Wife behind on tax many years - best way to resolve?

[NAMP19]

Hello,

I'm British, my wife is American. She's lived and worked in the UK for well over a decade and her passport is due for renewal and only now realised she had to file for the US.

She has deep anxiety about these things and is freaking out about being arrested or being refused a passport so I'm looking into it for her.

She hasn't earned enough  by  my reckoning  to accrue any tax via the foreign earned income threshold which is good.

I saw there's an IRS amnesty scheme but it costs a grand. Yuck.

She's pretty good at keeping records though.

So, would the best way of dealing with this be going down the amnesty route and paying a grand, or filing all her taxes the standard way going back years?

If the latter, how far back do TurboTax forms go? We're talking 2006/2007...

If they don't it might be easier just to go through the amnesty.

Also, can the IRS stop you getting a new passport if she's seriously behind?

Finally do you recommend a tax company in the UK be involved? If so, any recommendations?

Thanks in advance

[DoninGA]

Well, for one if she has not filed a US federal tax return for over a decade then I seriously doubt that she would have any type of tax debt that would prevent her from renewing her passport.

The IRS has a website with information concerning the issue of tax debt and passport renewal here - https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-ca...

Just to check she can go to this IRS website for a tax account to see if she has a tax debt - https://www.irs.gov/payments/view-your-tax-account

If her income is foreign sourced, then as you mentioned she is eligible for the Foreign Earned Income Exclusion reported on a Form 2555 which is included with the personal tax return, Form 1040.  The maximum exclusion amount for tax year 2018 is $103,900.  

So if her foreign income falls below the maximum exclusion amount, the tax return that would be filed would have no taxable income being reported, therefor no taxes owed and no tax refund.

The exclusion amount changes for each tax year.  For example the Foreign Earned Income maximum exclusion for tax year 2006 was $82,400.

TurboTax only supports the current tax year and the prior three tax years.  So that would be tax year 2019 thru 2016.

You can get free federal tax forms, schedules and instructions from this IRS website - https://apps.irs.gov/app/picklist/list/priorFormPublication.html

IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad may also be useful - https://www.irs.gov/pub/irs-pdf/p54.pdf

Unable to recommend any tax preparation firm in the UK that prepares US federal tax returns.  However, with the number of US citizens living and working in the UK it should be fairly easy to find a local firm using an internet search. 

[DoninGA]

I should also mention that there is NO penalty for filing a tax return after the original due date of the tax return if there on no taxes owed on the tax return being filed.

[NAMP19]

Thanks Donin. Does that include savings? We think she has had a year or two of savings over ten British grand, so might have accrued some tax...would it be a huge amount?

[DoninGA]

Two things concerning the savings account -

First, I have to assume that the saving account paid interest on the funds in the account.  The interest earned for the year would be reported on a US federal tax return.  This is unearned income and is not included in the foreign earned income.  However, this is probably a small amount and would not be taxable since the standard deduction for someone filing as Married Filing Separately (assuming You personally Do Not have a Social Security number or an ITIN issued by the IRS) is $12,000 for tax year 2018.  Meaning that the first $12,000 of taxable income is Not taxed.

Second, if the foreign account(s) at any time during the year exceeded $10,000 then she is required to report the Foreign Bank and Financial Account (FBAR) on FinCEN Form 114.  

See this IRS website - https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:

1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.