What’s next for Americans who are behind on their taxes?

Behind on your taxes? Here’s how you can get caught up.

What's next for Americans who are behind on their taxes?

Many Americans who live abroad don’t realise that retaining their American citizenship means retaining their tax-filing responsibility – forever. The IRS offers various amnesty programs to help unwitting taxpayers become tax compliant without getting ensnared in penalties and charges that apply to those evading taxes with criminal intent. However, last year, the IRS terminated the OVDP (Offshore Voluntary Disclosure Program). So, many expats have been left wondering which programs they can still take advantage of, and how long those programs will be available.

What are the amnesty programs, and why were they initiated?

The two main options for expats who were behind on their taxes were the Streamlined Filing Procedures and the OVDP. The OVDP was designed for individuals who were intentionally hiding assets overseas and not reporting them to the IRS; the intent being to give them a way to come into compliance, pay some stiff penalties, but avoid criminal prosecution. 

The main difference between the OVDP and the Streamlined Filing Program was based on intent. Did you intend to hide or not report your accounts to the IRS or was the omission unintentional?

Click here to work with an accountant who specializes in expat taxes

The Streamlined Filing Procedures, on the other hand, are intended for individuals who did not know they were required to file US taxes while living abroad, so they are able to become compliant while also avoiding the vast penalties under the OVDP. If you are several years behind on your taxes and were unaware of the filing requirements, this program is likely the right choice. Expats who use this program have all late-filing and FBAR penalties waived. 

To use the Streamlined Filing Procedures to become compliant, expats are required to include a signed statement (Form 14653) certifying the fact that they did not know about the tax-filing requirements, that they are eligible to use the amnesty program, and that the requisite FBAR forms have also been filed. Also, expats will need to file FBAR for all required years, even if they didn’t meet the $10,000 threshold that triggers the requirement. 

Recently, the IRS unveiled a new amnesty program called the Updated Voluntary Disclosure Program (UVDP). This program is still new, and though the details are being sorted out, the general idea is the same as the OVDP. The new program can be used for domestic or international disclosures, but taxpayers must receive pre-clearance to use this program, and the penalties have increased quite a bit. However, the UVDP offers the same protection from prosecution as did the OVDP, and that protection is not provided to taxpayers who use the Streamlined Filing Procedures. 

As a last resort, taxpayers who do not reach an agreement with the IRS through the updated voluntary disclosure program have the right to use the appeals process through the IRS Office of Appeals. The downside to this option is that it is unclear if those who use the appeals process will still be protected from criminal charges through the disclosure program.

What does the future hold for the amnesty programs?

As of now, there are no indications that any change to the Streamlined Program will happen or that it will end in the near future. But, the amnesty programs that the IRS offers are typically for a limited time, and the fact remains that the program could be close at any time. The closure of the OVDP could signal the IRS’ intent to close the program at some point. For those not in compliance with US tax filings, the best option is to become compliant now to avoid a much more difficult time with the IRS in the future. 

Hopefully, should the Streamlined Filing Procedures ever be terminated, the IRS will also give a significant amount of advance notice – six months or more. Finding all the records needed to file a tax return accurately and to become compliant using Streamlined Filing Procedures can be very difficult, as it requires three years of delinquent Federal Tax Return filings and up to six years of Foreign Bank Account Reporting (FBAR).

What are the other implications?

In 2015, Congress passed the Fixing America’s Surface Transportation Act (the FAST Act), which allows the State Department to deny new passport applications and revoke existing passports in certain situations where the taxpayer is behind on their taxes. 

In a worst-case scenario, the IRS, the Treasury, and the State Department could begin targeting individuals who are behind on their taxes or not reporting foreign bank accounts via FATCA and then deny or revoke their US passport. 

The knock-on impact for US expats could be huge – if your host country Visa is linked to a US passport and that passport gets revoked that could lead to deportation!  

Click here to work with an accountant who specializes in expat taxes

What are the 2019 deadlines?

Taxpayers behind on their reporting should understand the deadlines. 

The US tax deadline and the deadline for FBAR is April 15th (unless Tax Day falls on a weekend or holiday). However, expats living abroad on the due date receive an automatic extension to June 15th for the Federal Tax Returns (June 17th in 2019), and an automatic extension to October 15th for the FBARs. If expats file for an additional extension, the final deadline for the tax returns is October 15th. Keep in mind that interest will accrue on any taxes owed beginning April 15th.

Though those are the deadlines, if you are behind, you are in good company. Many expats who did not realise they were obligated to file are several years late on their tax returns. There’s no reason to panic – simply work with an accountant who specializes in expat taxes, and you will be caught up in no time.

What should expats do?

The government has undergone many changes since the original OVDP was launched in 2009 and the Streamlined Program in 2012. With both programs being revised, this could indicate that the IRS is moving away from a more lenient amnesty phase. 

It's more important than ever to become compliant or truly understand the risks if you don’t. If you plan to take advantage of the amnesty programs, do it before they go away.

What about tax reform?

With the sweeping changes that came with tax reform, many expats are wondering how their taxes will be affected. In fact, a recent survey showed that 54 percent of expats did not know if they would owe more or less tax after the passage of the Tax Cuts and Jobs Act. Further, 58 percent were not confident in their understanding of how tax reform impacts them. Though business owners and expats in specific financial situations have experienced some changes, for the most part, the tax reform left expat taxation alone.

Do you have specific questions about your expat taxes?

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Greenback accountants specialize in expat tax issues and can help you become tax compliant, minus the stress. Get started with Greenback today!

This article was produced by The Local Client Studio and sponsored by Greenback Expat Tax Services.


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Switzerland: How to get money back when cross-border shopping in Germany

Crossing into Germany to go shopping is usually cheaper - and that’s before you add the tax savings. Here’s how you can claim back tax when shopping in Germany.

Switzerland: How to get money back when cross-border shopping in Germany

There are a range of reasons why most things are cheaper in Germany than in Switzerland. 

While there are some exceptions to this – the most notable one being petrol – generally speaking you pay a premium on goods purchased in Switzerland. 

EXPLAINED: Why is Switzerland so expensive?

If you shop in Germany, you can also save on VAT, which is generally 19 percent and added to most goods. 

Here’s what you need to know. 

What are the tax rules for shopping in Germany? 

Residents of Switzerland, as a non-EU country, do not need to pay VAT in Germany on purchases over 50 euros. 

Your country of residence rather than nationality is important here. 

Therefore, a German living in Switzerland and shopping in Germany does not need to pay the tax. 

A Swiss living in Germany however would need to pay the amount. 

Importantly, you need to physically be in Germany when you make the purchase. 

In order to qualify for the tax exemption, you must bring the goods back to Switzerland with you. 

The specific rules for this are laid out by German Customs here, but they need to be either in your carry on or checked baggage, or in a car that you are travelling in personally. 

These rules are to ensure people are buying the goods for themselves rather than intending to sell them on. 

What kind of goods? 

Goods bought in Germany and taken back to Switzerland are exempt from VAT. 

You will generally however be required to pay tax on services rendered or completed in Germany. 

For instance, bus or train tickets in Germany, restaurant bills, hotel stays, massages etc. 

There are also a range of rules which apply to vehicles. 

If you are getting your car repaired, filling up with petrol, affixing bumpers, mirrors or other additions or even getting a car wash, you will need to pay VAT. 

How do I get the money back? 

Unfortunately, you do not get a discount at the place of purchase.

Instead, you need to claim the money back after you have purchased the product on which you paid the tax. 

In most large stores or shopping centres, you will be able to do this on site. 

You need to have a copy of the receipt and fill in the VAT refund form (Ausfuhrschein) with your name, address and Swiss residency permit number. 

You can get one of these forms at larger stores or you can download it and print it here. 

You will need to do one for each invoice. 

Once you have done that, you can take the completed form to the German customs office (Zoll), which you can find at most border crossings and get the paper stamped. 

Then, you need to return the paper to the place of purchase, where they will issue with a refund of the VAT. 

Some stores require you to return after three months, some six and some 12, so be sure to check the store policy. 

Note that some online stores will automatically deduct the VAT if you have a Swiss delivery address. 

Cost of living in Switzerland: How to save money if you live in Zurich

One thing to keep in mind however is that Switzerland charges its own VAT, which is either 2.5 percent or 8 percent. More on that below. 

What’s with all this paper? 

For anyone who’s spent even a few hours in Germany, the country’s reluctance to embrace digital methods of payment and record keeping is clear. 

While cash remains king in many stores and restaurants, claiming back money from shopping in Germany is also a paper-heavy endeavour. 

Fortunately for people not so keen on paperwork, a change is afoot – although exactly when it will take place remains unclear. 

In February 2022, the German government announced it had kicked off a project to make a digital export certificate possible. 

In addition to saving time and paper, the government indicated it expected to save around 6.2 million euros in personnel expenses as around 100 customs officers are currently assigned to the Swiss border alone. 

No deadline has been given for when the change will come into effect. 

Cost of living: How to save on groceries in Switzerland

Swiss customs rules

When bringing goods into Switzerland, you will need to pay VAT if the amount exceeds 300 francs. 

While border patrols are rare, those who make a habit of exceeding this amount – even if it is for goods for personal use – run the risk of falling foul of the authorities. 

There are several different rules in place for bringing in different items, including meats, cheeses and alcohol. 

The limits for each of these items can be found here. 

Keep in mind that while the CHF300 applies now, Switzerland is set to reduce this to CHF50 in the future – although final approval of this has not yet been secured. 

Tax change: Switzerland to introduce 50 franc limit on cross-border shopping