On November 20, 2012 the IRS reiterated it position that persons with dual U.S. and other citizenship must still file Form 1040 (and related schedules and forms) even if they are citizens and permanent residents of another country. The IRS said:
“A U.S. citizen who is treated as a resident of another country under an income tax treaty would still be required to file a Form 1040 (assuming his income meets the filing thresholds) and would still be subject to U.S. tax on his worldwide income (except to the extent one of the exceptions to the saving clause applies”
What this means is that a person with U.S. citizenship living abroad and paying taxes in another country in which he/she has citizenship must, if applicable to their circumstances, file Form 8938 Statement of Foreign Financial Assets, report gifts or bequests from foreign persons or foreign trust transfers by filing Form 3520, report interests in Controlled Foreign Partnerships and Controlled Foreign Corporations (Forms 5471 and 8968 respectively) and of course file a Report of Foreign Bank and Financial Accounts (FBAR). The failure to timely file the forms and returns may lead to imposition of significant penalties and possible prosecution. The notice would seem to belay efforts on the part of some taxpayers or their advisers to claim ignorance of the law as part of a reasonable cause defense to non-filing or late filing.
U.S. citizens living abroad and holding dual citizenship are cautioned, that both U.S. income tax and estate and gift tax laws apply to them, irrespective of their place of residence or double taxation treaties.
Tags: double taxation, dual citizen, failure to file penalties, FBAR, Form 1040, Form 3520, Form 5471, income tax treaty, Reasonable Cause