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 US Citizens residing in Italy must still file their U.S. tax returns. Filing a tax return in America does not necessarily mean that taxes are owed in the US. In fact, in most cases, there are no additional taxes to be paid to the USA.

 Below you will find an e-mail exchange with a client of ours. The client is an American citizen residing in Italy, who asked us for information on how to manage her tax position in the United States. We often receive emails from Italian citizens residing in Italy who were born in the US, (and  therefore are American), but they moved to Italy as young children with their families.

In subsequent years they never filed a tax return in America because they didn't know that it was mandatory. This obligation only became common knowledge after FACTA regulations were enacted in 2010. The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.

 It is very unlikely for an American citizen residing in Italy to owe any taxes in the US.

 The American tax authorities grant a flat-rate income deduction of approximately $110,000 per year [foreign earned income tax exclusion]. Moreover, the convention between the US and Italy precludes double taxation. As far as the American tax authorities are concerned, the tax position of an American citizen living in Italy is one of a "US Resident living abroad". In practice, it is very unlikely for taxpayers in this situation to owe taxes in America. Nevertheless, the correct forms must be filed.

--------- Forwarded message ---------

From: xxxxxxxxxxxx

Date: Mon, Feb 18, 2019 at 6:08 PM

Subject: preventivo

To: Claudio Miranda

Dear Claudio,

 We spoke over the phone last week regarding the American tax return and, above all, the tax amnesty for failure to file tax returns in America in past years. I will briefly summarize the situation:

 I was born in America; therefore, I am an American citizen. I have always lived in Italy without economic ties or jobs held in the USA. I have a tax identification number, as I reside in Italy and not in the US.

 At the moment, I could collect the relevant documentation: tax return from 2012 till today plus bank account transactions and basic investment totals from 2012 till today.

 So far, I have asked other consulting companies to estimate a cost for this type of service, but it was way too expensive. I would like to know if you could please give me a quote from ExportUSA. Do not hesitate to contact me should you need any further info.

Sincerely, XXX 

 Dear Madam,

 I was contacted by my Italian colleagues in Rimini who forwarded me your request to manage your tax position in America.  As I understand it, you have never filed a tax return in the US. For this reason, it is important to proceed and take into consideration the last three years in addition to the FBAR report. Under the FACTA regulation (which includes the last 6 years) you are required to declare all of your accounts held abroad [meaning “not in America”], insofar as the combined balance of all accounts held exceeds the amount of $10.000, even if just for one single day.

 Before quoting our service, I would need to know an estimate of your annual income in Italy (including, but not limited to; Employee income, self-employment income, rents, coupons / dividends, occasional incomes, and royalties). Would you be so kind as to specify what your total annual income amounts to? An approximate number is fine. For American citizens who do not reside in America for any part of a given year there is a flat-rate deduction of almost $110,000 plus the protection against double taxation provided by the Convention between Italy and the United States. I doubt that there will be any additional taxes to be paid, and everything will be easily solved with only the administrative obligation to apply for amnesty for the tax returns not filed, and, in the years to come, the obligation to file the tax return in America on a yearly basis.

 I remain at your disposal for any further info you may require,

Lucio Miranda