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Old 07.08.2011, 16:52
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Re: US Taxes: Come Clean or Jump Ship?

I was in nearly the same situation, but I had been living in a high-tax country for a number of years. In my case, it made sense to file a total of 10 years of back taxes to gain the maximum foreign tax credit, which I now apply to the US taxes I owe each year (since my US tax rate is higher than my Swiss rate). I didn't have any US tax liability in those 10 years, so there were no penalties or interest to pay. It took me two full weekends, plus searching for a lot of old records (I'm not the most organised guy in the world), but once it was done, it was done.

FWIW, the tax software from 2007+ did a better job of handling expat taxes than earlier years. Provided you don't have Foreign Tax Credits to carry forward, it's probably easiest to start with your 2010 taxes and work backwards, comparing each year's returns as you go along. I noticed that years prior to 2007 were miscalculating the AMT (Alternative Minimum Tax), so I had to go back and calculate it myself for those years. But I wouldn't have noticed if I didn't have the later years to compare against.

The most important thing is this: filing back taxes for years where you don't owe anything doesn't cause any problems, but not filing taxes in a year when you do owe causes big problems. Since this is the first year that you're likely to have a US tax liability (and most likely, not a very large one), this is the perfect opportunity to 'come clean'.

The only place where you'll technically run the risk of any penalties is the FBAR reporting requirement, but this requirement is really designed to catch out big tax evaders, money launderers, terrorist supporters, etc. There is nothing definitive out there, but all the anecdotal evidence I've seen is that Average Joes aren't prosecuted for FBAR violations. Start filing an FBAR this year, and continue in the future, and you should be fine.
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