Reviewing Potentially Incomplete Expat Tax Returns

Many expats file incomplete returns missing critical international information forms like FBAR, FATCA, or PFIC reporting. Comparing filed returns against IRS transcripts and prior years reveals gaps that may still be correctable.

Incomplete returns are common among expats. Many US taxpayers abroad file a basic 1040 but miss critical international information returns. The most frequently missed forms include: FinCEN 114 (FBAR) for foreign bank accounts, Form 8938 (FATCA) for specified foreign financial assets, Form 3520 for foreign trusts or large gifts, and Form 8621 for PFICs. Each missing form carries its own penalty structure independent of the underlying tax.

Incorrect FEIE/FTC elections create compounding problems. If you elected the Foreign Earned Income Exclusion on Form 2555 but the Foreign Tax Credit would have been better (or vice versa), the consequences ripple through multiple tax years. Revoking a Form 2555 election is allowed, but once revoked you generally cannot re-elect FEIE for five years without IRS approval.

A CPA reviews prior returns against IRS transcripts. IRS transcripts show what the agency received and processed. Comparing your filed returns to transcripts reveals missing forms, mismatched income, and unprocessed credits. This comparison is the starting point for any remediation.

The pitfall: Assuming a filed return was correct because the IRS did not immediately reject it. The IRS has three years to audit a return -- but six years if more than 25% of gross income was omitted, and no time limit for unfiled information returns.