IRS tightens scrutiny on expats claiming additional child tax credit

In recent months, the IRS has focused on ensuring compliance among U.S. citizens and resident aliens living abroad who claim the Additional Child Tax Credit (ACTC). The ACTC provides a refundable credit up to $1,700 per qualifying child, impacting those filing taxes from overseas. However, claiming this credit has become increasingly complex due to regulations established by Internal Revenue Code Section 911. This section prohibits taxpayers who elect the Foreign Earned Income Exclusion (FEIE) or Foreign Housing Exclusion from qualifying for the ACTC, thus complicating situations for many U.S. citizens abroad. As of 2025, the Internal Revenue Service's oversight has intensified as a response to identified widespread errors in ACTC claims made by expatriates, leading to improper payments. The IRS has implemented an International Practice Unit (IPU) that outlines critical points for audit agents to investigate, ensuring better verification of income, residency, and the determination of valid Social Security Numbers for qualifying children. The increased scrutiny signifies a deliberate push to address previously overlooked areas within expatriate taxation and to reduce erroneous claims on credits that many are not eligible for. The ACTC applies to children under 17, with strict eligibility requirements, including a valid Social Security Number for the child and the taxpayer providing substantial financial support. If a taxpayer elects to use the FEIE, they forfeit the chance to claim the ACTC, causing potential financial strains for families who find themselves ineligible despite fulfilling other criteria. Understanding this barrier is crucial for expatriates who rely on these credits to alleviate tax burdens. The IRS has raised the bar for compliance, warning expatriates to prepare for the possibility of audits and to ensure their documents are in order to substantiate their claims. With this heightened awareness comes a sense of urgency, as taxpayers must review their records, verifying eligibility and financial support requirements meticulously. Failure to meet these standards could lead to detrimental financial consequences and the loss of potential refunds, underscoring the importance of diligent preparation amidst an evolving regulatory environment.