US Citizens in the UK - IRS Amensty

All citizens of the United States of America and Green Card holders who are residing in the UK are required to complete a tax return each year and submit it to the United States Internal Revenue Service (IRS). The penalties for failing to file a tax return is simply astronomical, those who know about the recent changes to the penalties HMRC are to impose will be astounded by what the IRS charge and in comparison the UK penalties are little more than chicken feed.

Lets take an individual who has been resident in the UK for a number of years but has not submit returns for the last 4 years he has 2 UK bank accounts with a value of $250,000 and company shares worth $500,000, all interest and dividends are UK and no tax is due on the income from these investments to the US.

Lets say he had some non-taxable UK income say from an ISA account, although the interest is not taxable in the UK it would be taxable in the US, he has a US tax liability of $.150

What would this US citizen be looking at in terms of penalties from the IRS.

The tax of $150

Foreign Banks and Financial Accounts Return $800,000

Plus a potential 75% fraud penalty and substantial additional information return penalties.

You can see how serious failing to file a tax return to the US IRS is if you are a US citizen.

Is there an alternative to the above it is called the Offshore Voluntary Disclosure Initiative or (OVDI). Under the scheme you must register your intention to disclose by 31st August 2011. You can expect to pay a penalty equal to 20% of any tax owed to the US and a penalty of 25% against your assets. In the case above there are assets of $750,000 giving a penalty of $187,500 still a considerable sum non the less.

For any US citizen living in the UK or anywhere else in the world it is strongly advise they seek assistance from a US tax specialist.