My wife of six years is American. We live in the UK.
She’s looking to acquire British citizenship this year, but we hit a snag of a kind?
Basically a few years back she did her taxes (because Americans for some reason have to make tax returns even if they don’t live in the US, weird).
Anyway, we did forms for a number of years in one go, and calculated she earns too little over here to owe any tax at all to the US treasury.
We thought we’d sent them via email, but turns out she’d forgotten to do it.
What does this mean for her citizenship application in the UK? Will they block her, even though she owes no tax?
What about the IRS? A quick browse suggests there’s a fine of a portion of the tax she owes, but as that’s zero, does that mean she’s fine?
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If you do not owe any tax because of the Foreign Earned Income Exclusion or because of credits for taxes paid to foreign countries, you have to file a return to actually claim the FEIE or credit. If you do not file the return, the IRS has no way of knowing you might be entitled to it and will presume you are not.
Also, remember if your wife has any bank or financial accounts outside the US, she may be required to file an FBAR report. The IRS may assess a penalty of up to 50% of the account balance for failure to report. This is not just accounts she personally owns. This includes any accounts over which she has “signature authority.” That includes any of your accounts or her employer’s accounts that she is allowed to withdraw from. This is probably the most onerous requirement for Americans living abroad.
you may think it’s weird…but it’s a cold,hard fact you have to live with. As an American citizen living overseas, your wife has to file TWO sets of tax forms every year, for the rest of her life.
One set of forms is the standard 1040 income tax form that all Americans file (either on paper, or online. (deadline is June 30 every year,though delayed extensions are allowed)
The other set is the FBAR form, which Americans living overseas must file(online only.The deadline is April 30, with no exceptions allowed.)
Even if she owes zero taxes,she has to file the 1040 with the IRS and inform them of that.
The FBAR form is a list of every single bank account that she has her signature on–including your accounts in the UK. This form goes to the FBI, so they can look for money laundering.
Your wife is technically now a criminal, for not filing properly. In reality, nothing bad will happen–probably.
There are procedures for filing the forms backwards for the previous couple of years. But you need professional help to sort out your specific situation.
You need a professional tax accountant with LOTS of experience with the IRS procedures. This is NOT a trivial issue, and NOT something you can afford to delay!
The potential for penalties to accumulate is serious.
As for how it affects UK citizenship, I have no idea.
No, if you don’t owe, you dont have to file. It’s good if you do file, because if you do file the iRS has three years to audit that return, but unlimited time if you don’t. And if you are self employed they can impute reasonable earnings you might have made.
Of course then, no the wife is not a criminal.
This is a fairly trivial issue, but sure, get a Enrolled Agent to handle it, it shoudl cost a few hundred dollars.
Penalties are based on how much you owe, so if you owe zero, 25% of zero is…
Not true. If you have a certain amount of income, as specified in the law, you are required to file a tax return whether or not you owe any tax. Owing tax is not an element of the crime under 26 USC Sec 7203.
Take the case of Richard P Hairston, who was charged with three counts of wilful failure to under 26 USC 7203. His lawyer wanted to present evidence that he did not owe any tax and would indeed have received a refund if he had filed. The trial court judge refused to admit this evidence because it was irrelevant under the law. He was convicted. The conviction was appealed to the 10th Circuit, which said:
Actually, an individual cannot directly efile a tax return with the IRS (unless he has gone to the trouble of being qualified as an Authorized eFile Provider). It may seem to you the when you press the “efile” button in TurboTax that you are sending your return to the IRS, but you are not. You are actually sending it to Intuit (the maker of TurboTax) which then does some verification and formats it in the efile format and then transmits it to the IRS. Intuit is the Authorized eFile Provider.
Not entirely true, but they need to know to be expecting it. If you just send it in unsolicited, well, I don’t know how that would work, but I doubt they’d take it without question.
As to the OP, the best thing you can do is call the help desk (when the shutdown is over, of course). Talk to an IRS agent and explain your problem. If there are no back taxes involved, I would guess that they would be very accomodating to clearing the account up and removing any citizenship blockages they might be imposing.
Seriously, for most people the IRS is much easier to get along with than the TV shows would have you believe. They only get nasty if there is a conscious effort to dodge a tax bill. A good faith effort will make things much, much smoother.
As to FBAR filings… there are some limits. She needs to file if the financial accounts (not just bank accounts, investment accounts count too) she has signature authority over hold in the aggregate more than US$10,000 at any time in the financial year. If she was below the limit at all times during the year she was not required to file FBAR.
As others noted the issue is not whether the funds are hers. The requirement to file FBAR is triggered if she has signatory authority over the funds. That could be her signature on an employer’s business account or perhaps her holding signatory authority over accounts of an elderly person.
The FBAR filing requirement has caused some family spats when an American daughter-in-law finds her French father-in-law doesn’t want his account details shared with the IRS.
In addition to FBAR filings there are FATCA filings that may be required if her overseas assets are $50,000 or higher in aggregate.
You have to file unless your gross income is below a certain amount, which I have forgotten. I’ve been doing it for 50 years, although I never owed a cent of taxes. A real PITA. On the other hand, it is inconceivable to me that the UK citizenship authorities will give two hoots about her IRS filings.
Your potential problem with the IRS will have absolutely no bearing on the process of naturalizing to the UK. You may theoretically owe large Civil penalties for failure to report certain information, but owing Civil penalties is not a crime, and the UK won’t care.
I did not file for years in Japan because I was below the exemption, but when I got over the exemption then I talked to a tax preparer. We filed about three years and the IRS never said anything.
Technically, if you are below the exemption, they can disallow that if you don’t file on but if you are paying a similar tax rate in the country of residence then it probably doesn’t matter because you get tax credit for paying foreign taxes. Only places such as Hong Kong which have really low tax rates are really affected.
No, if – IF – you are living abroad, then yes, you must file even if you don’t owe anything. I lived for decades in Thailand, and it was required. I would have had to have made over $80,000 a year as a foreign resident in order to owe, so I never owed anything. BUT I HAD TO FILE. The rules are different for Americans living abroad.
The OP should check with a tax attorney. The US embassy in London will have a list. Usually you can file retroactively without too much trouble. I’ve known lots of people who have had to do that and can’t recall anyone who got into trouble for coming forward.
One slight correction to the above. If you made less than $5000 for the year while living abroad, then you did not have to file. (That figure may have gone up. That was the figure for 1994, my first year back in Thailand, and I never checked into what it was after that.) But above $5000, you had to file, I guess just to show we’re not making $80,000+.
By the by, I am no longer a tax professional, and I am definitely not your tax professional.
I’ve lived in Australia for quite some years. I once worked for H&R Block, and I took and passed every course they had on individual income tax, in case you’re wondering about my bona fides. My knowledge is out of date, largely, but I do remember where to look for answers.
Thanks for the responses everyone, I agree she needs to find a tax expert and file. I think she’s terrified of getting into trouble so has procrastinated somewhat.
Regarding the FBAR form, it’s likely she did have enough savings over the threshold in her personal savings account to require it. Does anyone know what penalty that might face? A percentage of savings over $10,000 is skimmed off or something?
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I think a tax preparer can set her mind at ease. And it’s not like they’re going to be on the horn to the IRS the moment she walks out their office door, saying, “We found another one for you!” The IRS basically wants to make sure you’re not making millions. If you really don’t owe anything, it’s generally not worth taking any action against you, especially not if you’re the one initiating this.
I remember an American expat named Harry Rolnick who lived in Bangkok for years, then in Hong Kong. He used to have a column called “Letter from Bangkok” that came out once a fortnight, IIRC. Then of course, the name changed to “Letter from Hong Kong.” After something like 20 or 30 years abroad, it changed to “Letter from New York,” as he finally returned to his hometown. He said he had blown off filing during all his time away but started getting antsy when he returned that it might catch up with him. So he got all his records together and with the help of an accountant backfiled for the entire time period. I’m talking decades, literally. Then he waited, and waited, and waited. Didn’t hear anything. Nervous, he called the IRS and asked if his case was being reviewed. The lady he was speaking with put him on hold, and when she came back, to his relief she said, in a slightly annoyed tone: “You don’t owe anything. Why are you calling?”