People with Foreign Income or Foreign Assets Have U.S. Tax Obligations

Notice: Historical Content

This is an archival or historical document and may not reflect current law, policies or procedures.

Update Jan. 24, 2014 — Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, is obsolete. IRS.gov. After June 30, 2013, the FBAR must be filed electronically with FinCEN.

FS-2012-11, April 2012

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2011, that they may have a U.S. tax liability and a filing requirement this year.

The filing requirement applies even if various tax benefits eliminate a taxpayer’s U.S. tax liability. Popular tax benefits include the foreign earned income exclusion, for U.S. citizens and resident aliens who live and work abroad, and the foreign tax credit, for taxpayers who pay income taxes to foreign governments. Eligible taxpayers can only take advantage of these benefits by filing a federal income tax return with the IRS.

U.S. citizens and resident aliens residing overseas or those serving in the military outside the U.S. on the regular due date of their tax return have until June 15, 2012 to file their federal income tax return. To use this automatic two-month extension beyond the regular April 17, 2012 deadline, taxpayers must attach a statement to their return explaining which of these two situations applies. Further details are on the International Taxpayer page on IRS.gov.

A resident alien is someone who is not a U.S. citizen and is either a lawful permanent resident of the U.S. (green card test), or physically present in the U.S. for significant periods of time (substantial presence test).

In addition, nonresident aliens who received income from U.S. sources in 2011 often have a U.S. tax obligation. Nonresident aliens are people who are neither U.S. citizens nor resident aliens. The filing deadline for nonresident aliens can be April 17 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires taxpayers to report the country in which each account is located.

Certain taxpayers may also have to fill out and attach to their return the new Form 8938. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2011 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2012. Details on this requirement are in Publication 4261 , Do You Have a Foreign Financial Account? A new comparison chart, available on IRS.gov, can help taxpayers understand which assets need to be reported on Form 8938 and which foreign accounts need to be reported on Form TD F 90-22.1.

Taxpayers aborad can choose the accuracy, speed and convenience of electronic filing. Check out e-file with commercial software on IRS.gov. A limited number of companies provide software that can accomodate foreign addresses. To determine which will work best, get help choosing a software provider. E-file is available until Oct. 15, 2012, for anyone filing a 2011 return.

The IRS urges anyone who, in the past, failed to disclose foreign accounts or report foreign income to take advantage of the agency’s new offshore voluntary disclosure program. This special program is designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. More than 33,000 taxpayers came forward under previous limited-time initiatives in 2009 and 2011.