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Beware: Expatriates Who Have Lived Offshore For Long Periods of Time

April 14, 2016


As a follow-up to my post on listening to Foreign individuals who sell investments off shore but do not know United States Tax Law, I would like to say that there are many individuals who live off shore and have never filed tax returns. The issue is that if an individual owes Federal Tax in excess of $50,000 they could lose their United States passport. Many people who say they never owed that much tax fail to realize that over a period of time the amount they owe could add up to that much tax. The issue of passive income which could be considered Subpart F income(i.e. rents) even if in a Controlled Foreign Corporation, and therefore they could owe taxes and they just don’t realize that issue. These people also often forget that social security creates taxable income. In addition, failure to file is also penalized.

If the expatriate says that they have not filed their tax returns, the government will probably ask for 6 years of tax returns and audit their bank accounts to see how they are supporting themselves. In addition, if fraud can be proven then the IRS can go back as far as necessary. The penalties are huge and if tax evasion is proven jail sentences are highly possible. Of course, by that time they will have access into the foreign banks. In addition, there are huge penalties for failure to report foreign trusts, corporations, LLCs , partnerships, Bank Accounts and Investments.

Belize ,Cayman Islands, Nevis, Israel, Switzerland and Panama are just a few countries where the governments have made the banks secure information from the bank’s customers that the money did not involve money laundering and that it was earned income and reported the information to the U.S. IRS. This is done by stopping the corresponding banks in the U.S stopping the transfer of funds in and out of the U.S and getting banks to notify the U.S. government of the issues. The government has their fingers out to all banks in all countries and those countries are looking for unreported income also. Panama is a good example where someone at a large law firm gave a lot of personal information on individuals to the public and governments.

There are Voluntary Disclosure programs where individuals can come forward and do the reporting and pay the taxes, interest etc. The government has “discussed closing these programs” so everyone should quickly move to close the gap by catching up on filing all required tax returns. As one last issue, if you have left a state that has state income taxes you also could owe those taxes if you did not handle things correctly.

Having a pair of Plastic Handcuffs put on as you leave the airplane or a cruise ship and confiscating your passport will be quite embarrassing. In addition, if the government feels or suspects you have something wrong, they could put you in jail for up to 90 days until the matters are resolved.


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