# 7 years not filed. Confused, and Worried American expat



## Ken C

Hello, 

First I’d like to say that I’m glad I found this forum and that there are people here in similar situations who might be able to help me.

I have been living overseas since ‘13 and haven’t filed since I left the States. That’s because, like many people here, I didn’t know about the requirements. When I found out this year, I began to panic. I did some research and it’s really scary what they can do to people. Now, I’m trying to get back on track but it’s so confusing about how to do it without paying a ton of money.

My financial situation is simple. I am a wage worker who makes about $30k a year. Besides a simple checking account, I don’t own any assets, investments or properties. I don’t have any income from the states. My parents live there and they have a small trustee account for me. I’m also sure that my foreign bank account never went over $10k at any time. Also, I have been paying student loans for which I have declared my foreign income to get the income-driven repayment plan.

Basically, I just need catch up on my filing but what’s the best way to do that? I have spoken to a tax attorney and a cpa but they told me 2 different things. The attorney said I should do the Streamlined. The cpa told me that I should file all 7 years and attach an explanation of why I was late. The cpa also said that, if I tried the Streamlined I would be rejected because I don’t have any income from assets overseas. He said that if they deemed me ineligible for the Streamline after filing, I would lose the Foreign Income Exclusion and I would have to pay the tax plus the late fees for all 7 years!

My income is low and these people charge a lot for their services. But if one of them are able to give me a reasonable solution to get back on track I would pay for their services.

I am so confused and I’ve been a nervous wreck recently. I have a wife and toddler here and my biggest fear is losing my passport for tax reasons. I don’t want to have to leave here and lose my family. Please help

Any advice would be greatly appreciated.

Thank you.

Ken


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## Bevdeforges

What the cpa told you is rubbish. This is the Streamlined Compliance thing: U S Taxpayers Residing Outside the United States | Internal Revenue Service

Given that you have no financial assets in the US, you probably won't owe anything - so the only cost is the time and effort to complete the forms and the postage to mail the back filings to the US. Normally, you do the current year (currently 2020) and then the 3 years back filings required under the program (which have to be done on paper and mailed in). Technically, you should also do current year plus 6 back years of the FBARs - however, if your foreign accounts never reached the $10,000 threshold that may not be necessary (i.e. you are compliant on the FBARs if you weren't subject to filing them in the past years).

You can try using one of the Free File vendors if you qualify (and it sounds like you might) on the IRS site: Free File: Do your Federal Taxes for Free | Internal Revenue Service That will help you with your first filing, and then you'll have a "model" to work from for the back filings. 

Don't worry too much about all the scare stories you hear. What's required is a good faith effort - and mainly to show that you aren't "hiding" anything. As long as you don't owe anything over the 4 years you file (or owe very little), you're off the hook for the prior years and can just start filing going forward for 2021. Take a good look at IRS Publication 54 for help. (But understand that there is WAY more information in that publication than you will ever need.)

Keep it all honest and keep it simple - and chances are you will just be filing "information returns" like so many other US expats before you have done. Pain in the butt, but that's about it.


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## Nononymous

In addition to bagging the stimulus cash, if your student loans are on income-based repayment and you claim the FEIE, you will effectively reduce your payments to zero (because your AGI will be zero after applying the FEIE.) After 25 years the loan is forgiven (though a rather large amount is deemed taxable income in that year). You might be in that rare situation where it's very much worth your while to file.

Your child is a US citizen due to your having spent more than 5 years in the US. Have you registered your child's birth and obtained an SSN? There are arguments for and against doing this. You'll get more free money (and the kid will have a US passport, which may save awkward conversations if you travel back to the US) but keeping the child off the US radar is also worthwhile. (Actually now that I write this, I realize that to claim the child tax credit generally requires using FTC, not FEIE, so it may not be possible to do that and also wipe out the student loan. Best to run the numbers and see what's more profitable.) At very least, if the child was born outside the US, have the mother handle any banking without your being present so that there's no risk of identification as a US person, and subsequent handicaps in life due to FATCA.

PS "I did some research and it’s really scary what they can do to people" isn't actually true. You need to screw up quite royally to lose your passport. Otherwise the US government has extremely limited abilities to find or collect penalties from anyone abroad. Relax!


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## Ken C

Thank you for your comment. Regarding the passport, I heard that if the fines/penalties exceed $50k, they can revoke passports through the State Department. Even though I’m a relatively low income person with no assets/investments, the thought of reaching that amount and losing my passport haunts me every day until I take care of this mess. Am I over exaggerating my fears? Perhaps but I want to be here for my kid. She just recently learned how to walk. I want to teach her how to ride a bike. I don’t want to be in trouble with Uncle Sam. I want to be compliant. I just wish they wouldn’t make the process of coming back into compliance so difficult. And a lot of the CPA’s/ lawyers in this industry are fear mongering people in order to get their money for services, I’ve realized. I’m thinking about doing the Streamlined filings by myself but I’m worried about making mistakes that will trigger an audit. What do you suggest?

Ken


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## Nononymous

I think it would be pretty challenging for a low-income person to trigger a $50k tax debt. Otherwise I'm the local non-compliance expert so there's not much I can say beyond relax, fears get badly overhyped, a simple DIY streamlined should be pretty easy in your situation, you'll make a bag of cash on the stimulus money and best of all, no more student loan.


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## Ken C

Nononymous said:


> I think it would be pretty challenging for a low-income person to trigger a $50k tax debt.


Well w


Nononymous said:


> I think it would be pretty challenging for a low-income person to trigger a $50k tax debt.


Well, what about the late filing penalties and fees? Would I lose the Foreign Earned Income Exclusion? And how much would they penalize someone making around $30k a year without having filed?


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## Nononymous

Ken C said:


> Well, what about the late filing penalties and fees? Would I lose the Foreign Earned Income Exclusion? And how much would they penalize someone making around $30k a year without having filed?


Why would there be late penalties and fees if you owe zero?


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## Ken C

Nononymous said:


> Why would their be late penalties and fees if you owe zero?


I have no idea. I’m not skilled in finance or taxes.


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## Bevdeforges

Ken C said:


> Well, what about the late filing penalties and fees? Would I lose the Foreign Earned Income Exclusion? And how much would they penalize someone making around $30k a year without having filed?


Late filing fees are a percentage of the amount of taxes owed - thus, if you owe nothing, there is no penalty. And the IRS agents generally only audit returns that are likely to return a certain minimum amount in back taxes (before penalties). Agents are evaluated on their ability to maintain a certain level of "return" on the tax filings they audit - so they have little or no incentive to bother with those returns where the taxpayer owes $0. (It's one of the main reasons there is the Streamlined Compliance thing in the first place. They don't particularly want to invest IRS manpower, time and resources in reviewing returns of those who owe nothing - or very little.

The other thing to keep in mind is that the IRS is vastly understaffed and underfunded. The latest proposals to provide more money to the IRS is specifically targeted at providing the resources to audit high income taxpayers to fund some of Biden's new programs. They really have no time or resources to mess with the "little fish."


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## Nononymous

The penalty for filing late is a percentage of taxes owed. You would owe nothing. Ergo no penalty.


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## Jca1

Nononymous said:


> The penalty for filing late is a percentage of taxes owed. You would owe nothing. Ergo no penalty.


I've made this point to several people as well. It is true today, but possibly not in future years, as the IRS wants to make "repeated willful failure" to file a tax return a felony, and they seem to be trying to define "willful" to include something like "avoided acquiring knowledge" lately. I doubt they would ever pursue criminal charges against someone who didn't file a return with $0 tax owed, but adding some type of additional penalty in the future seems plausible.


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## Bevdeforges

Jca1 said:


> I've made this point to several people as well. It is true today, but possibly not in future years, as the IRS wants to make "repeated willful failure" to file a tax return a felony, and they seem to be trying to define "willful" to include something like "avoided acquiring knowledge" lately. I doubt they would ever pursue criminal charges against someone who didn't file a return with $0 tax owed, but adding some type of additional penalty in the future seems plausible.


I've seen this mentioned for ages now. But one thing that the IRS seems not to understand is that, outside the US (and potentially Canada), it can be amazingly difficult to find any sort of information about US taxes unless you really dig for it and/or know where to look. In the US and Canada, the IRS issues all sorts of press releases to be picked up by the various media - about tax law changes or reports of scofflaws arrested or convicted shortly before the tax filing deadline. But that stuff just doesn't get covered elsewhere - particularly in non-English language areas.


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## Nononymous

It's pretty easy to ignore in Canada, to be honest. But obviously much easier to ignore in, say, Slovakia.


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## Ken C

Well, I’m scared AF and I don’t like living in fear. I decided to go ahead with the streamlined. Let’s hope for the best. Alea iacta est.


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## Nononymous

Ken C said:


> Well, I’m scared AF and I don’t like living in fear. I decided to go ahead with the streamlined. Let’s hope for the best. Alea iacta est.


I suspect that no human even looks at the thing - it'll disappear into the void and you'll hear nothing. Then you'll get a bag of stimulus cash (a bigger bag if your kid has an SSN) and you can kiss your student loan goodbye.


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## Ken C

Nononymous said:


> I suspect that no human even looks at the thing - it'll disappear into the void and you'll hear nothing. Then you'll get a bag of stimulus cash (a bigger bag if your kid has an SSN) and you can kiss your student loan goodbye.


Hi, thanks for your message. 

How would I be able to get the stimulus cash and would it include last year’s too? I don’t have a personal bank account in the US but my mom is living there and she has a trustee account for me.

Also, what do you mean by I “can kiss my student loan goodbye?”.


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## Nononymous

Set up a Wise (formerly Transferwise) borderless dollar US account and use that for direct deposit. If you file a 2020 return you should be good for the full $3200 eventually, plus more if your kid has an SSN and you can claim them as a dependent.

I explained the student loan earlier. If it's a federal IBR plan, your payment is based on AGI (adjusted gross income). Once you apply the FEIE, your AGI drops to zero, as do your payments. (How you were setting payments without filing tax returns is a bit of a mystery.) Just be aware that after 25 years the loan is forgiven but the principal is then considered a taxable benefit in one shot, that year. But this is well into the future.


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## Ken C

Nononymous said:


> Set up a Wise (formerly Transferwise) borderless dollar US account and use that for direct deposit. If you file a 2020 return you should be good for the full $3200 eventually, plus more if your kid has an SSN and you can claim them as a dependent.
> 
> I explained the student loan earlier. If it's a federal IBR plan, your payment is based on AGI (adjusted gross income). Once you apply the FEIE, your AGI drops to zero, as do your payments. (How you were setting payments without filing tax returns is a bit of a mystery.) Just be aware that after 25 years the loan is forgiven but the principal is then considered a taxable benefit in one shot, that year. But this is well into the future.


Hi Nononymous,

Thanks for your comment.

I’d rather my kid doesn’t have an SSN but that’s beside the point.

How was I setting up payments with income based repayment? They asked me to fill out a form from the Department of Education and add a signed statement of my workplace (overseas) and income and send it to them yearly or if/when my income changes. They use that amount to determine what I have to pay every month. They never asked me about taxes. Even though I am living overseas, I have not been trying to avoid my student loan payments so I’ve been honest with them about my income. However my address on the form is listed as my US address (mom’s house - she is a co-signer and authorized payer). Is this going to affect my chances with the Streamlined in any way?

Thanks.


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## Nononymous

Your child is a US citizen, just so you know. It's not something that one opts to apply for. But of course if a birth outside the US is never registered with a consulate, the US government won't know of the child's existence, so it's effectively the same as not being a citizen. If you travel back to the US with the child, you may be asked about its citizenship and be told to get a US passport, if you don't already have one. The advantage to getting an SSN is that you can potentially collect bags of free money - the child tax credit as well as the stimulus benefit. The disadvantage is that your child is, in some minimal way, on the IRS radar as a dependent, but this shouldn't prevent them from enjoying full non-compliance as an adult, however.

As a general rule anyone born outside the US with another citizenship will have a very easy time of it avoiding FATCA - they simply don't admit to being US citizens. However, I'm led to understand that this isn't necessarily as easy to do in Japan. I don't know your situation, so this may not apply, but the general scarcity of mixed-ethnicity children plus the fact that parental information is tied into the national ID plus the reported enthusiasm of Japanese banks for going above and beyond with FATCA rules (reporting all US person accounts regardless of balance, rather than appying the threshold) means that it's potentially more difficult to keep US status secret. If that does come to light, the bank will want them to produce an SSN, or it will likely close the account. That's the present situation, what it looks like 15 or 20 years from now is anyone's guess.

You should do more research about the student loan situation but in principle if you reduce your AGI to zero with the FEIE, you would make no further payments under the federal IBR scheme. That's possibly not a smart move if you plan on returning to the US before the loan is fully forgiven after 25 years. But it's an option worth exploring. Note that you would need to use FTC, not FEIE, to collect child tax credits so it may be a case of picking one or the other.

I highly doubt that your student loan would have any impact on your streamlined program application. Don't give US bureaucracy more credit than it deserves. Given your income levels I expect that this will go straight through without any human intervention.


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## Ken C

Nononymous said:


> Your child is a US citizen, just so you know. It's not something that one opts to apply for. But of course if a birth outside the US is never registered with a consulate, the US government won't know of the child's existence, so it's effectively the same as not being a citizen. If you travel back to the US with the child, you may be asked about its citizenship and be told to get a US passport, if you don't already have one. The advantage to getting an SSN is that you can potentially collect bags of free money - the child tax credit as well as the stimulus benefit. The disadvantage is that your child is, in some minimal way, on the IRS radar as a dependent, but this shouldn't prevent them from enjoying full non-compliance as an adult, however.
> 
> As a general rule anyone born outside the US with another citizenship will have a very easy time of it avoiding FATCA - they simply don't admit to being US citizens. However, I'm led to understand that this isn't necessarily as easy to do in Japan. I don't know your situation, so this may not apply, but the general scarcity of mixed-ethnicity children plus the fact that parental information is tied into the national ID plus the reported enthusiasm of Japanese banks for going above and beyond with FATCA rules (reporting all US person accounts regardless of balance, rather than appying the threshold) means that it's potentially more difficult to keep US status secret. If that does come to light, the bank will want them to produce an SSN, or it will likely close the account. That's the present situation, what it looks like 15 or 20 years from now is anyone's guess.
> 
> You should do more research about the student loan situation but in principle if you reduce your AGI to zero with the FEIE, you would make no further payments under the federal IBR scheme. That's possibly not a smart move if you plan on returning to the US. But it's an option worth exploring. Note that you would need to use FTC, not FEIE, to collect child tax credits so it may be a case of picking one or the other.
> 
> I highly doubt that your student loan would have any impact on your streamlined program application. Don't give US bureaucracy more credit than it deserves. Given your income levels I expect that this will go straight through without any human intervention.


Thanks again for your reply.

I will detach my child completely from Uncle Sam when and if (God willing) this Streamlined goes through successfully. I don’t want extra bags of money. I just want to live a simple life without the prying eyes of nations that I have no connections with except having a passport there. This expat filing law is unfair for low-income people like me but I’m not here to complain. I want to get back on track with my tax filings and keep my feelings to myself as we all should.

You seem knowledgeable about student loan matters. Is there a way to private message someone on this site?

Ken


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## Bevdeforges

Ken C said:


> Is there a way to private message someone on this site?


Click on your icon/avatar in the upper right corner of the screen and from the drop down menu, select "Conversations."


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## Nononymous

Ken C said:


> You seem knowledgeable about student loan matters. Is there a way to private message someone on this site?


You know everything I know, by this point. It's something I've heard described. Beyond that you'll need to do your own research.

I don't know what you mean by "detach your child completely from Uncle Sam" - a child cannot renounce US citizenship before they turn 18.


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## Nononymous

Ken C said:


> This expat filing law is unfair for low-income people like me but I’m not here to complain.


Actually US tax rules for expats are more burdensome for higher-income people, particularly those with investments and other assets, and especially those who own businesses. For lower-income people with children US tax compliance can be quite profitable.


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## Ken C

Nononymous said:


> You know everything I know, by this point. It's something I've heard described. Beyond that you'll need to do your own research.
> 
> I don't know what you mean by "detach your child completely from Uncle Sam" - a child cannot renounce US citizenship before they turn 18.


The child is not a US citizen. Maybe through me but at 18 she can choose. And at this point I don’t see any benefit for choosing US citizenship. Considering all the racial turmoil, lack of affordable healthcare, gun violence, ultra expensive services and a general lack of security for average people, what is the benefit of US citizenship except “bags of cash” for the pandemic?


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## Ken C

Nononymous said:


> You know everything I know, by this point. It's something I've heard described. Beyond that you'll need to do your own research.
> 
> I don't know what you mean by "detach your child completely from Uncle Sam" - a child cannot renounce US citizenship before they turn 18.


Subjecting an innocent child to the US system would be considered child abuse unless the child comes from Afghanistan, Somalia or Venezuela etc. Anybody who has lived in a civilized country understands this.


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## Nononymous

Alas, if you meet the qualification criteria you have automatically transmitted US citizenship (in your case 5 years living in the US, 2 of which over age 14; you may wish to consult the more detailed rules to confirm). Your child *is* a US citizen, from birth. There's no election to acquire it or keep it at age 18; they can renounce after reaching 18 if they wish.

As I said, as a general rule it's pretty easy for children born outside the US who have another citizenship to just ignore this and pretend they are not US persons to avoid FATCA and stay out of the US tax system (it's no accident that registration of birth abroad at US consulates reportedly declined after FATCA). However, there are still some challenges. Travel to the US with a US-born parent may (or may not) lead to questions about the child's citizenship and requirement to carry a US passport. (People in Israel report visas to visit the US being denied for the children of US citizens, since the children are also US citizens and thus not entitled to visas.) And being in Japan, for reasons I described earlier, your child may have difficulty concealing their US-person status from financial institutions.

If the student loans weren't a factor and one was determined to come into US tax compliance, I personally would apply for the kid's SSN, collect every dollar available to me from the US government, stick it all in a savings account and hand it to them on their 18th birthday. (It's not just pandemic relief, it's potentially several thousand dollars each year in refundable tax credits.) At that point they can renounce, move to the US, put it towards their education, buy a car, whatever. (I didn't do this with my own child because we're in Canada and it's very easy to avoid all this so I've never entered the US tax system.)


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