I don’t think you need to panic about penalties, but you do need to get professional help to get all the delinquent tax returns and FBARs sorted out. The IRS are not total dicks in my experience. The scary potential penalties are there to make sure that people know they are serious about this, and of course to cause some serious pain for people deliberately trying to avoid tax.
See here:
Now, since she hasn’t filed tax returns yet either, that doesn’t give complete assurance that there won’t be a penalty. But if she comes forward voluntarily, she has the kind of accounts that an “ordinary” working/middle class person would have - i.e. she’s not shunting large amounts of money around, and she’s not a very wealthy person who really would be expected to know their filing obligations - then I think the probability that they will impose any financial penalty is negligible. They are serious about people being in compliance, but ultimately they are not trying to screw ordinary people with disproportionate penalties.
She’s not able to surrender her American Citizenship until she sorts out her American tax for the last couple of years. Whether that’s “fine” or not is a matter of opinion.
Are you sure about that? It always was an automatic 2 month extension to June 15 and I am unaware that that has changed. Of course, you can always ask for a further extension.
Incidentally, even if you renounce your citizenship (itself an expensive process), you are still required to file tax returns for ten more years. Although I cannot imagine how they could enforce that.
Even if she does drop US citizenship, I believe the IRS still holds her on the hook for taxes. I recall an SD column mentioning this. But maybe she’ll just be a dual citizen?
That’s true. If you dont owe you still have to file. But there’s no penalty for not doing so, unless you are doing so wilfully. But if your income is below a certain limit you dont have to file.
In that case, and others, it was the fact that the defendant was a Tax Protestor, and thus couldn’t claim a good faith misunderstanding of the duty to file a return. If you honestly believe you didn’t have to file and dont owe, you are not penalized.
*In the years 1977, 1978, 1979, and 1980, Mr. Hairston filed returns completed with only the words “object,” “self-incrimination,” or “none.” He filed no returns in 1981 and 1982. He received numerous registered letters from the Internal Revenue Service informing him of his obligation to file a return and the possibility of criminal liability for failure to comply. In the years 1980, 1981, and 1982, Mr. Hairston submitted thirty-one withholding certificates commonly known as “W-4s” on which he claimed to be exempt from withholding requirements.Mr. Hairston’s defense at trial was that he did not file due to a bona fide misunderstanding as to his legal duty to file a return. A good faith misunderstanding of the duty to file a return can negate the willfulness element of a failure-to-file charge. See United States v. Murdock, 290 U.S. 389, 396, 54 S.Ct. 223, 226, 78 L.Ed. 381 (1933); United States v. Ware, 608 F.2d 400, 405 (10th Cir. 1979). The misunderstanding need not have a reasonable basis to provide a defense. See United States v. Phillips, 775 F.2d 262, 264 (10th Cir. 1985). *
What do you mean by “basic tax filing”? You could always get an automatic 6-month extension (until Oct 15) to file your tax return; the change brought the FBAR filing deadline into line with that.
Oh, to answer my own question, I now realize what you mean. If you’re non-resident, you get a first automatic extension to June 15th to both file and pay. But you still get additional the same additional extension as a resident until October 15th to file.
Just curious - I see the exemptions changed for deductions with the recent changes to income and other taxes (i.e. limit how much you can deduct state taxes paid). Does this have any effect on foreign taxes paid as a deduction? Any other implications?
I naturalized as a UK citizen over 15 years ago and other than filling in “place of birth” on a form and showing a birth certificate the UK didn’t much care where I was from or if I’d kept up to date with tax filing.
About 6 years ago I decided to renounce US citizenship because of FATCA. I’d always filed returns but had ignored FBAR so hired a “specialist” to get my ducks in a row. I quote “specialist” because she actually wasn’t very good. The way she recalculated things I ended up owing around $1000 for each of the five years she worked on. I sent off those payments, and a few months later started getting refund cheques back for the amounts I’d paid.
After the renunciation was complete I stopped filing anything except in 2017. I cashed out a pension from when I worked in the US and filed to get most of the pre-deducted tax back. The same day I got that refund back I also got a cheque for $3.13 for a 2011 tax refund. The IRS works in mysterious ways.