Greetings, long time lurker and first-time poster here. This is a situation I have some
experience with, so here's the short story. If you are an American then you will have to
file tax returns regardless of whether you are in the US or overseas. However, we get a
break since we can claim the Foreign Earned Income Tax Exclusion. For 2006 it was
$82,400, in 2007 it was $82,400.
The downside is that if you have no taxable compensation leftover as a result,
then you cannot contribute to an US IRA (technically you can have one, but can't
contribute any more to it that tax-year).