What to Do If You’ve Never Filed a Tax Return

Americans living overseas are required to file a US tax return every year. However, many aren’t aware of this requirement. So what should a US citizen living abroad do if they’ve never filed an expat tax return? While you might have missed the boat if you haven’t filed before, there are ways to get back on track. Here’s what you need to know.

Do Expats Have to File US Taxes?

Yes. US citizens are required to file a US tax return every year, regardless of the following:

• Where they live
• Whether or not they pay taxes to a foreign government
• Whether or not they live in a country that has a tax treaty with the US

Americans working abroad must also report their worldwide income, not just from a US source. (The good news is that because of the many tax credits the IRS provides for Americans living abroad, most expats don’t end up owing any taxes on their US tax bill.)

Expats may also have to file additional tax documents, such as:

• FATCA Report: If you own non-US financial assets valued above certain thresholds, you must file IRS Form 8938: Statement of Specified Foreign Financial Assets, better known as a FATCA report. The specific financial threshold will depend on your filing status and whether you qualify as a bona fide resident of a foreign country.
• FBAR: If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to report it by filing FinCEN Form 114: Report of Foreign Bank and Financial Accounts, also known as the FBAR.

However, many US citizens living abroad have never filed a tax return, let alone a FATCA report or FBAR. This is rarely because of willful defiance, though. Most expats aren’t aware that they have US tax obligations. After all, the US is the only developed country in the world that requires its citizens to file taxes while living abroad.

Still, ignorance isn’t ultimately a valid excuse for failing to file a tax return. If the IRS discovers that you aren’t fulfilling your tax obligations, they could levy fines against you.

Will the IRS Know If I Haven’t Filed My Expat Taxes?

Yes. Virtually all foreign banks and financial firms provide the IRS with information about any US citizens who hold accounts at their institutions. Most foreign governments have also agreed to share tax information about US citizens living in their countries.

In most cases, the IRS will learn whether you are required to file a tax return—and whether you have complied. We strongly recommend that every US citizen living abroad who has never filed US taxes take steps to become compliant as quickly as possible.

What Are the Penalties for Not Filing a Tax Return?

If you fail to file or pay your taxes, there are severe fines in store. Let’s take a look at what penalties may be faced by US citizens living abroad who have never filed a US tax return. 

Failure to File

If you fail to file a tax return but do not owe any tax debt, you will likely not face any penalties. However, you should still file your delinquent returns as soon as you can. (You can even claim any refunds you’re owed for up to three years after the deadline.)

If you fail to file and do owe taxes, you will begin accruing interest on the unpaid tax immediately after the deadline. Beyond this, you may also be subject to a penalty of 5% of the unpaid tax for every month past the deadline, up to 25% of the total unpaid tax. If more than 60 days have passed since the deadline, the minimum amount is $450.

Failure to Pay

If you file a tax return but fail to pay the full amount of taxes you owe, you will also incur penalties. Once again, interest will begin accruing immediately. The additional penalty is 5% of the unpaid tax per month, up to a maximum of 25% of the total.

As you can see, the penalties for failing to pay are much lower than the penalties for failing to file. Because of this, it’s always best to file your tax return by the proper deadline, even if you can’t pay your entire tax debt. Then, you may be able to set up a payment plan to pay off your debt through installments over time.

What Should a US Citizen Living Abroad Do If They’ve Never Filed a US Tax Return?

If you haven’t filed a US tax return because you weren’t aware it was required, don’t panic. The IRS offers an amnesty program that may be able to help some expats come into compliance without facing any penalties. It’s called the Streamlined Filing Compliance Procedures. To use this program, you’ll have to:

• Self-certify that your failure to file was the result of ignorance, not willful refusal
• File your last three delinquent income tax returns and pay any taxes you owe (with interest)
• File FBARs for the last six years

This will bring you into compliance with the IRS and potentially allow you to claim any refunds you’re owed. You may even be able to claim the Foreign Tax Credit or Foreign Earned Income Exclusion to offset or erase your tax debt.

Never Filed a Return? Get Expert Help with Your Expat Taxes

We hope this guide has helped you understand the options for US citizens who have never filed a tax return.

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.