A US taxpayer can use this form to exclude (from US income tax) around $100k of earned income (e.g. from employment) from a non-U.S. employer for work performed outside the US. It is one of IRS forms most commonly used by US expats because it applies to a “normal” employment situation outside the US.
If a US taxpayer chooses not to use Form 2555 he or she will probably use this one to take a tax credit (against US income tax) for taxes paid to a foreign government. It is a common decision faced by US expats to choose to use form 2555 vs. form 1116 i.e. “foreign earned income exclusion” vs. “foreign tax credit.”
This form is for US taxpayers with an interest in a foreign trust. It may sound exotic or complicated but remember that “official” retirement plans everywhere are usually just trusts with a special set of tax rules attached to them. (That’s what 401Ks and IRAs are in the US.)
A retirement plan set up outside the US is likely going to be considered “just a trust” from the US perspective regardless of whatever local tax breaks the foreign government has attached to it. Those local tax breaks from may “travel across” to and protect you from US taxes depending on a Double Tax Agreement between the US and the foreign country. However if you have a non-US retirement plan you probably need to report it on form 3520. Non-US retirement plans are notoriously complex from a taxation standpoint; getting professional advice is highly recommended.
US Persons associated with companies incorporated outside the US. Certain rules apply based on percentage ownership. Even if you were not a shareholder in the company, being a director may trigger a reporting requirement.
US Persons associated with partnerships formed outside the US. Similar to form 5471 except for partnerships instead of corporations.
US Persons who own shares in a non-US mutual fund a.k.a. a Passive Foreign Investment Company (PFIC). PFIC’s are particularly painful for US Persons due to their annual taxation as well as disclosure requirements. In other words you are on the hook twice if you have a PFIC: you need (or have been needing to) to pay tax on it every year and disclose it. The only thing more painful that getting a PFIC compliant, though, is not getting it compliant. See an article I did on the subject here.
If you have not seen or are not familiar with one of the forms above it does not mean you are in trouble. Not complying
with filling requirements carries penalties, however, so if you are in doubt it makes sense to assess your situation with the help of an expert.
If it does turn out that you have not been filing something you should have, it is highly recommended that you get compliant as soon as possible rather than wait or hope no one will notice. The whole point of FATCA, which came into effect in 2014, is to make sure that someone will notice and, for the most part, it is just a question of time before someone does.
The best way to get compliant is through the Offshore Voluntary Disclosure Program (OVDP) or by following the Streamlined Filing Compliance Procedures (aka the streamlined OVDP). You can an article I did on how both options look in 2015 here.