IRS penalties expats face and how to fix them fast

Introduction

Living outside the United States does not reduce IRS enforcement. In fact, expats face higher penalty exposure than domestic taxpayers because international reporting rules trigger automatic scrutiny. Many Americans abroad discover penalties only after banks, employers, or foreign tax authorities report their financial activity.

IRS penalties expats encounter most often arise from misunderstanding, not evasion. Missed forms, incorrect assumptions, and reliance on non-US advisers can quickly escalate exposure. Penalties often apply even when no tax is due.

This guide explains why these penalties occur, the potential financial impact, and how expats can legally rectify past mistakes. It is written for professionals, business owners, investors, and globally mobile families who want certainty, not fear.

Why the IRS Targets Expats Aggressively

Citizenship, not place of residence, determines taxes in the US. This system places every US citizen under worldwide reporting obligations regardless of where they live.

The Internal Revenue Service relies on global data sharing, automated bank reporting, and treaty cooperation to identify non-compliance.Foreign banks are required by laws like FATCA to notify the IRS immediately of US account holders.

Official FATCA guidance appears here:
https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca

As a result, IRS penalties expats face often arise years after the initial mistake. Once flagged, penalties apply retroactively with interest.

The Most Common IRS Penalties Expats Face

FBAR Penalties

The most severe penalties involve the Report of Foreign Bank and Financial Accounts (FBAR). US persons must file FinCEN Form 114 if foreign account balances exceed $10,000 in aggregate at any point during the year.

Failure to file can trigger penalties of up to $10,000 per non-wilful violation. Wilful violations can exceed $100,000 or 50 percent of the account balance per year.

FinCEN guidance:
https://www.fincen.gov/report-foreign-bank-and-financial-accounts

FATCA Form 8938 Penalties

Form 8938 applies under FATCA and often overlaps with FBAR. Penalties begin at $10,000 and increase if noncompliance continues after the IRS issues a notice.

Expats frequently assume one filing replaces the other. It does not. IRS penalties expats face often arise from missing one while filing the other.

Failure to File US Tax Returns

Many expats believe that paying tax abroad exempts them from filing US returns. This belief proves costly.

Late filing penalties apply even when foreign tax credits eliminate US tax liability. Failure-to-file penalties can reach 25 percent of the tax due, plus interest.

IRS filing obligations explained:
https://www.irs.gov/individuals/international-taxpayers

Failure to File Information Returns

Forms such as 5471, 8865, 3520, and 3520-A apply to foreign companies, partnerships, and trusts. Each form carries standalone penalties starting at $10,000 per year.

Business owners and investors face the highest exposure here. These penalties apply regardless of income.

Why Penalties Apply Even When No Tax Is Due

The IRS treats reporting as separate from taxation. Information returns support transparency, not revenue collection.

As a result, IRS penalties expats encounter often surprise individuals who owe zero US tax. The system penalises missing data, not unpaid tax.

The OECD supports this transparency model through global cooperation frameworks:
https://www.oecd.org/tax/transparency/

How IRS Penalties Escalate Over Time

Penalties rarely remain static. Interest compounds. Failure-to-respond penalties stack. Additional years trigger repeated fines.

Banks may restrict accounts once compliance issues arise. Mortgage approvals, business financing, and even visa renewals become difficult.

Ignoring the issue increases cost exponentially.

The Difference Between Wilful and Non-Wilful Violations

Intent determines penalty severity. Non-wilful violations result from negligence, misunderstanding, or reasonable cause. Wilful violations involve knowledge or reckless disregard.

Most expats fall into the non-wilful category. However, silence after learning of obligations can convert non-wilful mistakes into wilful exposure.

A professional disclosure strategy protects this distinction.

IRS Solutions That Can Fix Past Mistakes

Streamlined Filing Compliance Procedures

The Streamlined programme allows non-wilful expats to catch up on missed filings with reduced or eliminated penalties.

Participants file three years of tax returns and six years of FBARs. Many pay no penalties at all.

Official IRS guidance:
https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures

Delinquent FBAR and Information Return Submission

In limited cases, expats can file missing forms without penalties when no tax deficiency exists, and reasonable cause applies.

This route requires careful evaluation. Incorrect use increases audit risk.

Reasonable Cause Statements

The IRS considers facts and circumstances. Strong, reasonable-cause arguments often eliminate penalties when supported.

Generic explanations fail. Strategic narrative matters.

Why DIY Fixes Increase Risk

Online advice oversimplifies complex disclosure programmes. Many expats unknowingly submit incomplete or contradictory filings.

Once submitted, corrections become difficult. Inconsistent filings trigger audits.

IRS penalties expats seek to resolve often worsen when self-filing is incorrect.

UK-Based Expats Face Additional Complexity

Americans living in the UK deal with overlapping reporting systems. UK accounts, ISAs, pensions, and business structures often trigger US reporting obligations.

Data is automatically shared between HM Revenue & Customs and the IRS. 

 UK compliance does not equal US compliance.

HMRC international cooperation overview:
https://www.gov.uk/government/organisations/hm-revenue-customs

Business Owners and Investors Face Higher Stakes

Ownership in UK companies, partnerships, or trusts triggers complex US forms. Penalties apply per entity, per year.

Companies House data feeds risk assessment systems:
https://www.gov.uk/government/organisations/companies-house

The Financial Reporting Council reinforces governance expectations that affect international compliance:
https://www.frc.org.uk

Banking and Financial Consequences

Banks increasingly ask for US compliance confirmation. Non-compliant expats face account freezes or closures.

The Bank of England highlights compliance as a financial stability priority:
https://www.bankofengland.co.uk

Loss of banking access creates operational and reputational harm.

Strategic Importance of Early Action

The IRS offers relief before enforcement begins. Once audits or notices start, options narrow significantly.

Taking control early preserves flexibility, reduces penalties, and restores peace of mind.

Why Specialist Advice Changes Outcomes

Generic accountants often lack US international expertise. US tax law operates independently of local rules.

JungleTax specialises exclusively in US–UK cross-border compliance. The firm integrates penalty mitigation, disclosure strategy, and long-term planning.

This approach resolves past exposure while preventing future risk.

Call to Action

Ignoring IRS exposure never makes it disappear. IRS penalties expats face increase over time, but legal solutions exist when handled correctly if you live abroad and worry about past US filings. Act before enforcement begins.
Email hello@jungletax.co.uk or call 0333 880 7974 to secure confidential, specialist guidance that protects your finances and your future.