What If I Can't Afford to Pay My US Expat Taxes?

The following is a guest post by I.J. Zemelman, EA. Tax Operations Director at Taxes for Expats                                 

If you are in a position in which you owe an excessive amount to the IRS from your US expat tax return there are a number of options that may be able to help.  Expat tax filing requirements are some of the most confusing of all, and quite a few expatriates encounter a tax burden from such confusion that seems insurmountable. There are lots of tax guides out there designed to help you.

Most of these situations stem from an expatriate’s lack of knowledge of reporting obligations, available exclusions and deductions, or a failure to file US expat taxes altogether.  Despite the circumstances which have led you to a precarious situation with your tax liability, the IRS understands of the difficulties expats face in filing their taxes, and there are a number of tax payment assistance options available to ensure that all tax obligations are met without bankrupting the taxpayer.

In this article we will take a look at some of the options available to you and how to take advantage of them.

Monthly Installment Plans

If there is no way for you to pay the entire balance of your tax liability to the IRS upon filing your US expat tax return you may be able to set up a monthly installment plan with the IRS.  The important words to recognize here, though, are ‘no way to pay.’  To the IRS, this does not simply mean that you don’t have cash on hand.  Before requesting an installment plan the IRS will want to see that you have sought out other means of coming up with the cash such as applying for a loan, liquidating your assets, applying for credit cards or lines of credit with high availability, or other means. 

If you have exhausted your possibilities and are unable to pay the IRS you may apply for an installment plan by filling out and submitting Form 9465.  If your proposed installment plan will exceed 120 days you will not be charged a fee for establishing such a plan, but there may be a setup fee if you plan to square away your debt in less time.  Note that the IRS will not accept monthly payments lower than $25.

Delayed US Expat Tax Due Date

Tax deadlines don’t always coincide with the most fruitful time of year for expats.  There are many US expat taxpayers who will have no problem meeting their tax obligations in a matter of a few months but are not in a position to pay at the time of filing.  In this case, the IRS may agree to extend the due date on your liability, but it is not free of contingencies.  In an effort to protect its financial interest the IRS will most likely file a Federal Tax Lien Notice against you until you have satisfied your debt.  If your plan of coming up with the money involves assistance or transactions with a financial institution, this lien may cause a number of problems in the execution of your plans.

Offer-in-Compromise

While this may be one of the most desirable tax solutions to expats who can’t afford to pay their total tax liability, the IRS prefers it to be the last resort of a taxpayer.  On offer-in-compromise (also referred to as OIC) is an agreement between the IRS and a qualified taxpayer in which the IRS accepts an amount lower than the actual tax liability due.  In order for an OIC to be approved the IRS must be convinced that the taxpayer will not be able to satisfy his/her debt by any means now or in the future with an extended payment arrangement.  In order to ensure this isn’t the first option sought by taxpayers the IRS assesses a $150 fee for the evaluation of any OIC.  If you feel as though you owe the IRS more than you can possibly ever pay, you may apply for an OIC by filling out and submitting OIC Form 433-1.

Assistance with US Expat Taxes

There are a variety of programs for which expat taxpayers may qualify, and it can be quite exhausting reviewing your options and the qualification criteria.  Every taxpayer’s situation is unique, and identifying the most beneficial option isn’t always an easy task.  You can simplify the process by discussing your situation with an expat tax professional that is equipped with both knowledge and experience in determining the best course of action to take.

The most important thing to remember is that you have options.  If you ignore the problem and simply do not pay without communicating with the IRS you will find yourself in a much worse position with large penalties and a potential prison sentence. Be sure to consult tax guides or expat tax accountants who could help you.

I.J. Zemelman, EA is the founder of Taxes for Expats She may be reached at: +1-646-397-2887 Email: questions@taxesforexpats.com Web site: www.taxesforexpats.com

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