The IRS has recently issued a reminder to taxpayers that the automatic two-month extension for U.S. citizens and resident aliens living abroad for filing the 2017 income tax return is about to expire. U.S. citizens or resident aliens are subject to U.S. income tax on their worldwide income, regardless of where they are. The due date for filing the return is April 15 of the following year. However, U.S. citizens and resident aliens living and working abroad are subject to a special deadline to file their federal income tax return, June 15, 2018. To qualify for this automatic deadline, the taxpayers must be living outside the U.S. and Puerto Rico and their main place of business or post of duty must be outside the U.S. and Puerto Rico. Nonetheless, taxpayers should be mindful that this is an extension of time to file the tax return—not an extension to pay any tax due. Thus, interests still apply to any unpaid tax as of the original April 15 deadline. And, as the IRS recently increased the interest rates on past-due taxes, a taxpayer will be subject to an interest rate of five percent per year, compounded daily.
Taxpayers should not miss the filing deadline if they want to preserve their eligibility for the Foreign-Earned Income Exclusion. Nevertheless, taxpayers abroad who cannot meet the June 15 deadline are not without remedy; they can still get more time to file, but they need to ask for it and file a request by the deadline to get four extra months to file the tax return, until Oct. 15, 2018.
U.S. citizens and resident aliens abroad should also comply with other reporting requirements, such us reporting income from foreign trusts and foreign bank and securities accounts. Thus, if taxpayers have foreign bank accounts and securities, they must disclose them on Schedule B of their tax return; if they have foreign financial assets that exceed a certain threshold, they must report them on Form 8938, Statement of Foreign Financial Assets, etc.
Another filing requirement that U.S. citizens and resident aliens should not miss is the Report of Foreign Bank and Financial Accounts (FBAR), Form 114. This form must be filed with the Treasury Department Financial Crimes Enforcement Network (FinCEN) to report foreign financial accounts held during 2017. U.S. citizens and resident aliens that have an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2017, must file Form 114. The filing deadline for the annual Report of FBAR coincides with the due date for the federal income tax return filing. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the FBAR due date to April 15. This Act also provided for an automatic six-month extension to file Form 114, until October 15, 2018. Taxpayers need only file the return by October 15 to comply with the FBAR filing; no extension requests are required.
Finally, when filing their 2017 tax returns, taxpayers subject to the one-time transition tax under I.R.C. Section 965 are required to include with their tax returns a 965 Transition Tax Statement and pay the transition tax. Section 965 was enacted in December 2017 as part of the Tax Cuts and Jobs Act and imposes a transition tax on foreign earnings of foreign corporations that are owned by U.S. shareholders. U.S. shareholders subject to this tax may elect to pay the net tax liability in 8 installments, IRC Section 965(h). This new tax generated a great deal of uncertainty causing the Department of the Treasury and the Internal Revenue Service to release substantive guidance regarding its implementation. Most recently, on June 5, 2018, by News Release IR-2018-131, the IRS announced it will grant waivers of the underpayment of estimated taxes for taxpayers that made a Sec. 965(h) election. Taxpayer can count on this relief if they comply with the filing requirement and make the required estimated tax payments by June 15, 2018.
