US Citizens, regardless of where they live, are required to file annual federal income tax returns reporting worldwide income.
Many U.S. citizens living abroad are still not aware of this requirement, or mistakenly presume that because they live outside the United States, they are not subject to this filing requirement. However, since the enactment of the Foreign Account Tax Compliance Act of 2009 (FATCA), demanding foreign banks to cooperate with the IRS, the world is undergoing a very dramatic change in the level of enforcement of tax laws.
FATCA is producing results, many banks around the world are in the process of implementing FATCA procedures, identifying their U.S. account holders, having them sign Form W-9, reaching agreements of cooperation with the IRS, and integrating into their systems procedures to keep track of their U.S. resident account holders, income, which will all ultimately be reported to the IRS. This is all consistent with the IRS objective of getting information to enable the enforcement of the U.S. Tax laws.
The requirement of U.S. citizens and residents to file annual tax returns reporting worldwide income is not new, it's been here for many years. What's new is the determination to enforce the laws, and the distance the U.S. is willing to go to make it happen. The fact is that globalization, and technology have made and still making our world a smaller and smaller place, making it easier for the tax authorities to implement such laws.
When the U.S. announced its intention to implement FATCA it seemed almost unbelievable, even to tax experts in the U.S., but today not only is FATCA being implemented but also more than 50 other countries are in the process of reaching agreements with the U.S. for mutual agreements of sharing information about their taxpayers banking information. This is probably one of the unique developments of the our world under the economic crises of this age. Governments around the world are catching up with the globalization of their taxpayers utilizing technology.
What does a U.S resident need to report?
A U.S. citizen is required to report worldwide income from all sources, including wages, business income, rent income, interest and dividend income, royalties, gains from sale of assets, and any other income from whatever source.
Also, there are numerous information reporting requirements related to foreign income and assets held by U.S. citizens, including reporting of foreign financial assets (e.g. bank accounts, securities accounts, pensions, etc.), holdings in foreign corporations, and partnerships and/or foreign businesses. The reporting requirements related to such foreign income and assets is very detail oriented. The penalties for failure to report such income are very significant.
What is the due date for filing the reports?
The due date for filing a federal income tax return in the U.S. is generally April 15th following the end of the tax years. For taxpayers living abroad, generally there is an automatic extension of the due date to June 15th. Additional extension may be requested.
The due date for filing Foreign Bank Account Reports (FBARs) is June 30th following the end of the reported tax year.