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Attention, U.S. Citizens: Why File a Tax Return?

March 18, 2005

OKAY, soyou are no longerliving in theUnited States.You moved allyour assets andbelongings to aforeign countryand your intentionsare to neverreturn. Other thanthe fact that U.S.law states all citizensmust file anincome tax returnon their worldwideincome, regardless of where theylive, why file a tax return? What problemscan you encounter with the IRS orthe U.S. government for not filing areturn? What are the risks of not filing?How can the IRS get information aboutyou, your business and your income?Here is some food for thought:• You marry a foreign person, and youand your new spouse want to travel to theUnited States to see your family. One ofthe requirements for your spouse toobtain a U.S. visa is for you to producecopies of your tax returns for the pastthree years.• You decide to return to the UnitedStates. You have not filed a tax return foryears. How will the IRS react when youstart filing returns again? How do youanswer the question, “How were you ableto support yourself?”• You made some money and youwant to invest it in the U.S. stock marketor a U.S. bank. How do you explainwhere the money came from? You hadbetter have the paperwork ready to provewhat you say.• The statute of limitations on a taxreturn starts when the return is filed, so ifyou do not file a return, when does thetiming for the statute of limitations start?The answer could be never.• You did well in a foreign countryand would like to return to the UnitedStates, buy a home and put money intobank accounts. How do you prove wherethe money came from? Will the governmenthave a suspicion that the money wasillegally obtained?• While living in a foreign country,you acquire assets and would like to leavethese assets to family members living inthe United States. How do they explaintheir inheritance? What problems willthey have? Could they be faced with yournoncompliance penalties and taxes?• Passport renewal: At present you arenot required to present copies of previousyears’ tax returns to the embassy torenew your passport; but with new andadvanced technology, could this soon bea requirement?• Your child wants to go to college oruniversity in the United States. He or shemay need financial assistance. Will youhave to prove your income? Will youhave to produce copies of your past taxreturns?• You have not filed a tax return foryears. You have met all the minimumrequirements for Social Security, and nowyou want to receive your Social Securitybenefits.• If you are working in a foreigncountry, you can exclude from tax$80,000 of earned income. The key wordhere is “exclude.” Before you canexclude it, you must first include it byfiling a return. If you do not file a taxreturn to exclude the income, you risklosing the exclusion. If you lose theexclusion, the IRS can include it in taxableincome. Why take the chance? Filea return.Randall Lindner has been a professionaltax preparer for more than 25years, and specializes in U.S. citizens livingin foreign countries. For more informationon U.S. taxation, call U.S. Tax &Accounting Service at 288-2201 or 839-9970, or e-mail ustax@lawyer.com. OKAY, soyou are no longerliving in theUnited States.You moved allyour assets andbelongings to aforeign countryand your intentionsare to neverreturn. Other thanthe fact that U.S.law states all citizensmust file anincome tax returnon their worldwideincome, regardless of where theylive, why file a tax return? What problemscan you encounter with the IRS orthe U.S. government for not filing areturn? What are the risks of not filing?How can the IRS get information aboutyou, your business and your income?Here is some food for thought:• You marry a foreign person, and youand your new spouse want to travel to theUnited States to see your family. One ofthe requirements for your spouse toobtain a U.S. visa is for you to producecopies of your tax returns for the pastthree years.• You decide to return to the UnitedStates. You have not filed a tax return foryears. How will the IRS react when youstart filing returns again? How do youanswer the question, “How were you ableto support yourself?”• You made some money and youwant to invest it in the U.S. stock marketor a U.S. bank. How do you explainwhere the money came from? You hadbetter have the paperwork ready to provewhat you say.• The statute of limitations on a taxreturn starts when the return is filed, so ifyou do not file a return, when does thetiming for the statute of limitations start?The answer could be never.• You did well in a foreign countryand would like to return to the UnitedStates, buy a home and put money intobank accounts. How do you prove wherethe money came from? Will the governmenthave a suspicion that the money wasillegally obtained?• While living in a foreign country,you acquire assets and would like to leavethese assets to family members living inthe United States. How do they explaintheir inheritance? What problems willthey have? Could they be faced with yournoncompliance penalties and taxes?• Passport renewal: At present you arenot required to present copies of previousyears’ tax returns to the embassy torenew your passport; but with new andadvanced technology, could this soon bea requirement?• Your child wants to go to college oruniversity in the United States. He or shemay need financial assistance. Will youhave to prove your income? Will youhave to produce copies of your past taxreturns?• You have not filed a tax return foryears. You have met all the minimumrequirements for Social Security, and nowyou want to receive your Social Securitybenefits.• If you are working in a foreigncountry, you can exclude from tax$80,000 of earned income. The key wordhere is “exclude.” Before you canexclude it, you must first include it byfiling a return. If you do not file a taxreturn to exclude the income, you risklosing the exclusion. If you lose theexclusion, the IRS can include it in taxableincome. Why take the chance? Filea return.Randall Lindner has been a professionaltax preparer for more than 25years, and specializes in U.S. citizens livingin foreign countries. For more informationon U.S. taxation, call U.S. Tax &Accounting Service at 288-2201 or 839-9970, or e-mail ustax@lawyer.com.

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