By Hans Esser, for ExpatBriefing.com 14 June, 2018
The United States Internal Revenue Service has summarized the reporting and filing requirements for taxpayers living and working abroad, with the June 15, 2018, deadline for 2017 federal income tax returns now approaching.
The IRS said that the special June 15 deadline is available to both US citizens and resident aliens abroad, including those with dual citizenship. An extension of time is available for those who cannot meet it.
The agency explained: “An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate US tax liability. These tax benefits are only available if an eligible taxpayer files a US income tax return.”
“A taxpayer qualifies for the special June 15 filing deadline if both their tax home and abode are outside the United States and Puerto Rico. Those serving in the military outside the US and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. Be sure to attach a statement indicating which of these two situations applies.”
“Interest, currently at the rate of five percent per year, compounded daily, still applies to any tax payment received after the original April 18 deadline.”
Taxpayers struggling to meet the June 15 deadline may request an automatic extension until October 15, 2018. However, the extension request must be filed by June 15 and taxpayers must still pay any tax owned by June 15.
Federal law also requires US citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, US citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds, the IRS said.
Separate from reporting foreign financial accounts on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded USD10,000 at any time during 2017 must file electronically with the Treasury Department and the Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
The FBAR deadline is now the same as for a federal income tax return. Those that did not file by the previous deadline, which had been April 18 2018, were granted an automatic extension until October 15, 2018.
Taxpayers who relinquished their US citizenship or ceased to be lawful permanent residents of the United States during 2017 must file a dual-status alien tax return attaching an Initial and Annual Expatriation Statement.
Last, the IRS said that it is offering penalty and filing relief to many of those subject to the new transition tax on foreign earnings. The transition tax is a key part of the recently implemented tax reform legislation, the Tax Cuts and Jobs Act (TCJA), applying to the untaxed foreign earnings of foreign subsidiaries of US companies. Prior to the enactment of the TCJA, US tax on the income of a foreign corporation could be deferred until the income was distributed as a dividend or otherwise repatriated by the foreign corporation to its US shareholders.
The transition tax in Section 965 of the Internal Revenue Code seeks to regularize these holdings as part of the switch from a tax system with a worldwide corporate tax basis towards a territorial tax basis system, with a concessionary tax rate for newly repatriated income. The transition tax generally may be paid in installments over an eight-year period.
On June 4, the IRS announced that it will waive certain late-payment penalties relating to the new transition tax, and provide additional information for individuals subject to the tax regarding the due date for relevant elections.