US Taxes for Expats Living in Ireland

The “Emerald Isle” is known for its lush natural beauty, rich cultural traditions, bustling cities like Dublin and Cork, and economic success. With a robust economy focused on investment and trade, Ireland has become a popular destination for American expatriates from all walks of life.

If you’re a US expatriate living in Ireland, you are still required to comply with provisions of the Internal Revenue Code (IRC) by federal law. Depending on your financial circumstances, you may be subject to special reporting requirements pertaining to FBAR (Report of Foreign Bank and Financial Accounts). If you have a tax compliance issue, you may be able to obtain relief from civil penalties and even criminal prosecution by participating in the Streamlined Offshore Disclosure Program. Once you understand your tax obligations, we can help you look for tax credits or exclusions to help reduce your taxes in the U.S. so you are not taxed twice.

Whether you need assistance navigating filing requirements or have concerns about IRC compliance, international CPA Ted Kleinman can help. To set up a confidential review, call US Tax Help at (541) 362-9127.

Exit Tax: Are You a Covered Expatriate?

While expatriates may no longer physically reside within the boundaries of the United States, this does not necessarily sever financial ties to the U.S. On the contrary, even expatriates must report income to the Internal Revenue Service or IRS.

Certain portions of the Internal Revenue Code (IRC), notably 26 U.S.C. § 877 and § 877A, set forth tax obligations for expatriates and long-term residents “who have ended their US resident status for federal tax purposes.” US citizens and residents abroad must comply with US tax laws.

The IRS considers you a “covered expatriate” if you meet the following conditions:

First, you are a U.S. citizen living in Ireland, or you lost your U.S. citizenship within the past 10 years, and are now living in Ireland. If you lost or relinquished your U.S. citizenship, you might still owe taxes from the year your citizenship ended.

Second, your average annual net income at any time during the 5 years leading up to your expatriation exceeded $124,000. If you expatriated or lost citizenship any time after the year 2004, this amount of $124,000 may be increased according to a cost-of-living adjustment. Talk to our team to determine what the new limit might be for you, as it is likely higher.

Third, your net worth when you expatriated to Ireland was at least $2 million, or you did not report or indicate to the IRS that you satisfied your tax obligations during the 5 years leading up to your expatriation. This might come up if you failed to file your taxes or underreported your taxes for any reason.

Unfortunately, there can be negative financial consequences to covered expatriate status. For example, any gifts or bequests you make to US residents are generally subject to a debilitating 40% tax liability. If you expatriated a long time ago, it might be hard to tell if you are a covered expatriate. Talk to our team for help determining your U.S. tax obligations.

The IRS’ Streamlined Procedure. Do You Need to File an FBAR?

The IRS, which frequently works with the Department of Justice (DOJ), has gained a certain notoriety for driving U.S. tax law into international territory.

For example, in early 2013, the U.S. Attorney’s Office in the Southern District of New York obtained a guilty plea to “conspiring to defraud the United States by helping US account holders hide assets from the IRS in undeclared accounts” from Swiss bank Wegelin.

The IRS and DOJ are unafraid to aggressively pursue not only individual taxpayers who are suspected of tax evasion and other acts of noncompliance but also any foreign financial institutions (FFIs) that aid in those efforts — no matter how old or firmly established. While Switzerland is exceptionally well-known for being a tax haven, Irish banks and expats to Ireland are certainly not invulnerable to IRS investigations — nor are they impervious to criminal prosecution.

The federal government requires people to file a Report of Foreign Bank and Financial Accounts (FBAR) to prevent U.S. citizens, expatriates, and others with certain types of foreign income.

As a US expatriate, you are required to report your income by filing an FBAR if you have a financial interest in or authority over at least one foreign financial account with an aggregate value exceeding $10,000 at any point during the tax reporting year. If you have any assets outside the United States, talk to our team about your possible FBAR requirements. For example, if you are still a U.S. citizen but live and work in Ireland, you might need to file an FBAR regarding Irish accounts and assets.

What Happens if U.S. Expatriates in Ireland Faile to File an FBAR?

If you meet these requirements yet fail to file an FBAR, the penalties can be severe — particularly if such failure was intentional or “willful.” Even so, non-willful or accidental oversights that cause you to not file your FBAR might land you in hot water with the feds.

Civil penalties for failure to file your FBAR may be found under 31 U.S.C. § 5321(a). A non-willful failure to file FBAR can result in a maximum $10,000 civil penalty per violation, while willful failure can lead to the imposition of a $100,000 penalty or half the value of the account, whichever figure is larger. For some individuals, this 50% account value — and financial loss — is considerably greater than $100,000.

Yet more alarming for noncompliant expatriates is the risk of criminal prosecution and consequent incarceration. Consider the following criminal penalties for various tax crimes:

  • Tax Evasion
    • Fine — $250,000
    • Sentence — 5 years
  • Filing a False Return
    • Fine — $250,000
    • Sentence — 3 years
  • Failure to File a Return
    • Fine — $100,000
    • Sentence — 1 year
  • Failure to File FBAR
    • Fine — $500,000
    • Sentence — 10 years

Fortunately, it may be possible for you to dramatically reduce your risk of criminal liability by participating in a special IRS initiative called the Streamlined Offshore Procedure. Participation in the Streamlined Procedure has proven tremendously beneficial for countless taxpayers. Most importantly, the Streamlined can help keep you out of prison.

Will I Be Taxed by Ireland and the U.S. on the Same Income?

At this point, you might think that both the United States and Ireland will tax your income, meaning you have to pay taxes twice. While this is legally possible, there are steps you can take to avoid double taxation on the same income. Depending on your situation, we can help you claim a foreign tax credit or take advantage of a foreign-earned income exclusion.

Foreign Tax Credit

A foreign tax credit might be available for you if you owe taxes to Ireland. This might not be the case for everyone, as not all people living in Ireland might be considered tax residents. If you are a tax resident, you are obligated to pay taxes to the Irish government. You might also be obligated to pay taxes on that same income to the United States. A foreign tax credit can help you minimize your tax obligation to the U.S.

The credit works like a deduction on your U.S. taxes. However much money you paid in taxes to Ireland, you can deduct that amount from your U.S. tax obligation. Remember, for individuals, this tax credit typically only applies to income and income tax. Other types of foreign taxes imposed by Ireland might not apply, and you should speak to our team for advice.

The tax credit might also not apply to income you have excluded from your Irish taxes. For example, if you can exclude a portion of income from Irish taxes for some reason, you cannot claim a foreign tax credit in the U.S. on that excluded income.

Foreign-Earned Income Exclusion

If you earn income from an Irish source while living in Ireland, you might be eligible for a foreign-earned income exclusion. This tax break only applies to U.S. expats who derive income from some foreign-based source. For example, suppose you are a U.S. citizen living and working in Ireland for an Irish company or business. In that case, your income is foreign-earned, and you might be eligible for this exclusion. If you work for a U.S. based company with offices in Ireland, your income might not be considered foreign-earned.

You might not be able to exclude all your foreign-earned income, depending on how much you earn. There are limits on what may be excluded from your U.S. taxes. The limit is adjusted yearly for things like inflation and the cost of living. For 2023, you may exclude up to $120,000 of your foreign-earned income.

Call US Tax Help if You Are an Expat Living Abroad in Ireland

To arrange for a private case review with Ted Kleinman CPA, call US Tax Help at (541) 362-9127 today. Ted also assists US expats in the United Kingdom, including England, Scotland, and Wales.

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