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Americans in Panama and Tax Returns. “United States citizens living in Panama, as well as those who have American and Panamanian nationalities, are required to file a US tax return annually. However, an average of 85% of them do not even file, which is a dangerous mistake because a US tax return is not just about paying taxes owed but, proving that you are not a money launderer,” explained Clinton Donnelly, a lawyer and tax specialist who is licensed by the Inland Revenue Service (IRS) to represent clients worldwide.
He has written a book called Foreign Earned Income Exclusion: Avoiding IRS Audits, which cost $19.99 and is available on Amazon at: www.amazon.com/Foreign-Earned-Income-Exclusion-Avoiding/dp/0998672505, that is a guideline about how to deal with IRS.
According to Donnelly, his 320 page book demonstrates how to exclude the first $102,000 from taxes, which represents savings of up to $21,000. Taxes must be filed by April 15 every year to avoid penalties from the IRS.
Donnelly told The Visitor that with the tax return the taxpayer must declare his foreign assets annually. The attitude of the U.S. tax authority is that innocent people declare their assets. Criminals and money launderers hide their assets. So when the person hides them from the IRS, he or she is behaving like a criminal.
Panama made an agreement several years ago with the United States to apply the Foreign Account Tax Compliance Act (FATCA) to US citizens living here, and for that reason, banks and other financial institutions have the obligation to send information about the finances of their American clients to the IRS.
Penalties are severe for those not filing their tax returns, added Donnelly. “Failure to declare foreign assets is a 50% penalty per year unreported. For example, a Panamanian-American owns a company in Panama. He must report his ownership of the company and the value of its assets. Failure to do so is a 50% penalty for every year not reported. So, if the person have not reported for six years, the penalty is 300% of the value of the company. Because of treaties signed between Panama and the US, the IRS will slap liens on all the taxpayer assets in Panama until the debt is paid off.”
However, said Donnelly, “the IRS has several tax amnesty programs which are available if you want to come clean and save yourself, but you have to act quickly before they go away. The new president of the United States, Donald Trump is a businessman, who is looking to collect money for the Treasury, and American citizens living abroad could be affected if they do not pay their taxes,” concluded the lawyer.
Panama does not have a double taxation treaty with the United States and therefore for the time being, American citizens will have to continue paying taxes in both countries.