THE United States is the only developed country in the world that insists on taxing on the basis of citizenship rather than residency.

What this means is that all US citizens (and Green Card holders) must file tax returns if their worldwide income for the year exceeds the threshold limits for filing, which are extremely low.

For a married taxpayer filing separately, the case for many Americans married to foreigners, the threshold for filing can be as little as $3,000.

To reinforce this point, newly issued US passports, on the last page, state, “All U .S. citizens working and residing abroad are required to file and report on their worldwide income.”

Even if you do not owe any US income tax, you are still required to file US Form 1040 if your worldwide unearned income is more than $2,400 and/or your earned income exceeds $6,400.

Publication 501 of the IRS provides more detail on these limits. You must also file if you have realized capital gains while residing overseas.

Receiving an inheritance, liquidating real estate, stocks or bonds, or even winning the lottery while vacationing in the States could awaken the slumbering IRS giant.

Any assets or accounts that you maintain in the US could be frozen or transactions delayed due to unfiled tax forms.

Tax expert Jane Bruno, whose clientele resides 98% overseas, said: “All kinds of scenarios pop up that people never think about.

The term double taxation can be misleading, as few Americans living overseas actually.owe taxes to the US on their foreign earned income after the $85,700 (for 2007) earning exclusion (Section 911 of the Internal Revenue Code) and other tax credits (Section 27) are applied It’s the inconvenience, confusion and potential cost of filing every year that ultimately deters people.”

If you have not been filing, there are ways to come forward and clear your name voluntarily before the IRS gets involved and starts talking interest or penalties.

Up until 1993, if you did not file a tax return within a certain period of time after the normal due date, you lost the right to claim the foreign earned income exclusion.

This meant that all the foreign income would be considered taxable and, in addition, penalties and interest from the due date of the return could be assessed.

Fortunately, this is no longer the case.

If no tax is owed, you are permitted to take the foreign earned income exclusion for any past tax year no matter when you file.

Put the words “Filed Pursuant to Sec. 1.911-7(a)(2)(I)(D)” at the top of each Form 1040.

If you owe tax, follow the same procedure, take the foreign income exclusion, and pay the tax due. If interest and penalties are due, you can be sure the IRS will be in touch.

According to Jane Bruno, even if the IRS discovers you did not file and you owe tax, it will still permit you to file a return - it is just that in some circumstances, that return will be scrutinized more carefully than usual.

As a last resort, one can seek a Private Letter Ruling from the IRS, a formal demand for relief for not filing but this is expensive and time-consuming - $500-$2,500, depending on your income.

If you have not filed in many years, take heart. “Even though technically the IRS can ask that returns for all previous years be filed, no matter the number,” said Ms. Bruno, “it will normally be satisfied with filings from the preceding six years.”

Next month: “Tips for the last minute filer.” For more details about filing taxes from overseas: www.expattaxpreparation.com