Tax owed & US tax penalties
If the US government considers you a tax resident and you have a very high income, passive income, PFICs, or renounce your citizenship and have been subject to exit tax as a result, you must pay tax to the IRS (in addition to the tax you owe to the local tax authority). These are some of the most common reasons, but unfortunately there are many more.
In general, only 10% to 15% of people living abroad are required by the IRS to pay taxes after filing a return. Most people have already paid higher tax in their home country and only have a declaration obligation.
Failure to Pay penalty
The IRS determines the Failure to Pay Penalty based on the length of time your overdue taxes remain unpaid. Unpaid tax is the total amount of tax that must be shown on your return less amounts paid through withholding, estimated tax payments, and allowed refundable credits.
The Failure to Pay penalty will not exceed 25% of your unpaid taxes.
The IRS calculates the Failure to Pay penalty based on if you:
- Fail to pay amount shown as tax on your return
- Fail to pay the tax you didn’t report on your return
A person who willfully fails to file an FBAR or files an incomplete or incorrect FBAR, may be subject to a civil monetary penalty of $100,000 or 50% of the balance in the account at the time of the violation, whichever is greater.
A person who willfully fails to file an FBAR or who files an incomplete or incorrect FBAR may face a civil monetary penalty of $100,000 or 50% of the account balance at the time of the violation, whichever is greater.
Unfortunately, these ridiculous fines are routinely imposed, even on people who still submit FBAR reports on their own initiative if they discover that they are required. If an amnesty program is available, it can be used to offset potential fines for late filing.
Expats Overseas has a large network of CPAs with the necessary qualifications, experience, and cost-effective services. Contact us for a free and no-obligation discussion of your options.
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