This post has been cross posted from RenounceUSCitizenship.
See also:
U.S. citizenship has been priced out of the market
The taxpayer, the IRS and the “cross border professionals” – where to go from here
U.S. citizens may have trouble finding qualified tax preparers
An inside perspective – Stacie Kitts, CPA:
“Choose A Tax Preparer That Has a Clue
Here it is, what all un-registered (non CPA’s, attorneys, or enrolled agent) tax preparers have been waiting for. The specs for the competency test that will award those who pass the title of “Registered Tax Return Preparer.”
Wowwee doesn’t it just give you the chills….
No – well maybe that’s because CPA’s and attorneys can sign tax returns even if they don’t have a single clue what they are doing. They get to do this without passing a test (other than the initial licensing exam which he/she could have taken a hundred years ago – so not even relevant today) or taking a single hour of tax related continuing professional education. You know, training that would keep you up to speed on the actual tax laws that apply to tax return preparation.
So what do you think the odds are that many of these licensed “professionals” would have a difficult time passing the new competency test?
Ya, scary jacked up regulation that leaves out a large number of people who are trusted to prepare your tax return.
Fixing the mistakes of these so called professionals is a large part of my practice. I guess I should be grateful instead of loosing my mind over the absurdity of it all.”
Gives you food for thought doesn’t it. Not all tax preparers are created equally and the one you choose better “have a clue”.
U.S. citizens and dual citizens living outside the United States
Few U.S. citizens living outside the United States will forget 2011. It was a year where many learned that they may not have been compliant with U.S. tax and/or information reporting requirements. If the IRS statistics are to be believed, the vast majority of U.S. citizens living outside the United States were not filing U.S. tax returns. Of those who had been filing tax returns virtually none of them were filing the FBAR (“Foreign Bank Account Report”). When it came to the FBAR (which is not a tax form and is not even to be mailed to the IRS), virtually nobody knew that it existed, virtually no tax professionals (if they knew of it) were educating people, and there was no reason to suspect such a form existed. Those those who HAD been filing tax returns had never been notified that an FBAR was required. Most U.S. expats are law abiding patriotic U.S. citizens. Most want to be in compliance. As a result, the viciousness of the IRS assault impacted their health, wealth and quality of life.
U.S. citizens living outside the United States seem to fall into one of the following groups:
- Never filed U.S. tax returns
- Stopped filing U.S. tax returns after having become a citizen of another country
- Filed U.S. tax returns on an ongoing basis, but had never filed information returns (“FBAR”)
- Filed all tax and information returns properly (I suspect that this small group was comprised of people with large incomes and large amounts of money to pay on tax and legal advice)
The 2011 Taxpayer Advocate Report to Congress reveal that “past compliance” has been low. It is also clear that the “past compliance” was inadvertent AND that (for the most part as they should), U.S. citizens living outside the United States,want to be in compliance! The conduct of the IRS has made compliance difficult. The irony is that although Commissioner Shulman claims that his objective is to “bring people back into the tax system”, the reality is that the conduct of the IRS (OVDI, threats, absence of clear guidelines) has made people frightened and reluctant to comply. The IRS has become an obstacle to compliance. U.S. citizens living abroad are like “deer frozen in the headlights” – they are paralyzed with fear and don’t know what to do.
Most taxpayers want to come into compliance – the question is how to do this
The conduct of the IRS has had a profound, permanent and irreparable effect on the lives of U.S. citizens living outside the U.S. A recent blog post titled: “Has your life been stolen from you by the IRS” revealed the true effect of recent IRS initiatives. By presuming that all taxpayers who entered OVDI were criminals, the IRS has eroded trust. The IRS cannot function without trust. This is tragic and was entirely unnecessary.
I repeat, the vast majority of U.S. expats want to be in compliance and just need to be told how. The time to file 2011 taxes is rapidly approaching. The IRS is making demands on the expat community but is not providing guidelines for how to comply. On January 9, 2012, when the IRS announced the reopening of OVDI, the IRS promised procedures for how to come into compliance. Those procedures have not been announced. Instead of asking taxpayers to “come clean”, the time has come for the IRS to “come clean” by revealing the promised procedures for U.S. citizens outside the U.S. to come into compliance. Time is of the essence – tax season is upon us.
U.S. tax and information return compliance –Choosing your dance partner – what kind of “cross border professional”?
It is becoming increasingly difficult to find competent “cross border” professionals. The cost of expat tax compliance is very high. So high, that U.S. citizenship has been priced out of the market. Everybody has different situations. Furthermore, there are at least two sets of issues:
- The possible issue of past non-compliance which may require the services of a lawyer
- The issue of “number crunching” and form completion which deals with more objective information
Compliance issues are more complex. The more complex the situation, the more you should consider a lawyer. At a minimum, compliance issues require the exercise of judgment that completing tax returns may not. Here is a “snapshot” of the different categories of people who you might turn to for assistance.
First, ALL “paid tax preparers” are required to have a PTIN number. The IRS is requiring all paid tax preparers to register with the IRS and to pass an exam. (If this applies to tax preparers outside of the United States, this regulation like FATCA is one more attempt of the U.S to impose its law outside of the U.S.) Note that this requirement applies to ALL paid tax preparers.
Second, there are two broad categories of “paid tax preparers”.
- Attorneys, CPAs and Enrolled Agents – have far greater privileges and responsibilities (including the ability to represent you before the IRS). Their conduct is governed by “Circular 230” which is a compilation of rules and ethics. Circular 230 is worth a read. You will see why so much of the advice is the same from CPA to CPA.
- Registered Tax Preparer– who is restricted to preparing tax returns and is required to pass a competency exam
All of these people cost lots of money. You will pay the most for Attorneys and CPAs. An Enrolled Agent will cost less than an attorney but more than a preparer.
These costs are such that “U.S. citizenship has been priced out of the market”.
When you seek the services of a “cross border professional” you need to understand the qualifications and limitations of the person you are dealing with. At the one extreme you have the attorney and at the other extreme you have the “Registered Tax Preparer”.
Your Four Choices Of Dance Partner – Understanding The Differences
1. Attorneys: If you use an Attorney make sure that it is one who specializes in tax compliance. If you use an attorney you will have the benefit of “attorney client privilege”. This means that once you retain the attorney, things you tell the attorney remain secret.
“What goes on in Vegas stays in Vegas”. This can be “priceless”.
2. CPAs: Assuming the CPA specializes in “cross border” issues, you should be fine. They are, in my experience just as expensive as the attorneys. That said, they do not come with “privilege”.
3. Enrolled Agent: Enrolled Agents have a very specialized knowledge in tax and IRS procedure. Like all professionals, they advertise their designation. Enrolled Agents market themselves (in part) on the basis that they cost less than attorneys and CPAs. They know what they are doing. It’s just that all they know is tax. You may have never heard of an “Enrolled Agent”.
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.
What does the term “Enrolled Agent” mean?
“Enrolled” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department.
What are the differences between Enrolled Agents and other tax professionals?
Only Enrolled Agents are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all Enrolled Agents specialize in taxation. Enrolled Agents are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by their state).”
http://www.lovelandtaxprep.com/faq/
4. Registered Tax Preparer: What is this about?
The Internal Revenue services defines a “tax return preparer” as “an individual who, for compensation, prepares all or substantially all of a federal tax return or claim for refund.
What are the recent changes to become a Tax Preparer?
The IRS requires all paid tax preparers to sign up with the IRS, pay a registration fee and obtain a preparer tax identification number (PTIN). If you already have a PTIN you must still sign up under the new process. All paid preparers will be required to register and obtain a PTIN before April 18th, 2012 or they cannot prepare returns for compensation.
Beginning in November 2011, tax return preparers must pass an IRS Competency Exam to officially become an IRS Registered Tax Return Preparer. Tax return preparers who have PTINs before April 18, 2012 will have until December 31, 2013 to pass the IRS Competency Test and may take the test an unlimited number of times to pass it. There will be a fee to take the test and that fee will be due each time the individual attempts to pass the test. New tax return preparers will be required to pass the IRS Competency Test before they can obtain a PTIN. The IRS will require competency tests for all paid tax return preparers (except Attorneys, CPA’s, Enrolled Agents).
Unless you have a very simple return (only employment income and maybe a bit of interest income), I would seek somebody with greater competency than a “tax preparer”. On the other hand, it may be the only service you can afford.
Moral of the story: You want to be in tax compliance. Be thoughtful and discriminating in who you retain. In the same way that there are different kinds of taxpayers, there are also different kinds of tax preparers. Your choice of “cross border professional” is important.
The 2011 Taxpayer Advocate Report To Congress confirmed that the renunciation of U.S. citizenship is a growth industry (who wouldn’t renounce if the IRS won’t tell you how to come into compliance while threatening you with big fines for not being in compliance). You will have to be in tax compliance in order to renounce. Many of you will have to pay an Exit tax to renounce U.S. citizenship. Your choice of “cross border” professional should include this consideration.
If you survived the vicious assault of 2011, your goal may be to:
Renounce U.S. citizenship, reclaim your stolen life and rejoice!
This is my first post!
Thanks for the details. I’m currently trying to sort this mess out as are you all. Of course many are further along in the process. I think I’m past denial, past anger, not sure what’s next. This site has been a great source of information for me. Thanks to everyone who has contributed. Your efforts are truly appreciated!
I am in Toronto and I’m still trying to find the right professional to help me out. Your posting is very timely and raises some good points. Thanks!
I know, training that would keep you up to speed on the actual tax laws that apply to tax return preparation. Thanks mate.
I am reposting this link http://www.aicpa.org/publications/taxadviser/2012/may/pages/hibschweiler_may12.aspx provided by @jacquie in the FBAR thread http://isaacbrocksociety.ca/2012/01/13/ask-your-questions-about-us-expat-tax-fbar-and-fatca-discussion-thread/ , because it is a must read – touches on FBARs, compliance issues, professional advisors, and OVDs.
Just a restating of the structural and systemic discrimination against those deemed US taxable ‘persons’ outside the US. We have no access to in-person IRS services within our countries of permanent residence or non-US citizenship – although we are to be reported, formed, taxed and penalized to death regardless – with more complex and draconian requirements than those residing in the US. There are permanent IRS in-person services in only 4 embassies (China, France, UK, Germany) – none in Canada or Mexico, home to the largest communities of US ‘persons’ ‘abroad’. Those ‘abroad’ who cannot afford even ‘basic’ ‘cross-border’ US tax reporting help won’t get any assistance available from programs like the Volunteer income tax preparers http://www.irs.gov/newsroom/article/0,,id=235201,00.html – and the Tax Counseling for the Elderly (TCE) Program offering free tax help to taxpayers who are 60 and older, available only in the US for US resident taxpayers – see article below:
http://www.accountingtoday.com/news/vita-vounteer-income-tax-preparers-tigta-irs-62997-1.html?ET=webcpa:e2609:243968a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_061512
As we know, tax systems were not set up to align with each another and tax treaties may reduce but do not prevent double taxation. As an example, Switzerland, the Netherlands and likely other countries have “asset taxes” on most property, tangible and intangible. Asset taxes could not normally be used to offset US income taxes, including from capital gains. Switzerland does not have a capital gains tax. So, a USP living in Switzerland would pay Swiss asset taxes on any property owned, not offsetable against US taxes, and then US capital gains taxes on it when sold, not offsetable against Swiss taxes.
Undeclared assets often come to light when the owner dies and an inventory and valuation is done for inheritance purposes. There is a running joke in Switzerland that after Aunt Gertrude passes away it is determined that the old painting hanging in her parlor is a Rembrandt and not a copy. This somewhat amusing and related story appeared this week in the Swiss Tages-Anzeiger newspaper (translated):
A Giacometti must always be taxed
Paintings belong to the household and are tax free. But not if they were insured for CHF 150,000, the court says.
A woman inherited from her father a painting of Giovanni Giacometti (1868 – 1933), father of the famous sculptor Alberto Giacometti. She insured it in the early 1990s for a market value of CHF 150,000 but did not declare it in her tax return. Not until 2008, after selling for CHF 2 million, did she tell the tax office which demanded taxes on the valuable picture for the years 2002 and 2007. But the woman refused on the grounds that the picture belonged to the household since it had just hung in the kitchen. The Administrative Court had to judge.
The household is what is used for living, such as furniture, carpets, pans, clothes and pictures. However, items such as jewelry and pictures can be both tax-exempt household and taxable investment, the court wrote. The crucial factor is what prevails: is it for living or for investment. At a certain value jewelry and paintings are no longer classified as home furnishings and must be taxed as an asset, regardless of the actual use or the financial circumstances of the taxpayer.
Separately insured
With an insured sum of CHF 150,000 the court decided that a picture was no longer part of the normal home environment. This the owner was aware of it since she had it insured separately and it was not part of her household insurance. Moreover, since she concealed the painting from the tax authorities and in so doing violated her duty to declare it, the tax was justified.
The heiress fought not only against the tax, but also against the required amount. She explained that the picture was only discovered to have had an enormous increase shortly before selling it for CHF 2 million. The Tax Office had not considered this but had assumed a uniform value. Unjustly, the administrative court ruled. Price hikes in the art scene occur over and over again, for instance when an artist realizes a successful international career. This is apparent from “general life experience.” The Tax Office should have had it valued for each period, if necessary by means of an expert report. Therefore, the Administrative Court sent the case back to the cantonal tax office for re-review, and the heiress has to pay only three-quarters of the court fees of CHF 3,000.
http://www.tagesanzeiger.ch/zuerich/region/Ein-Giacometti-muss-immer-versteuert-werden/story/31915845
@Innocente, excellent comment. We all have similar problem with VAT/GST/HST, or any other point of sale tax because you cannot get a foreign tax credit for paying these taxes. But these are taxes that supplement government expenditures and we have to pay them. Thus, I contend, that any Canadian who regularly pays 13% on purchases of most good and services should be able to receive a 100% foreign tax credit for their HST payments.
In any case, the tax treaties have been unilaterally altered by the “Last in Time” rule. They are not worth the paper they are printed on. That is what happens when you deal with “man with fork tongue”.
*I know someone who just had their U.S. taxes and fbars done at H&R Block It cost $1800.The tax preparer advised the client to quietly file in order to avoid attention. If someone is already filing 5 years of taxes late and six years of fbars late as well, doesn’t that in itself draw attention? What would the next step be for this person? To get an affidavit to accompany the taxes and fbars on their journey to Hell?
*@Banany, my accountant recommended what might be termed a ‘loud’ quiet disclosure in that they wrote a letter to the embassy tax attache begging a waiver of FBAR penalties based on reasonable cause. This was over a year and two months ago and so far, things seem to be going smoothly but you’ve got to remember it’s still early days in that the IRS has at least three and possibly up to six years to come back to me about the amended returns and late FBARS, so I’m not out of the woods yet!
I’m all too aware that some other preparers would have probably suggested OVDI in my situation. However, they seemed reasonably optimistic that I had a strong enough case that they probably would be grateful that I’ve gotten back into compliance and voluntarily paid what I owed. It’s still hanging over me, especially because I still have one more really complicated return that needs to be filed which could thus theoretically face assessment. I can’t wait to get all this nail-biting behind me!!!
I would, however, imagine though that things will get a lot more difficult, especially after FATCA takes full effect. I would guess that the worst situations will be for those who’d filed but under-reported income though would imagine that non-filers could wind up in almost as much trouble, especially if discovered by the IRS first. And even now with the new filing procedure for delinquent filers, I’d guess that things are already becoming more risky. Caveat Emptor!!
I will say that I would heavily recommend my tax preparer though, who is an enrolled agent rather than a CPA or attorney. Their approach is that they will handle what they consider reasonable cause cases but refer clients on to a tax attorney if they believe their case is too risky for a quiet disclosure. They then trust the attorney to then decide how to proceed, including the OVDP program as a possibility. In other words, if the really felt that my case was too risky, they wouldn’t have taken it on, themselves. They have to protect their professional reputation, after all.
I would recommend finding someone through a referral if at all possible or by recommendation more than just their bare credentials. After all, some attorneys have railroaded naive clients into OVDI and charged far more than a CPA or Enrolled agent would have done. No easy answers though. I was seemingly fortunate to have found someone who was genuine but you just never know.
For what it’s worth, I put four years of (nil) returns and FBARs in the mail last fall. The only responses I’ve had are 1) a cheque for $300 from Austin; 2) a request for a reasonable cause letter from the FBAR people in Detroit. Banged this out in 20 minutes, put it in the mail, never heard from them again.
*Here comes a dumb question. I had my taxes done at H&R. The tax preparer said that mutual funds are a problem only if you still own them – not if you owned them a few years back and got rid of them. She wrote them in as RRSPS and nothing else in the fbars where it asks “Type of account”. FBARS are not my cup of arsenic but this does not look like it has been properly filed to me. I am making an appointment with an international taxation lawyer. Do mutual funds spawn other forms to be filled even if they are no longer owned by the person filing?
*@Banany, if you don’t have any legal issues, then I believe you could use enrolled agent if you could find one who is familiar with the 8621 pfic form. They’re much less expensive than attorneys. I would guess that if you had got rid of the mutial funds more than three (and certainly more than six) years ago that you could probably get away with just listing the sales as either a capital gain or loss, especially if the assets involved were quite modest…but depends on how much risk you’re willing to take compared to the inevitable higher accounting costs that completing the complex forms would involve, plus some possible double taxation.
In my particular situation, I concluded that I would need to get everything prepared pedantically correctly because of the significant amounts and percentages involved…but from what I understand of fatca, the IRS will be focussing in 2014 for the 2013 tax year, though those with enough assets like me will have had to file an 8938, thus fully listing out all the pfics from 2012 for the 2011 tax year…so it’s a grey area, obviously.
*
*Thank you, Monalisa. I now have an appointment with a tax lawyer. My assets are very modest.Since I found out about U.S. taxation and FBARS, I haven’t had a good nights sleep and my brain feels like a rubberized hysterical ball. It IS extremely important to not cheap out on tax preparation. I spent over $1800 just to have someone who claims to be a professional botch things up. I was about to mail things off, decided to review the forms and found information filled in that was totally incorrect. I took the forms back and again the info was not correct Had I sent these forms, the info would have been fraudulent.
*Banany, You should consider just leaving it.
“Don’t ask a barber if you need a haircut”- Warren Buffet
http://www.accountingtoday.com/news/irs-penalties-form-8275-64062-1.html?ET=webcpa:e6108:243968a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_092512
Making preparers outside the US charge us even more for the toxic pitfall strewn quicksand of incomprehensible tax and reporting obligations imposed sadistically, whimsically and capriciously on those abroad.
Not sure where to put this, but was looking around to see whether any portion of the incredibly high fees paid to US crossborder lawyers, accountants, and ‘preparers’ could be deducted or credited, etc. on US or Canadian returns – especially salient for those doing multiple returns and forms to try and ‘come into compliance’, (as well as those looking at annual costs – forever, or until they successfully relinquish/renounce) and saw this on the Moody’s blog:
http://www.moodystax.com/moodystax-blog/21-us-taxation-services/206-moodys-tax-advisors-proposes-legislation-to-allow-canadians-to-deduct-professional-fees-paid-in-irss-voluntary-disclosure-programs.html
Concerned that if the taxpayer has a very modest income, that the credits may not do any good – because the fees can be so incredibly high – as compared to any actual ‘income’ shown.
Plus, wonder if the CRA and the Ministry of Finance for Canada will really want to give > 1 million affected any credit off their Canadian taxes owed for a fee that effectively subsidizes compliance with a foreign (US tax system)?
On the other hand, perhaps the belated recognition of the true magnitude of the costs being borne by those affected in Canada will force the Canadian federal government to demonstrate more motivation to make US extraterritorial tax and reporting not applicable inside Canada for legitimate Canadian residents and Canadian citizens, or to seriously push to rejig the Canada/US treaty to limit the financial reporting or other requirements arrogantly imposed on our legal and often post-tax assets by the US (ex. FBARs, FATCA, 3520s, 5471, etc.) – whether we are permanent residents, duals – born in Canada, or ‘accidentals’, or those who naturalized during the time when US law automatically negated US citizenship if one took a citizenship oath to another country, etc.
And, does the US IRS give any credit for fees paid to preparers, accountants and lawyers assisting us in coming into, or maintaining US tax and reporting ‘compliance’?
*Does anyone have a list of CPAs or tax agents? I have no clue how to find someone to work with me on the form prep. I have done a lot of it but need to know if there are any US tax implications that I do not understand or know about. I am filing under the new streamlined law that came into law September 1, 2012
*To badger, on the US return, fees paid for tax preparation or tax compliance (attorneys, accountants etc) can be used as itemized deductions.
Thanks for that answer, @georgexxx , appreciated.
@Roxanne,
I don’t know of any list but many here seem to have used someone so perhaps a location would give a clue? If you are not comfortable stating that here, you are welcome to email me at nobledreamer at gmail dot com and I’ll see what we can come up with.
Have you actually made contact with IRS concerning the new program? Hope not, the questionaire is tricky and most here feel it is a trap.
Thought these posts by @marie, @usxcanada, and @despairing expat might also belong here, about personal experiences with various preparer types:
http://isaacbrocksociety.ca/2012/11/02/us-ambassador-to-canada-david-jacobson-we-are-not-irresponsible/comment-page-3/#comment-84197
http://isaacbrocksociety.ca/2012/11/02/us-ambassador-to-canada-david-jacobson-we-are-not-irresponsible/comment-page-3/#comment-84305
http://isaacbrocksociety.ca/2012/11/02/us-ambassador-to-canada-david-jacobson-we-are-not-irresponsible/comment-page-3/#comment-84675
A summary of some of these ideas:
http://renounceuscitizenship.wordpress.com/2012/11/07/are-the-tax-professionals-or-the-irs-the-greater-threat
*@Monalisa
I too have had to deal with 8621. Am I right in thinking that you are familiar with UK investments? If so, I would be curious to know whether you drew a distinction between Accumulation and Income funds. In my case, my extortionately overpriced and ridiculously slow adviser took the view that only Income funds actually paid a dividend so there were no 8621s done for Accumulation holdings because there is no distribution. I totally agree with the rationale but I am concerned that this approach is going to cause an issue if I don’t renounce before FATCA takes effect and my fund provider starts reporting notional Accumulation dividends that won’t match my return.
My adviser also claimed that to date there has never been an IRS penalty notice for the so-called loud quiet disclosure within their network of London based tax firms and law firms covering thousands of submissions.
I live in montreal. From Ohio. Didnt know to fil until I looked at my soon to be expiring passport. Did some search and found a bunch of people discussing it. Have a meeting with HR block today in downtown Montreal (decarie). Filing 3 years back filing US, and 6 years FBAR. cost 400 / year for filing (I hope that doesnt mean 6 years FBAR = 6 X 400), if so then I will not be filing my taxes today. Will let you know how it all pans out. Will also post if IRS comes a-knocking for money…which they shouldnt, I make an modest and honest living, no extravagence what so ever. Wish me luck guys.
We DO wish you luck, john. Let us know how it goes for you? It is really quite easy to do your own FBARs and save yourself some money. The most recent online form (with instructions at the end) is here: http://www.irs.gov/pub/irs-pdf/f90221.pdf
Are you a dual US-Canadian citizen or resident in Canada and will one day return to live in the US? You will find a lot of accumulated information and discussion on this site.