The Long Reach of the IRS: Understanding Global Tax Obligations
The United States is one of only two countries in the world that imposes taxation based on citizenship rather than residence. This means that even if you’re living in Mumbai or New Delhi, you’re still legally obligated to file annual tax returns with the IRS. Failing to file a US tax return while living in India can lead to serious penalties, including fines, interest, and in some cases, the loss of your passport.
For American citizens and green card holders residing in India, the IRS expects full reporting of global income—including income earned in India. Many mistakenly assume that being abroad exempts them from US tax obligations, especially when they are already paying taxes locally. However, this misconception can be costly.
What Happens If You Don’t File?
If you fail to file your US tax return, you could face the following consequences:
- Failure-to-File Penalty: This can be as much as 5% of the unpaid taxes for each month your return is late, up to 25%.
- Failure-to-Pay Penalty: An additional 0.5% per month on unpaid taxes.
- Interest Accrual: Unpaid tax amounts begin accruing interest from the due date.
- Loss of Passport: Under the Fixing America’s Surface Transportation (FAST) Act, the IRS can revoke your US passport if you owe more than $59,000 in tax debt (adjusted annually for inflation).
- FBAR Penalties: If you hold more than $10,000 in foreign bank accounts at any point in the year and fail to file an FBAR (Report of Foreign Bank and Financial Accounts), you may be fined up to $10,000 per violation—or much more for willful neglect.
How the IRS Tracks Non-Filing Expats
With international cooperation increasing between governments, the IRS has more tools than ever to identify non-compliant taxpayers abroad. Through FATCA (Foreign Account Tax Compliance Act), Indian banks are obligated to report the financial accounts of US persons to the US government.
The IRS also receives data from:
- Financial institutions in India
- US border controls (via passport usage)
- International tax treaties and data-sharing agreements
This growing web of data sharing makes it easier for the IRS to find non-filers—even in remote parts of India.
Pathways Back to Compliance
The good news is that the IRS offers several amnesty programs for those who failed to file due to non-willful reasons. One such initiative is the Streamlined Filing Compliance Procedures. This program is designed for expats who were unaware of their tax filing obligations and allows them to:
- File the last three years of federal tax returns
- Submit six years of FBARs
- Avoid hefty penalties if they certify that the non-compliance was non-willful
Why Work with an Expat Tax Specialist?
Like Expat US Tax, it specialises in helping Americans living abroad, particularly in complex tax environments like India. Its team of tax professionals understands the intricacies of both Indian and US tax laws, ensuring dual compliance.
They offer:
- Personalised tax consultations
- Assistance with Streamlined Filing Procedures
- FBAR reporting and FATCA compliance
- Transparent pricing and ongoing support
By working with a professional service like Expat US Tax, expats can navigate the maze of US tax compliance with confidence and ease.
Final Thoughts
Failing to file a US tax return while living in India isn’t just a paperwork issue—it can have lasting financial and legal consequences. With IRS enforcement becoming increasingly global, the risks of non-compliance are growing. If you’re behind on your US tax filings, now is the time to act.
Don’t wait until penalties pile up or your passport is at risk. Explore your options and take advantage of programs designed to help you catch up without incurring harsh penalties.
Resources:
- IRS: U.S. Citizens and Resident Aliens Abroad
- FATCA Information for Individuals
- Streamlined Filing Compliance Procedures
