ACA American Citizens Abroad

The IRS Cracks Down.
Most Americans filing a US tax return know that interest and dividends are reported on Schedule B.  You may even be aware of a little box at the bottom of the page that asks if you have an interest in a foreign account in a foreign country.  But you may not know just how important it is to understand the rules surrounding this little box and the HUGE potential for penalties if the rules are not followed.

For most Americans, tax season is a distant memory—usually of feverish activity in April followed by a welcome refund check some weeks later.  However, for Americans overseas, US taxes occupy either a much larger place in their lives—or no place at all.  That is to say, some are very aware of the impact of US income tax on their “bottom line” take- home income and spend considerable effort trying to reduce that impact—and some Americans overseas are gloriously unaware of the need to file US returns and happily go about their business with nary a thought of filing deadlines or other complexities related to US taxes.

No major changes have occurred in the tax law for 2008 as regards Americans overseas, but the IRS is taking a more active role is seeking compliance with filing requirements so it is important to continue to file and report foreign income on a timely basis.

Several years ago, Americans overseas were shocked to find that the rules regarding U.S.taxation of their foreign income had changed overnight. Thanks to a last-minute addition by Senator Grassley (R-Iowa) to the Tax Increase Prevention Act of 2005, much of the benefit of the housing exclusion had been eliminated and the marginal rate for taxation of foreign income had increased substantially.