IR-2012-65 allows Dual Citizens who Don’t Owe Tax in the US a Pain-Free Way to Become Compliant
First of all, which dual citizens don’t owe tax in the US? As a general matter, a dual citizen who have been living in a foreign country and been paying that country’s tax (as appropriate) probably does not owe much tax in the US (if any). The US taxes its citizen’s income no matter where they earn it anywhere in the world. But the US also works in cooperation with almost every country in the world (except for countries such as Cuba, Iran and Yemen…i.e., countries we have no relations with). If you are an American citizen living in France (you might also be a French citizen), and you have been paying your appropriate French tax for the money you earn in France, odds are you will not owe tax in the US. Why is this so? Most foreign countries have higher tax rates than the US. So as long as the income is of a type which we recognize (such as wages for services, or gains for stock sales, or rental income, or dividends, etc), the US will credit income earned in France by the dual French/US citizen. Thus, after the credit, the US citizen probably owes $0 US tax or very little US tax, on the amounts he earns in France. And the same goes for that US citizens with most every other country.
Now let’s not confuse the issue of whether the dual citizen owes any US tax with the obligation of the dual citizen to: (a) file US tax returns; and (b) file FBARs annually if they have bank accounts outside the US with over $10,000 at any point in the calendar year. Those obligations generally exist whether the person owes US tax or not. But for those people the new guidance is terrific. Those individuals must complet their past-due tax returns (at least 3 years) and delinquent FBARs (at least 6 years), and they’ll probably have no penalty to get compliant provided you don’t owe significant US Tax. A great deal.