Can I Die My Way Out of US Tax? And Other Important Issues Facing US Citizens Living Abroad

Benjamin Franklin once said, “in this world, nothing can be said to be certain except death and taxes.” This statement is more relevant than ever for the millions of Americans living outside the US. The certainty is this: if you are a US citizen, regardless of where you live, your debt to the Internal Revenue Service (IRS) doesn’t disappear after you die. To those who wonder ‘can I die my way out of filing or paying US taxes?’, the short answer is ‘no’ and you certainly don’t want to leave a mess for your loved ones to remember you by.

US Tax Obligations for Citizens Living Abroad

More and more US citizens living abroad are realizing that their relationship with the IRS didn’t end once they took up residence in their new home country. To the chagrin of many, the United States taxes its citizens on their worldwide income regardless of where they live. And yes, this even applies to people who have never even set foot in the US but are citizens through birth. “Accidental Americans” are still Americans.

Many also realize that the clock is ticking. The Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010, requires foreign financial institutions to share information with the IRS regarding US taxpayers. As many have probably noticed when applying for a new bank account, there are often questions about US citizenship or residency status. The information has been gathered and is still being gathered, and it’s only a matter of time before the IRS comes knocking.

Some people are facing this head-on by utilizing some of the IRS’ amnesty programs available for non-compliant taxpayers living outside the US (though these programs may not last forever!), but others may think they can simply wait until they “join the choir invisible.” After all, “how is the IRS going to catch me once I’m dead?”

I’m Dead. Now What?

Your tax obligations don’t disappear when you die. They just get passed on to the administrator of your estate. The administrator is now on the hook for what you didn’t do in life. The administrator may be more than just responsible for the tax compliance – in some circumstances, they may be personally liable for taxes not paid and tens of thousands (if not more) in failure to file penalties. If your death wasn’t enough, that’s sure to throw some salt in the wound!

US citizens are subject to the US estate tax at the time of death (again, regardless of where you live), and the estate administrator is responsible for filing the estate tax return (if required), as well as income tax returns for the year of death and for any preceding years for which a return was not filed. A separate income tax return for the estate may also need to be filed.

The filings can be complex and carry significant penalties if filed late or incorrectly. Filings for things such as foreign trusts, foreign closely held corporations, and foreign financial accounts can carry minimum penalties of $10,000 USD per year per form. That’s a lot for the estate administrator to take on.

What Should I Do About It?

If you’re still breathing – It’s time to start getting compliant with your US taxes. Here at Moodys Private Client, we have experience helping thousands of clients become compliant, including through the various IRS amnesty programs. We can make the process as painless as possible, which will help you sleep at night and leave your estate in good condition.

If you’re not still breathing – Executors and estate administrators – we’re here to help you as well. We can help you and the estate get compliant on tax filings after the passing of your US loved one. Let this be one less thing for you to worry about.

What About Renouncing My US Citizenship? Can That Help?

You may be reading this and thinking, “this sounds like a nightmare to deal with,” and you may be right! For some people, renouncing their US citizenship and minimizing, or even eliminating, their tax ties to the US is very appealing. We help hundreds of people renounce their US citizenship every year.

Renouncing one’s US citizenship is a very important and personal matter for US citizens living abroad and their families, and the implications must be carefully discussed before any decision is made. Our firm fully understands the importance of renouncing our client’s US citizenship the right way. We help 600-900 people a year properly give up their US citizenship on six continents, more than any firm in the world.

If you or a family member is a US citizen considering renunciation, we invite you to visit our dedicated webpage for more information. This page also contains links to register for our upcoming renunciation webinars. You can find one that is tailored to your geographic location in our events listings. These webinars provide a thorough review of everything you need to know about the US citizenship renunciation process, and available options should you decide to take the next steps.