Requirement to declare taxes in the USA

For years, the IRS has become increasingly focused on US citizens who generate income from sources outside the USA. The introduction of FATCA is aimed at combating tax evasion through foreign accounts and increasing tax revenue. This is due to the fact that tax liability is automatically tied to US citizenship, regardless of whether or not the person lives in the USA. As a result, US citizens living in Germany are generally required to file a US tax declaration (Form 1040, U.S. Individual Income Tax Return) and to report certain financial data (FinCEN Form 114).

Current tax declaration requirements in the USA

• U.S. Individual Income Tax Return
  A US tax return must be filed with the American tax authority IRS by US citizens living abroad who exceed certain income levels, in general by 15 June of the following calendar year. The declaration must include all income generated around the world in the entire calendar year and not only earnings from US sources. As a result, US citizens living abroad (for example persons living in Germany who have dual German and US citizenship) who have only foreign earnings and no contact with the USA are required to file a US tax return.

• Report of Foreign Bank and Financial Accounts
  This report, known as FBAR, is to be completed by 30 June of the following calendar year. Certain declarations on accounts and deposits held outside the USA are to be made as part of this reporting. The obligation to report always applies when the sum of the assets of all accounts exceeds USD 10,000 on one calendar day in the year. The basis of assessment is not only financial accounts for which the US citizen is listed as the owner but also all accounts for which the citizen has power of disposition. If this obligation to report is not complied with, significant fines may be imposed. These could amount up to 50% of the value of the financial account.

Filing past taxes in the USA

In connection with the reports that are now required by FATCA, it is advisable to check whether the US citizens are complying with their obligation to report taxes in the USA completely and have done so in the past. If this is not the case, it should be corrected as quickly as possible. The US tax authority IRS offers a number of formalized voluntary declaration procedures that guarantee immunity from prosecution if certain criteria are fulfilled. For US citizens living abroad who would like to file a voluntary declaration in the USA, it is particularly advisable to make use of the Streamlined Foreign Offshore Procedures that are still being offered. In this procedure, the last three delinquent US tax returns as well as FBAR reporting for the last six years need to be filed with the IRS. It is uncertain how long this very beneficial voluntary declaration will continue to be offered by the US tax authority. The programme could be discontinued at any time. It is therefore advisable to complete the past returns as quickly as possible.

We have specialists with comprehensive knowledge and experience in advising on this sensitive matter at our locations. As a member of the international Mazars partnership, we are able to offer expert advising and support on this matter in collaboration with our partners in the USA. Please contact us if we can be of assistance to you in this area.