Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

US goes easy on late-filing overseas citizens

03 January 2012
Issue: 4335 / Categories: News
No penalties if there is ‘reasonable cause’, pledges IRS

US citizens who live abroad have to file annual income tax returns and reports of foreign bank and financial accounts (FBARs), but many individuals fail to do so, according to American government statistics.

After years of requests, the Internal Revenue Service (IRS) has agreed not to levy fines if there is ‘reasonable cause’ for not sending in all forms on time. The tax authority said that with regard to taxpayers who are trying to comply with the law, ‘penalties will not be imposed in all cases’.

The IRS went on to say, ‘Taxpayers who owe no US tax (e.g. due to the application of the foreign earned income exclusion or foreign tax credits) will owe no failure to file or failure to pay penalties. In addition, no FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause.’

David Treitel of US Tax and Financial Services Ltd said the new rule means ‘every time an FBAR is sent late, the IRS is expecting a letter explaining why penalties should not be charged.

‘This letter is a document that needs extremely detailed and careful drafting. Getting just a few words wrong could truly lead to huge penalties – in some cases even running into the millions of dollars,’ said Mr Treitel.

He added that US citizens living in the UK should ensure every FBAR has been filed for the past six years and, if anything irregular shows up, late reports should be filed as soon as possible, together with a reasonable cause request.

Issue: 4335 / Categories: News
back to top icon