Coming Clean with the IRS

Post Reply
Helen Back
Posts: 242
Joined: Fri Dec 28, 2012 4:16 pm

Coming Clean with the IRS

Post by Helen Back »

I have a friend from the US who has been overseas for 10 years plus and hasn't filed taxes for about seven of those. He is a teacher at a mid-level school and his salary has never come close to exceeding the overseas tax exemption threshold (what is is, about $105,000 or so). The possible sticking point is, he spends six weeks in the US every summer. From what I've read, to qualify for the tax exemption he has to have been out of the country for more than 330 days a year, which he has not (generally he's there for six weeks.

He would like to get his taxes straightened out and I believe there is some kind of IRS forgiveness program. I realise this is a case for an accountant, but I was wondering if anyone has personal experience of this, particularly those who have spent more 35 days in the US in the summer.

Thanks in advance.
wrldtrvlr123
Posts: 1173
Joined: Sat Feb 06, 2010 10:59 am
Location: Japan

Re: Coming Clean with the IRS

Post by wrldtrvlr123 »

Far from an expert but did file taxes using the exemption for many years. There is also a bono fide residence test that gives more weight to establishing residence, tax base, etc. in the foreign country for an entire tax year, as opposed to physical presence in the foreign country. We used the bon fide test with no problems when there were years we spent more time in the states. If your friend does/did not work in the US during those years, they should still be able to use the exclusion (but obviously should talk to an accountant). Even if they did work, they still could have a case.

On another note, when we owned a business in the states we ran into occasional issues with the IRS and generally found them to be fairly reasonable and willing to work with you when you were forthcoming and attempting to clear up deficiencies and delinquencies. It's worth it for your friend to try and get things cleaned up (IMHO).
Overhere
Posts: 497
Joined: Wed Dec 05, 2007 3:29 am

Re: Coming Clean with the IRS

Post by Overhere »

My experience says just to start filing. I moved out of the United States in the '80s and didn't file again for 20+ years when I knew I wanted to buy a house in the US in the near future. Thirteen years later I have dutifully filed every year and not drawn any undo attention.
PsyGuy
Posts: 10789
Joined: Wed Oct 12, 2011 9:51 am
Location: Northern Europe

Response

Post by PsyGuy »

I wouldnt bother until and when they relocate back to the US, but if they were going to do it, its not a big deal and i would concur with @Overhere, forget the accountant (why pay the coin) and file back returns. Concur with @WT123, you can use the presence or residency test, and as they have indeed been out of country and an expat for a decade, they can use the residency test which makes the summer holiday in the states moot. The IRS cares about collecting revenue, if there are no taxes owed they dont care.
gzmike
Posts: 9
Joined: Sun Jun 10, 2018 11:48 pm

Re: Coming Clean with the IRS

Post by gzmike »

I didn't file taxes for my first 5 years in China and then filed them all at once in the 6th year, and then each year until now (9th year), and had no problems. You don't need to waste money on an accountant, who will probably charge over $1000 for a few years of returns and FBAR's. You will need to mail it in, so forget about e-filing (I use DHL since I don't trust regular mail in China). If you really can't figure it out, just ask other American teachers at your school and there is probably at least one who can help you, which will probably be a math, science, or economics teacher (I have helped other teachers at my school fill out their taxes and never accept money for it, but instead let them do my night study or other duties). Just follow the others' advice here and use the Bonafide Residency. There is no penalty for filing late (since it is based on how much you owe which will be $0), but if the IRS audits you before you file, then you could lose the 2555 deduction. So better to catch up now so you don't have to worry about it.

And one more important thing to mention: if you always keep your foreign account balance under $10,000 USD, then you don't have to worry about an FBAR. That is what I do, even if I have to withdraw cash right before I get paid which is what I used to do when I knew my account balance would go too high (before I had a Chinese wife - now I just transfer excess money to her account, and she transfers some of that directly to my US bank account since it a pain for foreigners to transfer their money out of China).
Briz
Posts: 150
Joined: Sun Oct 27, 2013 5:36 am

Re: Coming Clean with the IRS

Post by Briz »

It is not a waste of money to get an accountant. Typically you only need to file back 3 years, and your return will usually pay for the cost of the accountant. If you have a wife or kids it is even better. You are throwing away 1000 usd a year by not filing!
sid
Posts: 1392
Joined: Sat Dec 02, 2006 11:44 am

Re: Coming Clean with the IRS

Post by sid »

There are tax advisors who specialize in expats, and even in expat teachers. For a simple return, it's usually a low fee, just a few hundred US. I went it alone for many years, and as it turned out, for too many years. By the time I turned to a professional, my situation had progressed from young and poor to older and with assets, and I had missed out on several ways to reduce my tax bill. My advisor re-filed for me, going back three years, and got refunds for me that left me with a tidy pile after I'd paid his fee. I could pay his fee for a decade or more just on what he saved me in the first year.
So if you have assets, investments, property... I definitely recommend hiring a professional. Find an expat specialist.
If you don't have any of that, you could try going it alone, but it might be well worth your peace of mind to pay a few hundred dollars for some professional advice.
Post Reply