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Personal Tax -> US Citizens or Dual Citizens Residing Outside the US

US Citizens or Dual Citizens Residing Outside the US

All persons born in the US are US citizens.  A person born outside the US may also be a US citizen at birth if at least one parent is a US citizen and has lived in the US for a period of time.

Anyone who is a citizen of the United States, even if they have never lived in the US, must file a federal income tax return for any year in which their gross income from worldwide sources is equal to or greater than the applicable exemption amount and standard deduction.  See IRS Publication 54 Filing Requirements for these income levels.

Also, US citizens may be required to report their interest in certain foreign financial accounts - see Report of Foreign Bank and Financial Accounts (FBAR) on the IRS website.

Who must file an FBAR?

The Foreign Account Tax Compliance Act (FATCA) is designed to improve tax compliance involving foreign financial assets and offshore accounts.

A Report of Foreign Bank And Financial Accounts (FBAR) must be filed by any US person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.  The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold.  Any extension granted by the IRS for filing of the Federal income tax return does not extend the due date for filing an FBAR.

A "US person" includes a citizen or resident of the US, a domestic partnership, a domestic corporation, and a domestic estate or trust.

An example given in the FBAR Frequently Asked Questions, which is no longer available, indicated that a US resident with power of attorney on his elderly parents' accounts in Canada would be required to file an FBAR, even if the resident never exercised the power of attorney.

Unfortunately, there are many people residing outside of the United States who do not realize these filing requirements.  Some people may not even realize they are US citizens.  The Internal Revenue Service (IRS) is being very aggressive about tracking down US citizens who have failed to file tax returns.

On June 26, 2012, the IRS announced efforts to help US citizens residing outside the US, including dual citizens and those with foreign retirement plans, such as Registered Retirement Savings Plans in Canada.  They will provide a new option to allow people to catch up with their tax filing obligations if they owe little or no back taxes.  The new procedure will go into effect on September 1, 2012.  This option is available for people who generally have simple tax returns, and owe $1,500 or less in tax for any of the covered years.

Under this procedure, tax returns must be filed for the past 3 years, and delinquent FBARs must be filed for the past 6 years.


Offshore Voluntary Disclosure Program (OVDP)

The OVDP is closing.  The deadline for submissions is September 28, 2018.  See the IRS Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers.  See also this article by Terence Wong, CPA, CA, CPA (Illinois) of Kingston Ross Pasnak LLP on what this means, in particular for US citizens residing in Canada.

The OVDP offers those who are delinquent in their US tax filing requirements to get current with these requirements.  The OVDP is not for taxpayers who have reported, and paid tax on, all their taxable income for prior years, but did not file FBARs.  These taxpayers should see the "New Filing Compliance Procedures" above.

On June 18,2014, the IRS announced major changes in its offshore voluntary compliance programs, which help taxpayers to come into compliance by easing the burden of doing so.  More U.S. taxpayers living outside the country can now take advantage of the OVDP, and it is now also available to some U.S. taxpayers living in the U.S.  The requirement that the taxpayer have $1,500 or less of unpaid tax per year has been eliminated.  All penalties will be waived for eligible U.S. taxpayers residing outside the United States.  Eligible taxpayers living in the U.S. will only have a penalty of 5% of the foreign financial assets that gave rise to the tax compliance issue.

Beginning August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50% penalty under certain circumstances if the government is already investigating that foreign financial institution where the account is held.  See 7.2 in the OVDP Frequently Asked Questions (link below).

See 2012 Offshore Voluntary Disclosure Program (revised) and OVDP Frequently Asked Questions (effective for OVDP submissions made on or after July 1, 2014) on the IRS website.

It has always been known that the IRS could decide to end the program entirely at any time.

IRS Resources:

    - Taxpayers Living Abroad

    - U.S. Taxpayers Residing Outside the United States

    - Streamlined Filing Compliance Procedures

Revised: July 10, 2020


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