IRS Waives Estimated Tax Penalty for Expatriates

American citizens living and working abroad get a break on their estimated taxes for 2006. Expatriates who underpaid their estimated taxes as a result of the changes to the foreign earned income exclusion will not have to pay the estimated tax penalty. This one-time waiver of the estimated tax penalty is available only to expatriates who file their 2006 tax returns on time. The deadline for Americans living abroad to file their tax returns in June 15, 2007, or October 15, 2007, if you request an automatic extension.

In their announcement, Internal Revenue Service provided an excellent summary of the changes to the foreign earned income exclusion as a result of the Tax Increase Prevention and Reconciliation Act (TIPRA):

"TIPRA increased the maximum amount of foreign earned income that may be excluded from gross income to $82,400. The law also limited the amount of housing costs that may be excluded or deducted under section 911. TIPRA further provides that the tax applicable to income not covered by the foreign income exclusion will now be calculated as though the exclusion had not been elected. These changes are effective for taxable years beginning after December 31, 2005.

"Because these changes are retroactive to the beginning of the taxable year, persons relying on the law as it existed prior to the enactment of TIPRA may have underpaid their estimated tax liabilities for 2006 and may be liable for an addition to tax under section 6654(a). The IRS will waive additions to tax under section 6654(a) to the extent that the underpayment is attributable to the changes enacted under TIPRA."

More information:

• Foreign Earned Income Exclusion
• Expatriates Face Tax Hike under New Tax Law
• Foreign Earned Income Exclusion Increases for 2006
• Congress Passes the Tax Increase Prevention and Reconciliation Act
• Foreign Tax Credit
• Foreign Bank Account Reporting
• How To Pay Estimated Taxes

From the IRS:

• IRS to Waive Estimated Tax Penalty for U.S. Citizens or Residents Living and Working Abroad (IR-2007-32)
• Tax Guide for U.S. Citizens and Resident Aliens Abroad (Publication 54)