Tax Season Stalled for American Expats After Shutdown

(Bloomberg) -- The partial government shutdown ended just in time for the Internal Revenue Service to begin its tax filing season, but U.S. taxpayers living abroad will have to wait to submit their returns and receive refunds.

Among the backlog of work at the IRS after 35 days of operating with a skeleton staff are the yearly average exchange rates that people who are paid in foreign currencies need to be able to file their returns. Taxpayers who earn money overseas must translate those amounts to U.S. dollars on the paperwork they submit to the IRS.

The longest government shutdown in modern U.S. history hit the IRS at one of its busiest times of the year -- just weeks ahead of the tax filing season, which began Monday. The agency, which operated for the past month with a fraction of its workforce, had to prioritize which tasks it would complete during the shutdown.

Despite the handicap, IRS Commissioner Charles Rettig said the agency will begin sending out refunds next week. The IRS did not respond to a request to comment about when the exchange rates would be released.

American citizens or resident aliens living overseas are required to pay U.S. income taxes, though they can qualify for tax credits or deductions based on the levies they pay in the country where they reside.

If the IRS isn’t able to post the exchange rates for 2018 soon, it could mean that many expatriates will need to ask for a six-month extension to file their taxes, said Kevin Thorn, a Washington-based lawyer specializing in tax litigation.

Tax preparers are anticipating that the number of people who will request extra time to submit their returns will increase this year, as taxpayers continue to wait for guidance from the IRS that was delayed by the shutdown.

“The IRS is pretty accommodating in hurricanes, natural disasters, fires, tsunamis,” Thorn said. “I would have to think they would do the same with a political tsunami.”

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