US Taxation

Basics of the US Taxation for International Taxpayers

1. What is the “Voluntary Taxation”?

The US tax system is based on “Voluntary Taxation”. This means that the taxpayers voluntarily comply with the tax law, not forced by the government. Thus, the taxpayers are obligated and responsible for filing accurate tax returns and paying the correct amount of taxes they owe under the law. You may have to pay penalties if you make a mistake and/or file an incorrect tax return.

 The U.S. tax law (and related procedures) is frequently updated, so the tax forms and instructions will be revised yearly. Please use the correct (latest or applicable) information and forms. You will find both current and past Tax publications and forms at www.irs.gov. You can also find the tax law (Internal Revenue Code) online at www.law.cornell.edu.

Examples of Penalties:

Civil Penalties:

• Filing Late/ Paying Late

• Accuracy-related Penalty

• Fraud

• Negligence or Disregard

• Substantial Understatement of Income Tax

• Filing Erroneous Claim for Refund or Credit

• Frivolous Submission

• Failure to Supply SSN

Criminal Penalties:

• Tax Evasion

• Willful Failure to File a Return, Supply Information, or Pay Any Tax Due

• Fraud and False Statements

• Preparing and Filing a Fraudulent Return

• Identity Theft

If you filed a false tax return to escape US tax responsibilities, you are still liable for taxes, interest, and civil penalties. IRS accepts most tax returns as is and issues refunds. However, even if you have already received a refund, the IRS will send you a bill to ask for unpaid taxes and penalties. Willful violation of the tax law to evade US income taxes may result in a civil fraud penalty and/or criminal prosecution, which includes fines and/or years in prison. In the United States, it is not uncommon for an “ordinary person” to get sentenced to jail for tax evasion.

2. What Does It Mean to Sign Your Tax Return?

 As a taxpayer, you (and your spouse if required) must sign your tax return. You will find the following statement on the tax form just above the signature space. 

“Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.”

This is a legal oath. If you signed under this statement, but at the same time you intentionally put false information on your tax return, you would commit perjury, a willful act of swearing a false oath. You may be charged with a felony and be sentenced to jail. 

So, be sure your tax return is accurate before signing. Be sure all of your income (and your spouse's, if filing a Married Filing Jointly: joint tax return) is correctly reported on your tax return. If you file Form 1040, Form 1040A, or Form 1040EZ, your (and your spouse's) worldwide income has to be reported.  It is YOUR responsibility to check the accuracy of what is written on your tax return. So you should ask questions before you sign. If someone prepared your tax return, and you found something unclear, you need to ask a question. If you use tax software, you should check that everything is correctly filed before you e-file.

3. What is the IRS “Audit”?

IRS accepts most tax returns “as filed” and may give refunds just as they claimed. However, your tax return may not be over yet. IRS selects some submitted tax returns for examination, which is called an “audit”. An audit examines whether the reported income, expenses, and credits are accurate. 

Being selected for an audit does not automatically mean you made an error or were dishonest in your tax return. In most cases, the IRS asks you to answer some questions and/or submit necessary documents. You (and/or your representative) should provide the IRS with the necessary information to verify your statement. Therefore, keeping all the documents and records you used when preparing your tax return is crucial. Taxpayers are required by law to keep sufficiently detailed accounting records. Just telling the IRS, “I don’t keep any documents, but I remember it, so it’s true!” would not be enough to support your statement. The IRS may reject your claim if you can’t show proper documents or evidence.

 If you continue to fail to file a required tax return, pay taxes you owe, and/or respond to the IRS's requests, you may face law enforcement actions, including lien, levy, and criminal prosecutions. Remember that the IRS can lien your bank account and levy your assets to collect unpaid taxes.

DON’T lie to the IRS. It can result in a felony conviction!

 In your home country, it may not lead to serious consequences when you act a little abusive to a federal agent. Or perhaps it would not matter if you told a small lie to the public officer. But here in the United States, DON’T DO THAT. In the United States, making false statements to federal agents is a federal crime, and you will be charged with a crime. If you have difficulties communicating with the IRS, ask a professional representative for help 

4. I’m out of the US and Will Never Be Back. Am I Safe?

 The answer is “NO”.

Taxes owed but not collected on time from U.S. Residents who work outside of the U.S. or from foreign people who come to the U.S. and work, such as international non-compliance, was a significant concern. To reduce opportunities for tax evasion, the U.S. Department of the Treasury and the IRS are making a serious effort on international tax compliance. 

In the past, the IRS did not have sufficient resources or specialized units to address the needs of international taxpayers. To address international tax issues, the IRS created a new unit to improve voluntary compliance among international taxpayers, and they started conducting audits. The United States has tax treaties and Tax Information Exchange Agreements with various countries. These treaties and agreements enable the IRS to exchange information and collaborate with those countries on tax-related investigations. 

What does the tax law say about "evasion"?

5. Then What Should You Do?

 If you found a mistake in your past tax return, paid fewer taxes than you should have, or had unreported income, what should you do to correct your honest mistake? You could be relieved of some penalties for filing an accurate amended return.  Income Tax Regulation 1.6664-2 states that an underpayment of tax does not include an amount of additional tax reflected on a qualified amended return. See Income Tax Regulation 1.6664-2 for more details.

 You could file an amended return to correct your mistake. If you must follow a particular disclosure procedure (e.g., Offshore Voluntary Disclosure Program), you should follow its instructions.

 If the IRS discovers tax evasion (e.g., making false statements, owing taxes but failing to file tax returns, not paying any tax due, etc.), they generally refer the case for a criminal investigation. However, you can avoid criminal penalties by voluntarily filing amended and/or late-filed tax returns before being notified by the IRS. 

If you have more complex tax issues, consulting with a tax professional may be a good idea. If your tax due makes it challenging to come forward, you can ask for the alternative payment option, and you may not have to pay in full all at once.  

All taxpayers' situations are unique. This document is intended for general information only and may not apply to your situation. You should consult your tax advisor regarding your needs. No warranty or responsibility is made for using this information or for any errors or inaccuracies resulting from your use. Any use of this information to avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or to promote, market, or recommend to another party is strictly prohibited.