The 2017 Tax Cut and Job Act (TCJA) included major revisions to the taxation of individuals. This included the temporary (through the 2025 tax year) reduction or elimination of deductions for:
Other changes included:
The two most significant tax provisions impacting Americans living abroad – the Section 911 exclusion and the foreign tax credit – remained unchanged by the 2017 tax law. There were however changes such individuals should keep in mind.
A Tax Court decision issued during 2019 proved a stark reminder of the consequences of not properly electing the Section 911 exclusion. In this case, the taxpayers elected the Section 911 exclusion on a delinquent tax return after learning they were required to actually file a return to claim the exclusion. (Note: many Americans living abroad do not file assuming they will have no taxable income after taking the Section 911 exclusion into account.). Claiming the exclusion on a delinquent return is generally allowed provided the IRS has not notified the taxpayers of the delinquency before the taxpayers file the late return(s). However, because the very specific requirements outlined in the regulations were not strictly adhered to in this case, the IRS disallowed the election and assessed a significant tax liability, penalties and interest going back more than 10 years.
In July 2019 the IRS announced a new compliance campaign, a portion of which was aimed at U.S. citizens and long-term residents living or holding assets outside the US. As a result of FATCA (‘Foreign Account Tax Compliance Act’) having been in place for almost 10 years, the IRS now has data from non-U.S. financial institutions on the foreign financial interests of millions of Americans and long-term residents. Measures outlined include the denial of U.S. passports where significant unpaid tax liabilities have been determined by the IRS.
On September 16, 2019, the IRS also announced new procedures for ‘accidental expatriates’ who relinquished their U.S. citizenship on or after March 18, 2010. This procedure was created to address compliance failures occurring after the enactment of the Foreign Account Compliance Tax Act (FACTA) which required for the first time the reporting of investments maintained outside the U.S. by U.S. citizens and long-term residents. The new procedure will allow them to become compliant with all U.S. tax and reporting requirements and avoid classification as a ‘covered expatriate’ – a designation that can lead to harsh U.S. tax consequences. The basic requirements of the new procedure are that the individual must have unpaid U.S. taxes of no more than $25,000 for the past six years and a net worth of less than $2M. The procedure requires the filing of income tax returns and financial account information returns (e.g. FinCen 114 – Report of Foreign Bank and Financial Accounts and Form 8938 – Statement of Specific Foreign Financial Assets) for the past six years.