Whether you're a US citizen or green card holder living abroad—or supporting employees who are—the US tax system presents unique challenges. Unlike most countries, the United States taxes individuals based on citizenship rather than residency. As a result, US citizens and green card holders must file annual US income tax returns and report worldwide income and gains, no matter where they live or work.
In addition to income reporting, taxpayers may be required to disclose the value of their foreign (i.e., non-US) assets. These disclosures are made both with their tax returns and, in some cases, through separate reports. Failing to meet these requirements can lead to significant penalties.
In this article, we provide an updated overview of the key US reporting requirements for foreign assets and highlight the IRS Streamlined Compliance Filing Procedures—a program designed to help taxpayers get back on track with their filing obligations. Additionally, we examine the potential impact that seriously delinquent tax debt can have on an individual's passport status and ability to travel internationally.
Key requirements for reporting foreign assets
US persons with financial accounts maintained outside the United States must annually report these accounts to the US Department of the Treasury if the balance exceeds specified thresholds at any point during the calendar year. This reporting is done using the Financial Crimes Enforcement Network (FinCEN) Form 114, commonly known as the Report of Foreign Bank and Financial Accounts (FBAR).
Heightened media attention on compliance efforts has increased awareness of these filing requirements, yet many taxpayers still mistakenly assume that reporting foreign bank accounts is automatically included in their US income tax return preparation. In reality, the FBAR is a separate filing obligation, though it is closely linked to the US individual income tax return.
For example, while filing US Form 1040 does not satisfy FBAR reporting obligations, income earned from foreign accounts must still be reported on Form 1040 and taxed accordingly. Additionally, taxpayers must disclose on Schedule B whether they own any foreign bank accounts. In some cases, they may also need to file Form 8938, Statement of Specified Foreign Financial Assets, as part of their income tax return.
The FBAR filing deadline aligns with the US tax filing season, with a standard due date of April 15. Taxpayers benefit from an automatic six-month extension, allowing submissions as late as October 15 without needing to request additional extensions.
For further clarity on FBAR requirements, we have compiled answers to common questions in our Foreign Bank Account Reporting FAQ.
For an in-depth understanding of US reporting obligations for foreign financial assets, download our eBook: A Guide to Navigating International Reporting Obligations for US Taxpayers with Foreign Financial Investments. This comprehensive guide explores required forms, reporting thresholds, potential penalties, and strategies to ensure compliance and effective mobility program management.
Streamlined filing procedures for delinquent taxpayers
If you recently discovered your obligation to report foreign assets or file US tax returns, you're not alone. Many taxpayers, particularly those living overseas, may be unaware of their reporting requirements. Fortunately, the IRS offers the Streamlined Compliance Filing Procedures to help non-compliant taxpayers become current without facing excessive penalties, provided their non-compliance was non-willful.
This program is designed for US taxpayers who have failed to file required forms, such as US income tax returns or FBARs, in a timely manner. It allows eligible individuals to file the necessary documents and resolve their tax obligations efficiently.
To participate in the program, taxpayers must:
- File delinquent or amended US tax returns for the three most recent tax years where the filing deadline (including extensions) has passed.
- Submit delinquent FBARs for the six most recent years where the filing deadline has passed.
- Pay any taxes and interest due on the filed returns.
- Certify that the failure to report income, pay taxes, and submit required forms was due to non-willful conduct.
It's important to note that taxpayers under civil examination for any year are ineligible for these procedures.
With increasing information-sharing agreements between foreign financial institutions and the IRS, it’s only a matter of time before the IRS becomes aware of unreported foreign accounts. Acting promptly can help avoid more severe consequences.
How the FAST Act impacts taxpayers and travel
In December 2015, the Fixing America’s Surface Transportation Act (FAST Act) introduced Section 7345, a powerful enforcement mechanism to ensure compliance with US tax laws. Under this legislation, the IRS can notify the US Department of State about taxpayers with seriously delinquent tax debt—defined as a cumulative unpaid federal tax liability (including assessed penalties and interest) exceeding $64,000 in 2025 (adjusted annually for inflation).
Once notified, the US State Department has the authority to:
- Revoke the individual’s US passport.
- Deny the issuance of a new passport.
Exceptions apply for taxpayers who:
- Have an account classified as currently not collectible due to financial hardship.
- Have a pending request with the IRS for either an installment agreement or an offer in compromise.
- Have been identified as a victim of tax-related identity theft.
- Are currently in bankruptcy.
- Reside in a federally declared disaster area.
- Have received an IRS-accepted adjustment that will fully resolve their tax debt.
For additional exceptions please refer to the IRS article.
The FAST Act underscores the importance of maintaining compliance with US tax obligations. Failing to file returns, pay taxes, or report foreign assets could have severe consequences, including restrictions on international travel.
Proactive steps to avoid issues:
- File all required US tax returns and foreign asset reports on time.
- Pay balances due promptly or arrange for a payment plan with the IRS.
- Keep your contact information current with the IRS to ensure you receive notices and can address any issues quickly.
Taking these steps can help avoid financial penalties, prevent passport-related issues, and reinforce commitment to compliance with US tax laws.
Staying compliant and avoiding risks
Navigating the complexities of US tax reporting requirements for foreign assets can be challenging, especially for individuals living overseas. The US tax system’s focus on worldwide income and assets makes it essential for US citizens and green card holders to stay informed and compliant.
Taking proactive steps to ensure compliance not only mitigates risks but also provides peace of mind. Whether you need to file overdue forms, report foreign assets, or address other concerns, it’s important to act now before enforcement actions escalate.
Need help understanding your US tax reporting obligations? Contact us to explore how we can assist you in navigating these complex requirements and maintaining compliance with confidence.
