General Compliance

Due to most of the world having resident-based taxation systems, many US citizens do not realize they have filing requirements or how to avoid being double-taxed. One of the methods to avoid being double-taxed, the Foreign Earned Income Exclusion (FEIE), gives the taxpayer a false sense of simplicity. The other, foreign tax credits, is too complex for the average taxpayer (or average accountant) to get right.

With the foreign tax credit, the US expects foreign countries to tax income similarly to the US and be able to neatly disclose how much tax was paid on each “category” of income. The categories overlap significantly due to their vagueness and/or the preparer’s interpretation.

Wealth taxes imposed by foreign countries, for example, is one tax that US taxpayers do not get credit for, but that it’s also unclear whether they are entitled to an itemized deduction for. In practice, the treatment is a coin flip based on the tax preparer/tax prep software the American abroad is using

US citizens must also use the US dollar as their functional currency even when they are not operating in US dollars. This can lead to phantom losses and gains. Filing from overseas is costly and complex leading many US citizens to use professional tax preparers for fear of making simple errors that can lead to severe penalties which are lined to tax evasion.