In a positive development for the American expatriate community, the U.S. Supreme Court has delivered a ruling that favours taxpayers and limits the scope of FBAR (Foreign Bank Account Report) penalties. This decision not only significantly reduces the proposed penalties imposed on taxpayers but also establishes an important precedent for calculating FBAR penalties going forward.

Understanding FBAR Obligation and Penalties

The FBAR obligation arises when the total value of an individual’s foreign financial accounts exceeds $10,000 at any point during the calendar year. The FBAR, also known as FinCEN Form 114, must be filed electronically using the BSA E-Filing System, administered by the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of the Treasury.

Failure to file an FBAR due to negligence or a “non-willful” violation can result in a penalty of $10,000 per account, per year, unless reasonable cause can be established. Conversely, a “willful” failure to file can lead to civil penalties equal to the greater of $100,000 or 50% of the balance in each unreported account, and in certain circumstances, even criminal penalties may apply.

US Supreme Court’s Verdict on FBAR Penalties

In the case of Bittner v. United States (No. 21-1195, decided on February 28, 2023), the U.S. Supreme Court ruled that the $10,000 penalty for non-willful FBAR violations should be applied per form rather than per account. The decision was reached by a narrow majority of 5-4, overturning the previous ruling in favour of the IRS by the U.S. Court of Appeals for the Fifth Circuit. The Bittner case itself witnessed a substantial reduction in the penalties imposed, from $2.72 million to $50,000, due to the Supreme Court’s verdict.

Implications of the Supreme Court’s Decision

The Bittner decision provides much-needed clarity and sets a precedent for the IRS in applying penalties for non-willful FBAR violations. However, tax practitioners have expressed concerns that this ruling may prompt the IRS to more actively pursue and impose higher penalties for willful FBAR violations. It would have been beneficial if the Supreme Court had addressed the specific criteria for differentiating between willful and non-willful violations. In the beginning of the decision, the Court refrained from delving into this matter, stating, “What, if any, mens rea the government must prove to impose a ‘non-willful’ penalty is not before us.” Notably, lower courts have consistently adopted a broader interpretation of “willfulness” for civil FBAR violations, encompassing recklessness and willful blindness, rather than limiting it to intentional violations used in criminal cases.

Taxpayers can find solace in the fact that the burden of proof for civil FBAR penalties rests with the government. The government must establish liability for the civil FBAR penalty by a preponderance of evidence, meaning it must demonstrate that the event was more likely than not to have occurred.

Despite the favourable U.S. Supreme Court decision, taxpayers with foreign accounts should remain vigilant and ensure compliance with FBAR requirements to avoid penalties altogether. Being aware of and fulfilling FBAR obligations from the outset is crucial to preventing penalty issues.

Taxation processes can be confusing, but Xerxes Associates are here to assist.  Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.

Working as a US expat in the UK can be an exciting opportunity, but it also comes with its own set of tax implications. In this article, we’ll explore some of the tax benefits available to US expats working in the UK, including the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the UK-US tax treaty.

Foreign Tax Credit

The Foreign Tax Credit (FTC) is a tax benefit that allows US expats working in the UK to claim a credit against their US tax liability for any foreign taxes paid on their UK-sourced income. This credit is designed to prevent double taxation, where the same income is taxed in both the US and the UK. The FTC is generally available to US expats who pay taxes in the UK, but there are some restrictions and limitations to be aware of.

To claim the FTC, US expats must file Form 1116, which details the amount of foreign taxes paid and calculates the credit. The credit is limited to the amount of US tax that would be due on the same income, and any excess credit can be carried forward or back to other tax years.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is another tax benefit available to US expats working in the UK. The FEIE allows US expats to exclude a certain amount of their foreign earned income from US taxation. For tax year 2021, the maximum amount that can be excluded is $108,700.

To qualify for the FEIE, US expats must meet either the physical presence test or the bona fide residence test. The physical presence test requires US expats to be present in a foreign country for at least 330 full days in a 12-month period, while the bona fide residence test requires US expats to establish a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year.

UK-US Tax Treaty

The UK-US tax treaty is a bilateral agreement between the UK and the US that aims to prevent double taxation and promote trade and investment between the two countries. The treaty covers a range of tax issues, including income tax, capital gains tax, and estate and inheritance tax.

Under the treaty, US expats working in the UK may be eligible for certain tax benefits, such as reduced withholding tax rates on dividends, interest, and royalties. The treaty also provides for the resolution of disputes between the two tax authorities and contains provisions to prevent tax evasion and avoidance.

US expats working in the UK have several tax benefits available to them, including the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the UK-US tax treaty. These tax benefits can help US expats reduce their US tax liability and avoid double taxation. It’s important for US expats to understand the rules and regulations governing these benefits and to seek professional advice if necessary.

Xerxes Associates LLP work closely with US and UK expats from all different backgrounds, circumstances and occupations as well as high-net worth individuals in order to help them through the complexities of US and UK tax compliance requirements (tax imposed on expatriates). If you have a query or would like a friendly no obligation chat about your requirements then please get in touch and we shall be happy to assist you.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.

Living as a US expat in London can be a thrilling experience, but it also comes with its own set of challenges, particularly when it comes to taxation requirements. The United States requires its citizens and permanent residents (i.e., green card holders) to report their worldwide income, regardless of where they reside. This means that US expats living in London, like any other country, must comply with US tax laws.

In this article, we’ll provide an overview of the taxation requirements for US expats living in London, including some key considerations and potential tax benefits.

Filing Requirements

US expats in London are required to file a US tax return annually, reporting their worldwide income. The US tax year runs from January 1 to December 31, and the tax return is due by April 15th of the following year. However, US expats are automatically granted an extension until June 15th, and they can request a further extension until October 15th.
In addition to the regular tax return, US expats may also need to file additional forms, such as the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA) reporting. FBAR must be filed by June 30th of each year to report foreign financial accounts with a total value exceeding $10,000 at any time during the calendar year. The FATCA requires foreign financial institutions to report information about their US account holders to the IRS. US expats in London must also report any foreign assets over certain thresholds by filing Form 8938 with their tax return.

Foreign Earned Income Exclusion

US expats living in London may be eligible for the Foreign Earned Income Exclusion (FEIE), which allows them to exclude a certain amount of their foreign earned income from US taxes. The FEIE for tax year 2021 is $108,700. To qualify for the exclusion, US expats must meet either the physical presence test or the bona fide residence test.
The physical presence test requires the taxpayer to be physically present in a foreign country for at least 330 full days during a 12-month period. The 12-month period doesn’t have to coincide with the calendar year, and it can start or end in the middle of a tax year.

The bona fide residence test, on the other hand, requires the taxpayer to establish a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year. The taxpayer must also have no intention of returning to the US.

Tax Credits

In addition to the FEIE, US expats in London may also be eligible for tax credits, which can reduce their US tax liability. The most common tax credit for US expats is the Foreign Tax Credit (FTC), which allows them to claim a credit for foreign taxes paid on their foreign-sourced income. The credit is subject to certain limitations and restrictions, and it can’t exceed the taxpayer’s US tax liability.
US expats living in London face complex tax requirements, but there are also potential tax benefits available to them. The key is to understand the rules and regulations and seek professional advice if necessary. Proper tax planning can help US expats minimise their tax liability and avoid costly penalties.

Xerxes Associates LLP work closely with US and UK expats from all different backgrounds, circumstances and occupations as well as high-net worth individuals in order to help them through the complexities of US and UK tax compliance requirements (tax imposed on expatriates). If you have a query or would like a friendly no obligation chat about your requirements then please get in touch and we shall be happy to assist you.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.

Each year, around 9 million Americans living abroad are required to file US tax returns to report their worldwide income, but many are unaware of this obligation and fail to meet their US tax obligations. To address this issue, the Streamlined Filing Procedures were introduced in 2012 to encourage US citizens, green card holders, and residents to catch up on their delinquent US tax filings in a penalty-free manner. This program was created as an alternative to the IRS’s other programs, such as the Offshore Voluntary Disclosure Program that closed in 2018, and is intended to help low-risk individuals become US tax compliant.

US persons residing outside of the US can use the Streamlined Foreign Offshore Procedures to become US tax compliant, while US citizens living in the US can use the Streamlined Domestic Offshore Procedures. To qualify for the Streamlined Foreign Offshore Procedures, an individual must demonstrate that they were unaware of their filing obligation, not have had a US abode for at least one of the past three years, and have been physically present outside of the US for at least 330 full days during one or more of the past three tax years.

To become US tax compliant under the Streamlined Foreign Offshore Procedures, an individual must submit the most recent three years of federal tax returns, which may include amended returns if previous returns were incorrectly filed, and the most recent six years of FBAR forms. Additionally, they must complete Form 14653, “Certification by US Person Residing Outside of the US,”.

For those who do not qualify for the Streamlined Foreign Offshore Procedures, the following options may be available:

• Submission procedures for delinquent FBARs
• Procedures for submitting international returns that are delinquent
• Voluntary Disclosure Practices of the Internal Revenue Service

Xerxes Associates LLP work closely with US and UK expats from all different backgrounds, circumstances and occupations as well as high-net worth individuals in order to help them through the complexities of US and UK tax compliance requirements (tax imposed on expatriates). If you have a query or would like a friendly no obligation chat about your requirements then please get in touch and we shall be happy to assist you.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.

Xerxes Associates LLP is a U.S. expat tax advice service that offers dependable and efficient US & UK tax services to clients all over the world. Our tax experts use their extensive experience and knowledge to deliver the most reliable and thorough U.S. international tax services available.

Our team of in-house tax professionals is the foundation of our business and sets us apart from the rest. We provide expert guidance and support throughout the tax compliance process, leveraging our expertise and resources to deliver exceptional service and optimised results.

We offer a comprehensive range of services tailored to meet the specific needs of expats, including tax return preparation, international tax consulting, and advice on complex tax issues. Our team of experts can handle even the most intricate expat tax matters with ease and efficiency.

As a U.S. citizen or green card holder, you are required to file a U.S. tax return annually to report your worldwide income, regardless of whether you spent time in the U.S. or earned income from U.S. sources. We can help you optimise your tax return and minimise your U.S. federal tax liability by taking advantage of various exclusions and credits available.

At Xerxes Associates LLP, we provide a wide range of tax form preparation services, including late filing U.S. tax returns through IRS amnesty programs, FBAR filings, U.S. state tax returns, non-citizen tax returns, and green card holder services.

Our U.S. international tax planning and advice services are designed to help U.S. persons conducting business abroad and non-U.S. persons conducting business within the U.S. Our experts can help you navigate complex tax issues to achieve the best tax results for your business.

We are committed to providing exceptional service and peace of mind to our clients, and we stay up-to-date on the latest U.S. tax news that may impact you. Our deep understanding of U.S. tax law enables us to find the best solutions to any challenge.

Xerxes Associates LLP work closely with US and UK expats from all different backgrounds, circumstances and occupations as well as high-net worth individuals in order to help them through the complexities of US and UK tax compliance requirements (tax imposed on expatriates). If you have a query or would like a friendly no obligation chat about your requirements then please get in touch and we shall be happy to assist you.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.