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Discussion Starter · #1 · (Edited)
Hello everyone,

I must preface by saying that I consider myself to be an intelligent person, however I have lived and worked in Italy for several years without filing US tax returns (I have always filed Italian returns). I have recently started rethinking about it (by now I would have to request an extension) and realized that I should file for 2014, as well as most likely for 2011, 2012 and 2013 (before 2011 I didn't make enough to have to file).

Is it possible to file 4 years together? I wouldn't owe any tax, as I make a low amount of salary, but what could the repercussions be?
 

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If you genuinely owe zero U.S. tax, there are no penalties for non-filing....

....With one possible exception. The U.S. has financial reporting forms that you may be required to file. FinCEN Form 114 is the most notable and common one, but IRS Form 3520/3520-A is another possibility. There are penalties if you're supposed to file either of those reports and haven't. Note that the statute of limitations for FinCEN Form 114 is 6 years.

Fortunately there have been no reports of the U.S. Treasury imposing penalties among those who voluntarily get caught up with truthful filings before the U.S. Treasury notices. FinCEN Form 114 even has a drop-down box to explain why you're filing late. ("I didn't know" is a popular choice if truthful.) So that's the form I'd worry about the most, assuming you're required to file it. You were/are required to file that report if the total value of your foreign financial accounts was at least $10,000 at any point in time. That calculation includes accounts over which you have "signature authority," such as your company/club accounts and joint accounts.

Conceivably you could do better than not owing any U.S. tax. Italy is a comparatively high income tax country, so chances are pretty good you'll want to use the U.S. Foreign Tax Credit (FTC) to account for that. If so, if that works, that'll allow you to qualify for more of the refundable tax credits potentially available, and it'll also allow you to "bank" FTCs to offset possible future U.S. tax. So that's a good reason to file U.S. tax returns. You currently have (as I write this) about 19 days to claim any tax refunds you're entitled to for tax year 2011, so I'd look at that tax year carefully. For example, if you have a U.S. citizen child then you might qualify for $1000 if free money (per child) using the Additional Child Tax Credit.
 

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With a really low amount of income, you have a choice how to proceed. If your gross revenue for any of those back years didn't exceed the filing threshold for your filing status, you may not even need to bother filing.

For those years where your revenues did exceed the filing threshold, you may want to just follow the "streamlined" compliance procedure: U.S. Taxpayers Residing Outside the United States

Or, if your income is really low, you could just file 2014 (you have until June 15th to get it postmarked) on time. And then don't forget to file next year and so on. Unless you have a particularly "interesting" financial situation, it's unlikely they'll bother looking for the back filings - but many folks prefer going through the drill simply to sleep easier at night.

The FBARs (FinCEN) filings are only due if your foreign accounts total $10,000 or more.
Cheers,
Bev
 

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Discussion Starter · #4 ·
Thank you both for your replies. My income for each year was never any higher than about 20,000€ (that might seem to be poverty level, but in Europe you can actually live quite well!) so I definitely know that I (most likely) wouldn't have had any taxes to pay.

I am speaking with a CPA from an expat tax filing center this evening and hope to sort out my options. At least in your opinions, could it be viable to just "pop up" after years of non-filing (I was at university in the US until 2008 and therefore wasn't filing returns even then, perhaps just a couple years in which I worked a part-time job in 2003-2005) and file only for 2014?

Thank you again for your helpful advice!
 

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My income for each year was never any higher than about 20,000€ (that might seem to be poverty level, but in Europe you can actually live quite well!) so I definitely know that I (most likely) wouldn't have had any taxes to pay.
If that 20,000 euro consisted mostly of earned income, and either you worked in a country that has a social security with the United States or you worked for a non-U.S. employer, correct, it's very unlikely you would owe any U.S. tax.

But note that 20,000 euro, at today's (as I write this) exchange rate, is above the 2015 U.S. federal poverty line for a household as large as 3 persons. In other words, it's not a poverty income in the United States either.

At least in your opinions, could it be viable to just "pop up" after years of non-filing....
It depends on what you mean by "viable."

If you're asking what would be an assured penalty free approach, I would reiterate my previous advice, notably about FinCEN Form 114. Check carefully whether you were required to file that particular form. If you were, get that done. There are published penalties if you were required to file that form but didn't. You can clear that up easily.

As for your tax filings, again, do you qualify for refundable tax credits -- free money from the IRS? If you do, of course you really ought to file tax returns prior to 2014 to claim that free money.

The three most common ways for U.S. citizens living overseas to qualify for free money (or credits) are probably:

1. Having a U.S. citizen child. If you do, the Additional Child Tax Credit is likely available (if you skip the Foreign Earned Income Exclusion).

2. Having educational expenses at a qualified university. If so, the American Opportunity Tax Credit is potentially available.

3. Paying a higher rate of foreign income tax than your hypothetical U.S. rate. If that's true (very likely in Europe) then you can "bank" excess Foreign Tax Credits and use them to offset future U.S. tax obligations.

Is it "viable" to skip collecting free money (or credits)? Sure, it's "viable." But not smart. In fact, it's highly likely you already missed some free money by not filing, sorry to say. Example: the Making Work Pay Tax Credit (2009 and 2010). The free money before tax year 2011 is gone since the deadline to collect it has passed, and any free money available in tax year 2011 will be gone in about 18 days as I write this unless the IRS gets a tax filing.
 

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Let me temper the enthusiasm for claiming "free" money with a couple of caveats. First of all, filing mainly to claim back money from the various programs does label you as someone who has filed "solely" to claim back a cash bonus. If you run into problems or questions in later years, this could come back to haunt you (if only to question your motivation).

The second is that, particularly at lower income levels, it's not at all a given that living in a "high tax country" will result in your paying more tax than you would have done in the US. Due to the differences in how taxable income is defined and the different structures for exemptions, deductions and exclusions, your foreign taxes may actually be considerably less than the US tax.

And there is the little matter of "revoking" your FEIE:

Foreign tax credit or deduction. Once you choose to exclude foreign earned income, you cannot take a foreign tax credit or deduction for taxes on income you can exclude. If you do take a credit or deduction for any of those taxes in a subsequent year, your election for the foreign earned income exclusion will be revoked beginning with that year. See Publication 514, Foreign Tax Credit for Individuals, for more information.
followed by this:

If you revoked a choice and within 5 years again wish to choose the same exclusion, you must apply for IRS approval. You do this by requesting a ruling from the IRS.
Cheers,
Bev
 

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Bev, you're referring to a revocation of the FEIE. If you never took/take the FEIE, then you never revoked it.

Yes, you have to read the language very carefully. The IRS is saying that if you take the FEIE once (or more) then stop taking it, you need a tax ruling to switch back to the FEIE. The IRS is not saying that you cannot take the FEIE starting in a future year if you've not yet taken the FEIE. You can do that (in most cases), and you don't need a tax ruling.

You also don't need a tax ruling if your lapse in taking the FEIE is fully explained by not having foreign earned income in a particular tax year.

Am I reading the IRS's instructions incorrectly? I don't think so.

Yes, foreign tax systems have different results. That's why I chose my words carefully: comparatively high income tax jurisdiction. Comparatively means exactly that, you compare. That's all I ever recommend, that individuals check for themselves which option is best for them. The FEIE is not right for everyone. (It wasn't right for me for particular past tax years, yet my @#$()% accountant took it, unfortunately. That's just malpractice, I'm afraid.)
 

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Discussion Starter · #8 ·
I appreciate all the advice.

I didn't mean "poverty level" in the true sense of the word and apologize if it came across as condescending, I simply meant that many family members and friends are surprised at such a low level of income for professional work in Italy. As I do not have any sources of income, am not married, and have no children or other dependents, I don't believe I am missing out on any tax breaks.

I did realize this morning, after checking past bank statements, that I should have filed an FBAR for 2013 and 2014. I have recently engaged H&R block's expat service to see to filing my 2014 return, but is filing my delinquent 2013 and current 2014 FBAR something I should/could do myself and that would make sense to do myself?

Thanks again,
Liz
 

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As I do not have any sources of income, am not married, and have no children or other dependents, I don't believe I am missing out on any tax breaks.
I might be able to run a quick check for you. If you don't mind, could you take a look at your most recent Italian tax return (2013 or maybe 2014) and let me know your total income tax amount you paid (excluding payroll tax, and after any refunds) and your total gross income (before subtracting your social insurance contributions)? That should help give me an idea whether you can pick up some potentially valuable U.S. tax credits to bank, so let's start with that.

You can send me a private message if you prefer not posting that information publicly. (But it's not actually sensitive information since nobody knows who Wizziebeth is. ;) Anybody familiar with Italian tax rates would understand those two numbers.)

I know the first Italian marginal tax rate is 23%, so most if not all of your income was taxed at that rate (plus some regional/municipal income tax, probably). But what I'm not entirely sure of -- can't be sure, really -- is what amount (if any) of your income is Italian tax exempt (i.e. 0% income tax rate). Chances are rather good, though, that you can bank some U.S. foreign tax credits, and that'd be a very nice thing to do.

Otherwise I doubt you'd qualify for any U.S. side credits given your most recent description. The only thing I can think of is if you happened to spend some money on educational expenses more recently. (You mentioned school.) Was there anything like that in 2011 or later? Or were your final educational expenses way back in prior tax years, before 2011?

I did realize this morning, after checking past bank statements, that I should have filed an FBAR for 2013 and 2014. I have recently engaged H&R block's expat service to see to filing my 2014 return, but is filing my delinquent 2013 and current 2014 FBAR something I should/could do myself and that would make sense to do myself?
Sure. First of all, you have about 18 more days (as I write this) to file the 2014 report -- it's due June 30 -- so 2014 isn't even delinquent. Your 2013 report is late, but no problem, you can just file that year late and choose the truthful reason for filing late ("I didn't know" is popular). And that's that, you're done. We have not heard any reports of the U.S. Treasury levying penalties on anybody filing a voluntary, unprompted, truthful FinCEN Form 114 report, even if late. (If they send you a letter first, though, that's a different issue.)

Congratulations, by the way, on hitting $10,000 or more in your account(s). That's admirable at your income level. Keep it up. Note that one option is a U.S. IRA (Individual Retirement Account), but let's set that idea aside for now.

As it happens I know that Italy has its own analog to FinCEN Form 114 called "Form RW." If you have any non-Italian accounts or assets (such as ownership of some real estate, or $50 in a U.S. savings account, or whatever), of any size, please make sure you're filing that report if required. FinCEN Form 114 is rather "laid back" compared to Form RW -- that's a much more serious issue if you're not filing that report when you should be. The Agenzia delle Entrate has been known to be pretty fierce about missing that filing requirement.
 

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Discussion Starter · #10 ·
My income was quite low in 2014, though a bit higher in 2013. We're talking about 14,000 in 2014 and maybe 22,000 in 2013.

At this point it seems as if filing my FBARs online would be savings and then I should just have H&R Block do any returns.

Thanks!
 

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Discussion Starter · #11 ·
Ah, P.S. my tax rate in Italy is about 23-26% but last year was quite complex as I also had a Partita IVA. Let's just say I don't know who wins between the Agenzia delle Entrate and the IRS in terms of complexity and frustration.
 

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Bev, you're referring to a revocation of the FEIE. If you never took/take the FEIE, then you never revoked it.

Yes, you have to read the language very carefully. The IRS is saying that if you take the FEIE once (or more) then stop taking it, you need a tax ruling to switch back to the FEIE. The IRS is not saying that you cannot take the FEIE starting in a future year if you've not yet taken the FEIE. You can do that (in most cases), and you don't need a tax ruling.

You also don't need a tax ruling if your lapse in taking the FEIE is fully explained by not having foreign earned income in a particular tax year.

Am I reading the IRS's instructions incorrectly? I don't think so.

Yes, foreign tax systems have different results. That's why I chose my words carefully: comparatively high income tax jurisdiction. Comparatively means exactly that, you compare. That's all I ever recommend, that individuals check for themselves which option is best for them. The FEIE is not right for everyone. (It wasn't right for me for particular past tax years, yet my @#$()% accountant took it, unfortunately. That's just malpractice, I'm afraid.)
BBC, I don't believe I contradicted anything you have said here. Just a couple additional things to keep in mind when deciding how to proceed. And yes, if you decide to use a tax preparation service to do your taxes, there is always the risk of them doing something differently than how you would have done it. You pays your money and you takes your chances. Personally, I would rather do my own taxes so I know what I'm declaring - but if I had enough income that there was a risk of making an expensive mistake or omission, then you figure the money on a tax prep service is well spent.
Cheers,
Bev
 

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And how much Italian income tax did you pay? (That's income tax, not payroll tax.) Let's just pick 2013 and focus on that.

At this point it seems as if filing my FBARs online would be savings and then I should just have H&R Block do any returns.
The latter if you really wish, but you really do have a comparatively simple situation, and H&R Block costs a lot of money relative to your income.

If you really feel uncomfortable trying to take a crack at this, even with the free (or nearly free for past tax years) edition of tax preparation software such as TaxAct.com assisting you, one reasonable option is to let H&R Block handle one "representative" tax year and then use their work as a guide to help you complete other tax years. If only the numbers changed, but your tax situation didn't -- you haven't married, had a child, bought an Italian mutual fund (please don't), or whatever -- then that's a reasonable strategy and more affordable than paying a tax preparer for every tax year.
 

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Discussion Starter · #14 ·
I just filed my FBAR online for 2013 and 2014...was it really that easy? :) Now I'm considering just filing 2014 returns myself.

Thanks again!
 

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Discussion Starter · #15 ·
So, I completed my 2014 tax return on TaxAct, but the site doesn't appear to want to e-file my return because I have no tax due, no credits due, etc.

If this is correct, at this point, I think I'm just going to file for an extension and do 2011-2014 together. I read on the IRS website that you can go to www.officialpayments.com and pay for an extension directly there. Do you have any idea is this is the case and if this is how it works?
 

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Discussion Starter · #17 ·
Thanks, BBCWatcher ;). I meant if one can pay for an extension on the site I linked in order to allow myself more time to collect my 2011-2013 information and mail it in.
 

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I'm not sure what you mean about paying for an extension. You don't pay for a tax filing extension, and tax years 2011 through 2013 are already late.
 

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Discussion Starter · #19 ·
I meant filing for an extension for 2014 in such a way as I am able to mail all 4 returns together as soon as I've collected all the information on my 2011, 2012, and 2013 returns. I originally requested that H&R Block do the extension but now I've just gone rogue and will probably do everything myself.

Otherwise, my option is just to go to the post office on Monday June 15th and mail my 2014 return (on time) and then backfile (if I want) my other returns subsequently I guess.
 

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You can file IRS Form 4868 free of charge to get a 4 month extension on your 2014 tax return until October 15, 2015. (At this point you need to try to file it electronically, though, using IRS Free File probably.) However, note there's no penalty for late filing if you genuinely owe zero tax, so I wouldn't worry about this really.
 
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