Thousands of American expats working abroad must ensure they fulfill their tax obligations to the US taxman or risk penalties that could include the loss of their US passports.

US citizens and green card holders in the UK, one of the major overseas work destinations for US employees and their families, are being urged to take advantage of the current Offshore Voluntary Disclosure Program (OVDP) which expires at the end of the month.

‘The American tax authorities are determined to punish citizens they believe aren’t paying their fair share of tax,’ said Seamus Murphy, senior tax manager at

‘One element of this is a crackdown on assets held overseas and not disclosed. From 2012, foreign banks and financial institutions will be forced to be more transparent so clients who should be paying but aren’t, deliberately or otherwise, are likely to have the whistle blown on them,’ he explained.

There are about six million US citizens and green card holders living abroad, with estimates suggesting up to one million of those could be in the UK. Most have an obligation to file tax returns to the US Internal Revenue Service each year even if their income is taxed in their country of residence.

Murphy says there is an increasing need for advice as US firms expand into international markets and their employees, plus their spouses and other family members, need cross border tax expertise to ensure they pay the correct tax and receive any credits and make use of exemptions too.

‘The scrutiny is becoming more detailed. They now have to report, among other things, any financial accounts containing more than $10,000 and transactions involving foreign trusts,’ said Murphy.

‘Some people will not want to disclose these accounts, while others may simply not be aware there is a requirement to disclose. The ODVP is not a full amnesty, but it does reduce significantly the size of penalties. It will go back eight years and basically will wipe the slate clean,’ he explained.

‘Those who don’t take part who are discovered to have breached the rules will face more substantial penalties which are multi-layered; failure to file, failure to pay tax, inaccurate filing, and can apply separately to each tax year in which the violations took place,’ he added.

The authorities calculated that of the 16 million people who applied for US passports in 2008, 224,000 owed about $5.8 billion in federal taxes. ‘If they chose to stop issuing passports until they are happy that tax has been paid, that could be a massive issue for expats,’ he said.