To Pay or Not to Pay is the Question – Expat Tax Problems

Usually people have the perception that after paying taxes through Tax Deduction at Source (TDS), it is not important to add filing of returns because the governments’ basic agenda is to ensure that its revenue is earned through the tax obtained. This is absolutely wrong.

Almost all of us must be well aware by now that expatriate tax returns can be dicey many a times. It is our constitutional obligation to file tax returns on time. Listed below are some reasons so as to why it is so essential to file your expatriate tax returns and to pay your tax liabilities on proper time and how to manage and minimize the damage caused if you fail to do so.

When does the Audit Red Flag hover?

Even if your tax returns seem pretty perfect over the couple of years and there is no possible reason for any extra taxes, interest or penalties to be added, yet you could have the “audit red flag” hovering around because some auditor senses something amiss amidst your reporting. And this in returns leads to the whole IRS investigation to begin. The fear of having your tax return audited is naturally justified, especially if you are beguiling the government. But for loyal tax payers it is a cause of worry which hovers in the back of their mind every single year.

You cannot trick the tax auditor into giving you a clean chit, especially when you know you haven’t filed the tax return because the tax auditor has enormous tools at their disposal when investigating about tax evasion or tax liability understatement including cross examining about you to your current and past neighbors, co-workers, employers, employees and creditors. A detailed enquiry of your credit history, all your financial transactions, investment contracts and arrangements will all fall under the tax auditors’ scrutiny.

What happens when you don’t file a tax return or understate you tax liabilities?

In case you do not file by the deadline or the given extension you will be penalized under “failure-to-file” meaning under most circumstances, 5% of the amount of the unpaid tax. Each month that the return paid is late keeps exceeding, the amount remains the same. The penalty in no means can exceed 25% of the total amount of the tax that is unpaid.

You may also face criminal penalties like “Attempt to Evade or Defeat Tax and face up to 5 years imprisonment, pay up to @250,000 in fine, or both, “Improper Disclosure of Bank Accounts” if under any circumstance the IRS believes that you have understated your tax liabilities, or failed to file a tax return. You may also end up facing Civil and Compounding Penalties.

How to Avoid the Penalties?

When you can sense penalties coming your way, an experienced international tax lawyer and CPA’s help would be crucial to solve your complicated penalties. Some of the tools of a good tax attorney include: Penalty Exclusions, Statues of Limitations, Striking Evidence from inclusion and so on.

Role of Tax Attorneys and CPA’s:

Their role depends upon their experience level so as to protect you from facing further trouble by enlightening you about the intricacies of expatriate tax code, act as a damage control by minimizing all the penalties charged upon you by the IRS.

If you’re too confused about how to go about it, you can always seek help of professional expat tax services. With proper professional help you can save yourself from a lot of future grief and avoid unnecessary hurdles.

Vijayraj Reddy
Vijayraj Reddy is founder & editor-in-chief of, a financial blog which helps people to earn money, invest money and save money. You can find him on Facebook & Twitter or send him email at [email protected]

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