The whole tax situation in the US seems so incredibly complex it seems almost impossible for people with moderately complex circumstances to avoid making a mistake somewhere along the line. Most of my ex pat friends don't even declare their foreign income at all or file an FBAR form.. I guess everyone is just "playing the game"

Just because the IRS seems to be playing the game along with your friends, don't expect that to go on forever. We lived and worked in the Caribbean for close to a decade, and when we unexpectedly came back to the mainland, the IRS wanted to know where we had been all those years when it came to paying taxes. Fortunately we had extensive documentation showing we had payed all that was needed, but the IRS can go back as far as they think they can get away with if they think you have defrauded them. Just because they ignore your friends today, doesn't mean they will get away with it forever. Which is as it should be.

IP