What if I Didn’t Report Foreign-Earned Income on My Federal Return? (2024)

For U.S. taxpayers who live and work abroad, the Foreign Earned Income Exclusion (FEIE) provides an opportunity to exclude up to $112,000 of your foreign-earned income from your annual federal taxable income. However, strict eligibility criteria apply, and taxpayers who are eligible to claim the FEIE must still report their foreign-earned income on their federal returns.

Even if You Qualify for the FEIE, You Must Still Report Your Income to the IRS

As the IRS explains, “[a] common misconception about the Foreign Earned Income Exclusion is that the excluded income does not need to be reported on a U.S. tax return. . . . [however,] the exclusion applies only if you . . . meet[] all of the requirements to claim the foreign earned income exclusion and you file a tax return reporting the income.” In other words, even if all of your income is excluded under the FEIE, you must still report this income to the IRS.

So, what if you didn’t?

As a U.S. taxpayer, you can face penalties for failing to report your foreign-earned income even if you don’t owe any federal income tax. The IRS penalizes both failures to report and failures to pay and the penalties for reporting violations can be substantial. With this in mind, if you have failed to report your foreign-earned income to the IRS, this is an issue you will want to address proactively—before facing an IRS audit or investigation.

How To Address Failure to Report Foreign-Earned Income When Claiming the FEIE

If you have failed to report foreign-earned income because you were claiming the Foreign Earned Income Exclusion and did not realize that you still needed to disclose this income to the IRS, you have a few potential options. One option might be to submit an amended return, although this type of “quiet disclosure” can lead to unwanted IRS scrutiny in some cases. More often, U.S. taxpayers working abroad will need to correct their mistake by submitting a streamlined filing.

The IRS’Streamlined Filing Compliance Procedures are intended specifically for U.S. taxpayers who have mistakenly failed to report their foreign assets and income. Using the IRS’Streamlined Filing Compliance Procedures does not allow you to avoid liability for any failure-to-report penalties you already owe, but a successful streamlined filing can eliminate the risk of facing an audit or investigation related to your mistake in the future.

Streamlined filings can be used to correct other common mistakes as well, such as failing to file an FBAR or IRS Form 8938 with respect to offshore bank accounts and other foreign financial assets. But, submitting a streamlined filing requires certification that your mistake was non-willful. If you cannot make this certification, you will need to consider other options.

Request an Appointment with International Tax Attorney Kevin E. Thorn in Washington D.C.

If you need to know more about your options for correcting a failure to report foreign-earned income (or foreign financial assets) to the IRS, we invite you to get in touch. Please call 202-349-4033, email ket@thornlawgroup.com or contact us confidentially online to request an appointment with international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.

What if I Didn’t Report Foreign-Earned Income on My Federal Return? (2024)

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