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10 September 2011

Should I fear a backlash from the IRS?


I am a US citizen and have lived in the UK for the past ten years. I am aware that I am liable to pay tax on worldwide income but I have not filed a US tax return since moving here, because I pay full UK tax on my income via payroll. However, I heard the US Internal Revenue Service (IRS) is running another tax amnesty and am concerned about travelling to the US if my tax affairs are not up to date. Should I be worried?


Fiona Fernie, tax investigations partner at BDO, says most tax authorities – in particular those in the USA and UK – are taking an increasingly hard line with individuals who are not paying the right amount of tax. Both countries encourage voluntary disclosures and offer beneficial terms to those willing to “stick their heads above the parapet” and come clean.


In the US, the IRS is running a 2011 Voluntary Disclosure Initiative. This is aimed at those with foreign bank accounts not previously declared to the US tax authorities. The deadline for disclosures was extended to September 9, 2011 and further details are available on the IRS website at www.irs.gov.


US Citizens are obliged to file US tax returns regardless of where they live. Since you have not, It is important you speak to a US tax advisor to bring your accounts up to date.It may be that you do not owe any additional US tax because as you say, you have paid full UK tax on your income. However, tax returns still need to be prepared and filed for full disclosure reasons.


I am assuming you are not domiciled here so if you pay the £30,000 remittance basic charge you will only pay UK taxes on your remittances and UK income and gains. Worldwide assets would therefore only be subject to UK tax if you brought them into the country. If you do not have significant worldwide assets, I would expect you simply to be a subject to UK tax on a worldwide basis. Even if this is the case, however, you will still need to file a tax return over here to declare these assets. But if you have no other sources of income or gains, then your full tax liability should be covered by UK payroll.


If you have a UK tax problem, because you have not declared non-UK bank accounts or investments, I would recommend using the Liechtenstein Disclosure facility (LDF). This is a voluntary disclosure process offered by HM Revenue & Customs to legitimise UK tax irregularities. A Tax investigations specialist can guide you through the LDF process and advise if you are eligible to apply.


There is a double taxation agreement between the UK and US that could apply in your case, and allow you to claim foreign tax credits in the appropriate country.


As regards travelling to the US, it is likely that government agencies such as the IRS and US Department of Homeland Security share information. It is therefore advisable to speak to an immigration Lawyer on this point.

The Interaction of UK and US tax regimes is complex, and you should appoint an international tax adviser.


All Western authorities seem determined to target tax evaders to increase government revenues.


New Legislation in the UK and US is aimed at punishing those who fail to use Disclosure programmes.


The worst thing you can do is ignore this issue – it won’t resolve itself.



Source: FT 10.09.2011


*Article for guidance only. Professional advice should be obtained to ensure that all circumstances are assessed in providing a complete answer.