The U.S. is the only country that taxes its citizens on their worldwide income, no matter where they live and regardless of how long they have been overseas. Well, actually the U.S. is almost the only country. Eritrea has what is known as a “diaspora tax” on its citizens.
Changing tax professionals is a big decision; one that certainly shouldn’t be taken lightly, especially if you are a U.S. resident or taxpayer that lives and works overseas. Nevertheless, many taxpayers are relatively nonchalant about changing to a new professional when they are genuinely dissatisfied. Many of us have had conversations with friends about sub-par service from a professional (whether tax or in other personal service areas) and when asked the question “why don’t you just change professionals”, we’ve all heard the response “well, I’ve been with Fred for years”
U.S. taxpayers are taxed on their worldwide income. Nevertheless, if you are a U.S. taxpayer who earned income while abroad during the tax year, special taxation rules apply in order for you to avoid double taxation (by both the U.S. and the foreign government). In many cases you may owe the IRS nothing for this income. Nevertheless, your income tax filing requirements are the same as for U.S. taxpayers who earned no income abroad.
This code section stipulates that the IRS has 10 years from the time tax is assessed to collect it. If they are unable to collect those amounts within 10 years, through whatever means they have available – such as garnishing your wages, placing a levy on your bank accounts, or a lien on your assets – the balance would be erased.
Why isn’t the IRS isn’t more understanding of the complex regulations they have set forth for Americans living and/or investing abroad and why isn’t there better information provided to understand compliance and reporting requirements? Expats are in a sense forced to fall out of compliance, as the time requirement to educate themselves and keep up with the changing regulations is too much of a burden, and often too complex to understand even if you have the time needed to attempt self study
A recent study conducted by the Treasury Inspector General for Tax Administration (TIGTA) indicates that a large number of taxpayers living abroad are calculating incorrectly one of the most important elements of their tax return: The foreign earned income exclusion.