International Tax for U.S. Persons Abroad and Returning Residents

The rule the rest of it hangs on

Most countries tax people who live there. The United States taxes its citizens and its tax residents on worldwide income from all sources, and it keeps doing that after they move away. The IRS states it plainly: the rules for filing income, estate and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.

This is why so much international tax work is not really about tax at all. Someone who has paid full tax in another country for a decade often owes the United States little or nothing once a credit or an exclusion is applied — but the return still had to be filed, and the account reporting still had to be done, and those are the parts that carry penalties of their own.

Three separate reporting systems, not one

A common and expensive misunderstanding is that reporting a foreign account on one form covers it everywhere. These are three different obligations, administered by two different agencies, with different thresholds and different due dates. It is normal for all three to apply to the same person in the same year.

What changes when you move

Moving in either direction is the event that generates most of the questions on this page. Leaving the United States can open the door to the foreign earned income exclusion and the higher Form 8938 thresholds. Coming back closes both, often part-way through a year, which is why the year of the move is usually the one that needs the most care.

The FBAR is the exception that catches people out. It is tied to the calendar year and to the accounts themselves, not to where you were living. An account you closed in February of the year you moved home is still an account you held during that calendar year.

On tax treaties, and Brazil in particular

A tax treaty can change the answer substantially — but only if one exists. The United States has income tax treaties with a specific list of countries, published by the IRS. Brazil is not on that list. There is no comprehensive U.S.–Brazil income tax treaty.

What does exist between the two countries are separate instruments that solve different problems: a Tax Information Exchange Agreement, an intergovernmental agreement implementing FATCA, and a Social Security Totalization Agreement that prevents the same earnings being charged social security tax twice. None of them is an income tax treaty, and none of them relieves double taxation of income the way a treaty would. If you have read otherwise, check the source against the IRS treaty list.

What this firm can and cannot tell you here

These pages explain published rules. They do not tell you whether you qualify for anything, because eligibility in this area turns on facts — days present, intent, what was known and when, what has already been filed — that have to be reviewed rather than assumed. Anyone who tells you that you are eligible for a particular procedure before looking at your history is guessing.

Some situations should not start with a CPA at all. If there is any question of whether a failure to file was deliberate, or if the IRS has already made contact about the years in question, the first conversation should be with a tax attorney, where the privilege is stronger.