This article has been written exclusively for Expat Network by Greenback Expat Tax Services
For expats, the stakes of tax compliance have been raised significantly this year. Tax non-compliance used to be an inconvenient and risky state, but recently, the IRS tightened the reins considerably. Expats who owe more than $52,000 in taxes – including penalties and interest – could have their passports revoked. And as expats know quite well, the loss of their passport doesn’t merely add difficulty to a holiday abroad. Expats’ passports are their lifelines. Fortunately, getting caught up doesn’t have to be a complicated, expensive nightmare. If you become compliant before the IRS contacts you, it can be simple and straightforward.
The October Deadline Is Quickly Approaching
October 15 is the tax deadline for expats who requested extensions by the June 15 deadline. April 15 is still technically the deadline for paying taxes, meaning interest starts accruing on any tax owed as of April 15 – extension or not. Expats are granted an automatic two-month extension until June 15 due to their more complicated tax-filing process. If more time is necessary, they can file for an extension to October 15 by using Form 4868.
But, what about expats who need a bit more time? The expats who filed Form 4868 by June 15 and were granted the extension until October 15 do have the option of requesting another two-month extension until December 15. However, the December extension requires a letter to the IRS detailing the reasons that your circumstances are extenuating. It’s up to the IRS’ discretion if they agree to grant you the final extension; only those denied the extension will be contacted. If the IRS declines, you could be charged more penalties and fees.
This year, more than most, the best idea is to get caught up by the October deadline. That’s because recent changes in IRS protocol have put expats’ passports at risk if they owe more than $52,000 in taxes. With all the additional reporting requirements expats experience, racking up that much in tax debt is not unheard of.
How the Passport Revocation Process Works
When someone’s tax debt exceeds $52,000, the IRS will let the State Department know that the threshold of “seriously delinquent tax debt” has been met. The State Department would then deny the passport application or send a notice to the taxpayer that their existing passport is at risk. The taxpayer then has 30 days to either settle the debt with the IRS or to qualify for a payment plan with the IRS. If neither of those criteria is met, the passport will be revoked.
As CNBC reported, the passport invalidation initially only applied toward new passports or passports being renewed. The IRS is upping their efforts, and now, currently valid passports will be revoked due to tax debt. Expats will bear the brunt of this development in IRS protocol. So far, the IRS has notified over 400,000 taxpayers that their passports are at risk for revocation.
Thankfully, some exceptions apply to this rule. Those who are victims of identity theft, in bankruptcy, have qualifying financial hardships, reside in a federal disaster area, or other mitigating situations will be spared from passport revocation.
What to Do If Your Passport Is At Risk
If the IRS has notified you that your passport is at risk, you’ll need to settle your debt or work out a payment plan as soon as possible. Reissuing a passport takes time, and the sooner you get back into compliance, the less chance there is of experiencing the harmful effects of not having a valid American passport.
If the IRS has not yet notified you that your passport is at risk, coming forward and getting compliant as soon as possible is the best option. The penalties and fees for expats who have failed to file can quickly top $52,000, even for those in somewhat simple tax situations. For example, expats with more than $10,000 in aggregate in foreign bank accounts are required to file FBARs (Foreign Bank Account Reports) annually. Those who were unaware of the FBAR filing requirement may receive fines of $10,000 per violation. If the IRS deems that you purposefully avoided filing, the fine can be $100,000 or 50% of the balance of the account at the time of the violation – whichever is greater. FBAR is just one of the many possible filing requirements expats face. Expats who own companies, foreign trusts, or foreign assets may be on the hook for several more forms and several more penalties if they’ve failed to file those forms.
For expats who were unaware of the persisting requirement to file annual Federal Tax Returns (even for those who don’t owe taxes!), IRS amnesty programs are still available. But these programs are only available to those who come forward before being contacted by the IRS for non-compliance.
The Streamlined Filing Procedures are an amnesty program that offers expats who are years behind on taxes the opportunity to get caught up penalty-free. To use these filing procedures, you must file three Federal Tax Returns as well as six FBARs. If you are only one year behind on taxes (and therefore cannot use the Streamlined Filing Procedures), your best option is still to become compliant as soon as possible.
If you have questions about your specific situation, it’s best to speak with a professional expat tax consultant that you trust. A passport is something that most expats cannot afford to lose.