When many expats came abroad, the rules were rather lax. They didn't have to file US taxes due to their low incomes.

Later the rules changed, and they had to file taxes. Those who didn't know about the change ended up having to pay a big fine.

Lately, a new requirement was the need to file FBAR forms for every foreign bank accound and security: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Emplo...

Many people didn't know about the new requirement, and they had to pay big fines.

What will be the next new requirement that startles people who don't have any contact with the country? No one knows. That is the risk, the uncertainty that there might be a requirement that you don't even know about...

It is even worse for US Persons in Canada, many of whom have never even been a US resident in their entire life. The reason is our tax treaty... If you file in Canada, you're good. At least that is how it was. Now they are going after these people because capital gains are exempted from this aspect of the treaty so they think they are compliant by having filed in Canada, but then find out a house the sold 10-20 years ago should have been declared even if they have never had to file US taxes before.

Ahh, thanks for the explanation (and the link). Much appreciated.

The Foreign Earned Income exclusion does not apply to capital gains, investment or any other "unearned income." So a retired person would by able to claim the FEIE exclusion -- they'd be taxed as if they lived in the United States (with deductions for foreign taxes paid.) Pensions, disability payments, annuity payouts.. not under the FEIE. So for a lower-income retired person, double taxation is a huge problem.

For me, I got an inheritance that I didn't really remember from a relative who passed away years ago. It was put into a foreign bank account since this person wasn't a US citizen and passed away in the country of their birth, and since I got it as a minor I basically ignored it, figuring I could just leave it as a bit of an emergency fund.

When I found out about the new rules and then remembered the bank account (10 years later!) I realized I was probably not in compliance. That's one thing that spooks people: $2000 in a bank account you forgot about can lead to disproportionate fines. I had to do a lot of paperwork to get into compliance, and because I had to transfer the money I actually lost a lot in a poor exchange rate (due to various constraints).

It's not the tax failure -- it's the failure to report bank accounts to the US Treasury. Here's an article about it: http://money.cnn.com/2015/04/01/pf/taxes/irs-penalties/

It's the failure to file a FBAR every year that has meant some people have paid outrageous fines. That's separate from the income tax return.