Life for the millions of American citizens living abroad is very different than it is in the U.S. in many ways, including taxation. American citizens living abroad are still obligated to report income and file taxes just like they are when living within the U.S., and in many cases have additional reporting requirements due to the cross-border nature of their income and financial assets. Many people do not understand these complex American tax laws, and many more are not even aware that they exist!
Recently things just got a bit worse for American citizens living abroad. Now the IRS will be able to revoke or deny renewals of the U.S. passports of those who owe back taxes. At Quon and Associates we want to help our clients retain their documents and stay in good standing, so read on to find out more on the story.
Owing back taxes while living abroad
American citizens who do not file their taxes or fail to file them properly can be subject to tax liens on the money owed plus fines and penalties. This passport provision is under Section 32101 of Bill Number H.R. 22 – Fixing America’s Surface Transportation Act, or the “FAST” Act. This bill became Public Law Number 114-94 on December 4, 2015. Those with “seriously delinquent” tax debts (amounts in excess of $50,000 USD or more of unpaid taxes, penalties, and interest) could be at risk of losing their U.S. passport, or not having the ability to apply for a new U.S. passport or renew their U.S. passport. This applies to those who are subject to an IRS lien or a levy.
This law will not apply to those who are in the midst of settling a debt with the IRS, nor to those who are contesting the collection. The U.S. government has said that the law is an effort to clamp down on tax evasion, which has been an ongoing area of focus for many years now, and to raise money for infrastructure.
What can you do?
The best way to avoid any issues is by following the law and filing taxes on time. Although advocates of American citizens living abroad have fought and criticized this legislation, the best advice we can give you is to employ professional and experienced services to ensure that you remain in good standing. We will do everything we can to keep you informed and stay up to date on any new developments in this area.
Living abroad can be exciting, but it does not mean you are free from tax obligations as an American citizen. Knowing how to proceed and having knowledgeable professionals on your side will help avoid potentially disastrous consequences such as losing your U.S. passport. Contact Quon and Associates to ensure that doesn’t happen.