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What’s next for Americans who are behind on their taxes?

Behind on your taxes? Here’s how you can get caught up.

What's next for Americans who are behind on their taxes?
Photo: 401kcalculator.org/Flickr

Many Americans who live abroad don’t realise that retaining their American citizenship means retaining their tax-filing responsibility – forever. The IRS offers various amnesty programs to help unwitting taxpayers become tax compliant without getting ensnared in penalties and charges that apply to those evading taxes with criminal intent. However, last year, the IRS terminated the OVDP (Offshore Voluntary Disclosure Program). So, many expats have been left wondering which programs they can still take advantage of, and how long those programs will be available.

What are the amnesty programs, and why were they initiated?

The two main options for expats who were behind on their taxes were the Streamlined Filing Procedures and the OVDP. The OVDP was designed for individuals who were intentionally hiding assets overseas and not reporting them to the IRS; the intent being to give them a way to come into compliance, pay some stiff penalties, but avoid criminal prosecution. 

The main difference between the OVDP and the Streamlined Filing Program was based on intent. Did you intend to hide or not report your accounts to the IRS or was the omission unintentional?

Click here to work with an accountant who specializes in expat taxes

The Streamlined Filing Procedures, on the other hand, are intended for individuals who did not know they were required to file US taxes while living abroad, so they are able to become compliant while also avoiding the vast penalties under the OVDP. If you are several years behind on your taxes and were unaware of the filing requirements, this program is likely the right choice. Expats who use this program have all late-filing and FBAR penalties waived. 

To use the Streamlined Filing Procedures to become compliant, expats are required to include a signed statement (Form 14653) certifying the fact that they did not know about the tax-filing requirements, that they are eligible to use the amnesty program, and that the requisite FBAR forms have also been filed. Also, expats will need to file FBAR for all required years, even if they didn’t meet the $10,000 threshold that triggers the requirement. 

Recently, the IRS unveiled a new amnesty program called the Updated Voluntary Disclosure Program (UVDP). This program is still new, and though the details are being sorted out, the general idea is the same as the OVDP. The new program can be used for domestic or international disclosures, but taxpayers must receive pre-clearance to use this program, and the penalties have increased quite a bit. However, the UVDP offers the same protection from prosecution as did the OVDP, and that protection is not provided to taxpayers who use the Streamlined Filing Procedures. 

As a last resort, taxpayers who do not reach an agreement with the IRS through the updated voluntary disclosure program have the right to use the appeals process through the IRS Office of Appeals. The downside to this option is that it is unclear if those who use the appeals process will still be protected from criminal charges through the disclosure program.

What does the future hold for the amnesty programs?

As of now, there are no indications that any change to the Streamlined Program will happen or that it will end in the near future. But, the amnesty programs that the IRS offers are typically for a limited time, and the fact remains that the program could be close at any time. The closure of the OVDP could signal the IRS’ intent to close the program at some point. For those not in compliance with US tax filings, the best option is to become compliant now to avoid a much more difficult time with the IRS in the future. 

Hopefully, should the Streamlined Filing Procedures ever be terminated, the IRS will also give a significant amount of advance notice – six months or more. Finding all the records needed to file a tax return accurately and to become compliant using Streamlined Filing Procedures can be very difficult, as it requires three years of delinquent Federal Tax Return filings and up to six years of Foreign Bank Account Reporting (FBAR).

What are the other implications?

In 2015, Congress passed the Fixing America’s Surface Transportation Act (the FAST Act), which allows the State Department to deny new passport applications and revoke existing passports in certain situations where the taxpayer is behind on their taxes. 

In a worst-case scenario, the IRS, the Treasury, and the State Department could begin targeting individuals who are behind on their taxes or not reporting foreign bank accounts via FATCA and then deny or revoke their US passport. 

The knock-on impact for US expats could be huge – if your host country Visa is linked to a US passport and that passport gets revoked that could lead to deportation!  

Click here to work with an accountant who specializes in expat taxes

What are the 2019 deadlines?

Taxpayers behind on their reporting should understand the deadlines. 

The US tax deadline and the deadline for FBAR is April 15th (unless Tax Day falls on a weekend or holiday). However, expats living abroad on the due date receive an automatic extension to June 15th for the Federal Tax Returns (June 17th in 2019), and an automatic extension to October 15th for the FBARs. If expats file for an additional extension, the final deadline for the tax returns is October 15th. Keep in mind that interest will accrue on any taxes owed beginning April 15th.

Though those are the deadlines, if you are behind, you are in good company. Many expats who did not realise they were obligated to file are several years late on their tax returns. There’s no reason to panic – simply work with an accountant who specializes in expat taxes, and you will be caught up in no time.

What should expats do?

The government has undergone many changes since the original OVDP was launched in 2009 and the Streamlined Program in 2012. With both programs being revised, this could indicate that the IRS is moving away from a more lenient amnesty phase. 

It's more important than ever to become compliant or truly understand the risks if you don’t. If you plan to take advantage of the amnesty programs, do it before they go away.

What about tax reform?

With the sweeping changes that came with tax reform, many expats are wondering how their taxes will be affected. In fact, a recent survey showed that 54 percent of expats did not know if they would owe more or less tax after the passage of the Tax Cuts and Jobs Act. Further, 58 percent were not confident in their understanding of how tax reform impacts them. Though business owners and expats in specific financial situations have experienced some changes, for the most part, the tax reform left expat taxation alone.

Do you have specific questions about your expat taxes?

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Greenback accountants specialize in expat tax issues and can help you become tax compliant, minus the stress. Get started with Greenback today!

This article was produced by The Local Client Studio and sponsored by Greenback Expat Tax Services.

 

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For members

WORKING IN SWEDEN

CHECKLIST: Here’s what you need to do if you move away from Sweden

What authorities do you need to inform before you leave, are you liable to Swedish tax and how can you access your Swedish pension? Here's a checklist.

CHECKLIST: Here's what you need to do if you move away from Sweden

Tell the relevant authorities if you’re leaving for more than a year

If you’re planning on leaving Sweden for more than a year, you will have to let the authorities know. The main authorities in question are Skatteverket (the Tax Agency) and Försäkringskassan (the Social Insurance Agency).

Försäkringskassan

You have to tell Försäkringskassan when you leave so they can assess whether or not you still qualify for Swedish social insurance. As a general rule, you aren’t eligible for Swedish social insurance if you move away from Sweden, but there are exceptions, such as maternity or paternity benefits if you’re moving to another EU country.

This also applies to any family members who move with you – any over-18’s should send in their own documentation to Försäkingskassan about their move abroad. If you’re moving abroad with anyone under 18, you can include them in your own report to Försäkringskassan.

If both legal guardians are moving abroad together, both need to include any children in their application. If one legal guardian is moving abroad and the other is staying in Sweden, you need the guardian staying in Sweden to co-sign your application. If you are the sole legal guardian of any under-18’s travelling with you, you don’t need any documentation from the other parent.

You can register a move abroad with Försäkringskassan on the Mina sidor service on their website, here (log in with BankID).

Skatteverket

If you are moving abroad for a year or longer, you also need to tell the Tax Agency. This also applies if you were planning on moving abroad for less than a year but ended up staying for longer.

If you move to another Nordic country, you will also need to register your move with that country’s authorities if you will be there for six months or more. You’ll be deregistered from the Swedish population register the same day you become registered in another Nordic country’s register.

This doesn’t mean that you’ll lose your personnummer – you’ll still be able to use it if you ever move back to Sweden – but you will no longer be registered as resident in Sweden.

Similarly to Försäkringskassan, you will also need to report any children you are bringing with you, and both legal guardians must sign the form, whether or not both guardians are moving abroad or not.

In some cases, you may still be liable to pay tax in Sweden even if you live abroad – particularly if you are a Swedish citizen or have lived in Sweden for at least ten years. This could be due to owning or renting out property in Sweden, having family in Sweden, or owning a business in Sweden.

You can tell the tax agency of your plans to move abroad here.

Contact your a-kassa, if relevant

If you are member of a Swedish a-kassa (unemployment insurance), make sure you tell them that you’re leaving the country. As a general rule, you have unemployment insurance in the country you work in, so you will most likely have to cancel your a-kassa subscription.

If you are moving to another country with the a-kassa system, such as Denmark or Finland, it may pay to wait until you have joined a new a-kassa in that country before you cancel your membership in Sweden.

This is due to the fact, in some countries, you only qualify for benefits once you fulfil a membership and employment requirement. In Sweden and Denmark, you must have been a member for 12 months before you qualify. In Finland, the membership requirement is 26 weeks.

If you qualify for a-kassa in Sweden before you leave the country, you may be able to transfer your a-kassa membership period over to your new a-kassa abroad and qualify there straight away, but this usually only applies if your period of a-kassa membership is unbroken.

Check what applies in your new country before you cancel your membership in Sweden – your a-kassa should be able to help you with this.

Contact your union, if relevant

Similarly, if you are a member of a Swedish union or fackförbund, let them know you’re moving abroad.

If you’re moving to another Nordic country, they might be able to point you in the direction of the relevant union in that country, if you want to remain a member of a union in your new country.

If you’re moving to another EU country, you may be able to remain a member of your Swedish union as a foreign worker with the status utlandsvistelse.

If you chose to do this, you will usually pay a lower monthly fee than you do in Sweden, and they can still provide assistance with work related issues – although it may make more sense to join a local union in your field with more knowledge of the labout market.

If you don’t want to be a member of a union in your new country and don’t want to be a member of a Swedish union, you should contact your  union and ask them to cancel your membership.

Collect relevant documents regarding your Swedish pension

If you have worked in Sweden and paid tax for any length of time, you will have paid in to a Swedish pension. You retain this pension wherever you move, but you must apply for it yourself.

To do so, you will need to give details of when you lived and worked in Sweden, as well as providing copies of work contracts, if you have them. If you have these documents before you leave Sweden, make copies so that you can provide them when asked.

If you move to the EU/EES or Switzerland, you may also have the right to other, non-work based pensions, such as guarantee pension for low- or no-income earners, or the income pension complement (inkomstpensionstillägg).

Currently, you can receive your Swedish pension once you turn 62 – although there is a proposal in parliament due to raise pension age to 63 for those born after 1961 from 2023, so this may change.

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