A common theme you may have noticed in many of these blog posts is the risk of unwittingly stepping on a metaphorical landmine when planning your finances and managing your money.

Working in the cross-border financial planning space, we will often meet with, or hear from, expats living in the US who have done just that. It can take time and effort to sort out the after-effects and get your finances back in order.

When it comes to your US tax affairs and dealing with the IRS, it’s better to think of it as a minefield to be navigated, rather than a single mine.

In a recent Ask An Expert podcast, we spoke to Virginia La Torre Jeker about the best ways to navigate the complexities of US taxation for expats.

Virginia is a member of the New York Bar, a seasoned US international tax attorney with over 40 years of experience, and specialises in all aspects of international tax and cross-border transactions.

We strongly recommend that all expats in the US listen to this podcast. Here’s a quick summary of some of the important issues Virginia raised.

As a cross-border taxpayer, you need to be aware of the statute of limitations

The bulk of the discussion we had with Virginia related to the effect of the US statute of limitations. This effectively determines how long your taxation records can remain subject to legal challenge by the IRS.

As a general rule, errors and omissions on your US tax return can be challenged for three years from the date of either filing your return or the date it’s due, whichever is later.

Some of the most common issues that will prompt the IRS to challenge and audit the tax returns you have filed include:

  • Failure to declare your worldwide income
  • Any miscalculation on your submission
  • Errors or inconsistencies in reporting foreign assets
  • An inconsistent pattern of filing your returns.

However, the three-year period can be extended. For example, if you are an expat with foreign assets declared on your return, such as offshore investments and business holdings, the statute can be extended to six years.

In some cases, there is no limit on how long the IRS can investigate your tax circumstances

In extreme circumstances, the IRS can deem that there is no limitation whatsoever, particularly if you have failed to file a return in a particular tax year, or if they believe a return to be fraudulent.

There is also no limitation when it comes to foreign income and assets until the correct forms have been filed.

These will include Form 8938, to report foreign financial assets, and Form 3520, which details foreign trusts, gifts, and bequests exceeding $100,000.

Once you have filed those forms, the statute of limitations is then three years from the date of filing.

You also need to ensure you file accurate and timely tax returns when you leave the US permanently. Don’t assume that you can adopt an “out of sight, out of mind” attitude to your US tax affairs once you are no longer a US citizen.

There is no statute of limitations on the IRS being able to take action against you if they believe that your filing record is not up to date. You will need to complete Form 8854 to notify the IRS of the termination of your long-term residency and ensure that all your previous filings are correct.

The IRS may accept that you have reasonable cause for a delay or error in your tax filing

What you’ve read here is largely the worst-case scenario. Clearly, if you make a human error in your tax-filing submission, you can request that it be considered reasonable cause. If this is granted, you will avoid any potential financial penalty.

However, the IRS accepting your case for reasonable cause does not remove the statute of limitations on your return, nor does it mean that you are no longer required to make a correct submission.

Reasonable cause is often hard to prove or attain, and you shouldn’t assume the IRS will agree with your argument.

During the podcast, we suggested to Virginia that much of what we were talking about may be construed as scaremongering. However, she made the point that these examples contained no element of exaggeration or embellishment.

This issue highlights the overriding importance of expert advice

One key point underpins this issue, and it’s one we repeatedly returned to during our discussion: the importance of expert guidance in all matters of your tax filing.

We also make this point in a separate podcast about tax compliance for expats and recommend that you listen to both.

Navigating the US tax system as an expat can be daunting. You can help yourself by keeping detailed records of all your transactions. Above all, get professional advice from a tax expert who has a clear understanding of your financial circumstances as an expat.

So many of the problems that we encounter, both in relation to taxation and other financial planning issues, are avoidable with effective cross-border advice.

If you are a British expat living in the US and would like to talk about your own arrangements, please get in touch to arrange an exploratory Zoom call to discuss your options.

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