Tax Evasion – How It Affects American Expatriates

Last updated on September 16, 2023

Many tax reporting requirements were changed and some others introduced when the U.S. government began efforts to curb tax evasion; specifically, curtailing the practice of hiding income overseas. Under the Foreign Account Tax Compliance Act (FATCA), new reporting requirements were implemented for both individual U.S. taxpayers living abroad and foreign financial institutions.

Although instances of this type of tax evasion were reduced, there was an inadvertent problem created for American expatriates. With the tax reporting and filing requirements, tax preparation became more complex. Many taxpayers that did not intentionally underpay their taxes in the U.S. or did not file their tax return faced difficulties in gaining back compliance, and were subject to penalties.

To help American taxpayers that intentionally or otherwise evaded paying taxes in the U.S., the IRS introduced the Offshore Voluntary Disclosure Program (OVDP). Through this program, taxpayers can gain back compliance without serious penalties or the risk of imprisonment.

After the implementation of FATCA, American expatriates were required to do more paperwork than when they filed their taxes in the U.S. In order to avoid the burden of managing a dual citizenship, many expatriates that had been living overseas for decades chose to renounce their U.S. citizenship.