THE ANSWER MIGHT SURPRISE YOU.
Tax advisors play a crucial role in understanding the reach of the US tax department, especially for Australian tax residents who may perceive it as irrelevant. Although you might feel that the US tax implications for its citizens don’t concern you, it’s essential to recognise that the jurisdiction of the US tax authorities could extend further than expected. Therefore, consulting a tax advisor is advisable to comprehend the potential reach fully.
The United States is one of only three countries to tax individuals with little regard for where they reside. If one of your parents was a US citizen, or if you held a green card for more than 3 years without physically returning the paper upon leaving the country, you might be subject to US tax. If you are a US citizen, the US will want to tax you. Whether you currently or have ever lived in the US is irrelevant.
If caught under US tax laws, this could mean you have additional tax lodgement responsibilities and (potentially) additional tax to pay.
While not a recent concept, this issue is topical with Australia’s upcoming implementation of the Foreign Account Tax Compliance Act (FATCA).
Under FATCA, most Australian financial institutions (i.e. your personal bank) must report comprehensive information to the US tax department (i.e. the IRS) for all of their US citizens. If you are a US citizen, you might have started to receive notices from banks requiring you to disclose your US citizenship to them.
The IRS will use this additional data to track down those not lodging income tax returns. With a standard penalty of at least US$1,000 per document lodged late and annual compliance requiring the lodgment of several documents, the risk of non-lodgment goes beyond the tax shortfall. The IRS regularly organises amnesty programmes, so coming clean with them before they start taking action is often the best policy.
While we cannot provide US tax advice, we have experience with resolving such situations and can liaise with US tax advisers to ensure your compliance and longer-term strategies are secured.
So, before you plan your next trip to the US, maybe give us a call and check on your situation. Nothing ruins a trip like being detained at customs for tax evasion!
*Correct as of April 2015
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.