I love to share my concerns with you all. I am a dual citizen Brazil/USA and I always saw the USA as a fair country, like they say, Americans always do the right thing after trying everything else. But lately I have been questioning this belief because of the enormous difficulties I am having trying to comply with the IRS demands on Americans Living Abroad.
They seem so unfair to me. My reactions so far can be summed up under FEAR. And perhaps CONFUSION. Love to exchange ideas with you all.
Bemvindo Markkpinetree,
Having lived myself in Brazil for 7 years as a US citizen I share your concerns. Follow these blogs and, let me suggest you become aware of Geneva-based ACA – American Citizens Abroad, of which I became a member 35 years ago. Go to http://www.aca.ch. This organization is working very hard on the challenges these tax laws present to those that live out of the US with US citizenship.
I know about ACA. I am glad they are there. My history is different from you all. More complex. I was born and raised in Brazil. I then went to the US where I remained 30 years (16 the first time and 14 the second), Then back to Brazil in 2001. Dual citizen. I file Income Tax in both countries. I am trying to do the right thing but it seems that there is no consensus. I only learned about FBARS in 2009 and since then I am complying. I have a CPA in Brazil and one in the USA. Complicated, no?
Markpinetree,
Is your bank in Brazil aware you are also a US citizen? I am wondering if Brazilian Banks have begun closing down accounts held by US persons rather than be subject to the FATCA requrement that kicks in in 2014 requiring foreign banks to provide full details to the IRS on accounts held by US persons, including details of all deposits and withdrawals. This has started with banks in Europe which of course are not opening any new accounts for US persons. To others in Canada: Are Canadian banks aware of the US citizenship of those Canadians with dual US-Canadian citizenship? Are Canadian banks planning on complying with the FATCA reporting, or are they also closing down accounts held by US citizens?
Good question. For the Brazilian banks I am Brazilian. But in the FBARS I sent to Treasury I disclosed them all in order to comply.
I wil go to the policia federal in a week or two to file for Brazilian citizenship. I have been eligible for some years now, but I had no reason to apply for it because there *used to be* no real *liability* to holding a US passport (except if you actually *OWED* taxes in America). Now with this FACTA, there is a liabiity.
There’s no way that I can live without a bank account(s). As of now, I haven’t heard of any account closures yet in Brazil, but it’s not 2013 and the FACTA hasn’t started yet, technically. Who knows what can happen in 2013. That’s why I want 2012 to be the last year that I am an American citizen! It’s unfortunate that it has to be this way, but that’s life.
@mark, I’ll bet most people don’t want to pass advice through a blog comment. The best thing to do probably is to get in contact with people privately, or try to use some of the resources that JustMe gave you.
Markpinetree and geeez,
It is just as I suspected. What is true in Brazil is probably true just about everywhere else in the whole world. If you are a citizen of the country where you live, why would banks ever have thought to even ask, let alone keep records on the “other” citizenships which account holders might have? Why would they even care? This may be just one of many reasons why foreign banks are likely to be reluctant by the time 2014 rolls around, to assume the responsibility of certifying to the IRS they are complying with the reporting requirements imposed on them by FATCA by reporting everythig on their US citizen and green-card holders.
Unless I miss my guess there are untold thousands of Brazilian green card holders that once lived in the US but have long since returned to Brazil. They just “got up and went home,” without telling the IRS anything or submiting any US tax returns after they went back home. When I left Brazil I made sure my Brazilian tax obligations are up to date, but I did not cancel my Carteira de Estrangeiro. As a matter of fact I kept it valid for some 30 years by never being outside of Brazil for 2 years. I had to replace them a couple of times when they expired, but I did this when I went back on a trip. The Carteira remains valid beyond its expiration date when you reach 60 years of age, so even though I went back after the expiration date I was always welcomed back with open arms.
I met several such persons who had returned there after living and working in the US when I lived in Brazil back in the 1970s. And with the economic downturn in the US and the economic upturn in Brazil in the last few years, I suspect that their numbers have increased exponentially.
Probably most in this category are “criminal tax evaders” in the eyes of the IRS because they are no longer filing US tax returns and paying US taxes on ther world-wide income, but for their Brazilian banks to be able to discover them seems to me to beyond anything reasonable. But there is just about nothing in US taxation of expatriates domiciled abroad that is reasonable. So this is just par for the course.
Roger, greencarders have a time limit to be out of the USA. Once this period is over they will lose their status. The main issue insofar as Brazil ( and perhaps other Countries) is that people did not know about the FBARS and when they leraned about them and tried to comply the penalties were an abuse… worse than for people in the USA who failed to file their IRS Return. That is unfair!
Markpinetre,
I totally agree that the penalties are indeed an abuse.
If you are a green card holder and leave the US and termnate after June 2008, it is much more complicated that it used to be if you have been the US for 5 years or more. You are no longer off the hook if you simply stay outside of the US for one year or more. Depending on your income and your total assets owned anywhere in the world, you will, if you exceed either of these limits, also be subject the same kind of exit tax that citizens must pay when they renounce their US citizensip. With the enactment of this legislation the IRS Congress has directed the IRS to set a Tax Trap which foreign citizens who are contemplating accepting a position in the US need to be aware of. Until you formally terminate your your US residence and have clearance from the IRS, even though you are no longer living in the US, you will still be subject to US income tax on your world-wide income just as if you were still living in the US.
Here’s the link:
http://www.taxesforexpats.com/expat-tax-advice/citizenship-surrender.html.
It used to be much easier, but this legislation has turned in into a monster if you decide to go home for another job or when you retire to live again the Leblon or Barra da Tijuca beach.
Markpinetree,
Correction: The exit tax for those cancelling a US green card applies if the person has resided in the US for 8 of the last 15 years; not 5.
Roger, how about the thousands of Brazilians who have a green card and are working in the USA but before moving to the USA and even receiving the Green Card had bank accounts and investments in Brazil? I bet none of them know about FBARS.
Mark, every time I go to the consulate, I see a majority of Brazilians who naturalized US getting passport “maintenance”. I think it’s safe to conclude that they are oblivious to this as well.
If Nina Olsen can’t knock some sense into the people in the Government, in 2013, the Brazilians who work in America, have substantial value in financial accounts in Brazil, are most likely screwed. This happened to people in the UBS case: they made money overseas, paid taxes overseas, yet the IRS went after them because they didn’t declare their accounts in America and they are now living in America.
Speaking of the Brazilian Constitution, I doubt Brazil would ever remit payments to the US on behalf of Brazilian Citizens in Brazil, but if someone *LIVES* in America, they live under US laws and can be extorted for money. Point to my story: if you have assets in other countries, don’t live in America, or declare them.
@markpinetree,
The moment a foreign citizen receives a green card his world wide income, including income from investments in Brazil and elsewhere, are taxabable by the US, and he is obligated to submit FBAR reports on any and all foreign bank accounts if the total value of such accounts exceeds $10,000 at any time during the calendar year. There is also a box to check on the Form 1040 tax return if you have any foreign bank accounts.
I am not sure of the tax laws in Brazil now, but when I was a permanent resident there my income from investments in the US which I held when I relocated to Brazil were also taxed by Brazil. And together with and as a part of my Brazilian income tax everyone was required to submit a declaration of assets held anywhere in the world. This was the Declaracao de Bens. This tax had form had two columns; one for the current tax year and the other for the prior tax year. As I recall the value of these assets were at their original acquisition price rater than their current market value. I can’t recall whether these values for foreign assets were showin in Brailian currency in the currency of the country where they were located, but I seem to reall that assets in the US were shown in US dollars. You can probably refresh my memory on this.
The purpose of this assets declaration was, as I undestood at the time, twofold. The first was so the that the taxpayer’s declared income would amply explain increases in value of those assets in the current year over their prior year values, and to help you to “remember” to declare income from assets producing income anywhere in the world.
In those days captital gains on assets sold were not considered as taxable income by Brazil. It is my understanding that this has changed and today they are taxed as the same tax rate as other kinds of income. Is this correct? In retrospect it would appear that this declaration of assets was somewhat like the FATCA report that US taxpayer who have assets outside of the US will be required to submit beginning with this tax year, except that it included assets in Brazil as well as outside of Brazil. Also it included real estate, such as your private residence house or apartment, autos, boats, etc.
Shortly before I left Brazil in 1977 to return to the US I recall there was a change in Brazilian tax law so that income from foreign assets for new permanent residents was excluded from Brazilian tax for, as I recall, their first 3 years of residence in Brazil, only becoming taxatable after they had stayed in Brazil for longer than 3 years. But since I arrived before that change became effective my interest, dividends, etc. from the US were taxed by Brazil beginning with the day I arrived.
Green card holders may be aware of FBAR from newspaper reports. I have not started to prepare my US tax report for the current year, but I presume that the Form 1040 tax return instructions for this year will also include a statement indicating the reporting requirement with respect to FBAR which begins with this tax year. The majority of tax payers use professional services to help them prepare their annual tax return filings and I suspect that, if they are doing their job, they will familiarize them with this requirement. I have a retired friend was for several years has done this kind of work for an organization that provides this service at no charge for low income retired persons. I expect to have lunch with him later this week and I will ask him about it. I know he receives obligatory training each year on changes in the tax laws that impact personal tax returns.
@geeez, It is my understanding that today when US citizens have their passports renewed outside of the US there are more tax questions for which they must provide answers in order for their passports to be renewed. For many years the renewal application has included boxes to check to indicate whether you are current in your US tax returns filed. I once ask a gentleman in the State Departrment in Washington in the section which controlled US consulates abroad what action was taken on this information. He told me that they transmitted this information to the IRS but he added that he had no idea what the IRS did with it. Since then it is my understanding that this reporting requirement has been tightened considerably. It used to be, so I have read, that no check was made to confirm that the social security numbers on these passport renewal forms were correct, but that now they are verified and they must be correct in order for the passport to be renewed.
@Roger, capital gains have their own tax brackets. It depends mainly on how long you hold them. The lowest rate is 15%. Taxed are taken off at the source, so the financial institution remits the money to the Receita Federal. At least for me, this make life a little simpler.
Nowadays, residents are expected to declare assets from day one. On my citizenship application, I’m also expected to declare assets there as well, and any “absences” from the country.
It’s already hard enough keeping track of everything here! IMO, anyone wanting US Citizenship living here is just unceccessaily making their life more complicated. It’s much easier just to have a tourist visa to go to America to visit relatives.
@Roger, I’m not too sure, but that’s what I’ve heard. I don’t really plan on renewing my passport overseas because I plan on handing it to the consular officer and saying “Have a nice day!” 🙂
@geeese, but if you are a Brazilian you must obtain a US visa in order to visit theUS as a tourist. That, as I understand it, requires that you have a personal interview a one of the US consulates in Brazil. If you live in or close to one of the 5 large cities where there is a US consulate, then it is not so bad, but if you live elsewhere in Brazil you have to travel pershps 1000 Km for that interview. And I understand there is a several months waiting line for these visa interviews. So it does not appear that it is very convenient to get a US visa. The US press has been reporting that although there has beeen a massive surge in Brazilians coming to the US as tourists such that Brazil is now the Number 1 source of foreign tourists, having bypassed both Canada and the UK. This visa process is considered here to be a significant barrier to a lot more tourists coming to the US.
In retaliation Brazil requires visas of US citizens visiting Brazil, but they do not require personal visits to the consulate and are usually avaialable in just couple of days. Travel agents usually take care of Brazilian visas for US tourists.
@Roger Conklin
“Correction: The exit tax for those cancelling a US green card applies if the person has resided in the US for 8 of the last 15 years; not 5.”
Pretty much. Though just to be absolutely clear, in case anyone’s caught by this, a single day of residency in a year makes that whole year count because the IRS counts “years” to their advantage. One could be stuck with the exit tax after just six years and two days holding a green card.
The exit tax is of course an appalling tax trap for immigrants. The word seems to now be getting out, but only slowly. Some immigration and tax specialists are now explicitly recommending against a green card. I know of no way to measure the deterrent effect of this policy on potential immigrants in to the US.
@Watcher: It is indeed a tax trap. And am If I am not mistaken it applies to immigrants who do not have green cards as permanent visas but also those who come to the US on temporary work visas that are renewed such that the person has resided in the US long enough to trip the trap. So they need to be aware that this exit tax can apply even though the immigrant never had a green card. Until this exit tax has been paid then the former US resident considers to be subject to US taxation on is world income forever. That pretty well precludes ever visiting the US again if they are not keeping current with their US tax obligations.
@Roger Conklin: “And am If I am not mistaken it applies to immigrants who do not have green cards as permanent visas but also those…”
I’m pretty sure you are mistaken. At the moment at least, it’s only ex-citizens and ex-green card holders. Of course, this makes it only slightly less appalling than it might otherwise be. After a few years on a normal H1B or L1 it’s quite natural for a foreign born worker in the US to move to a green card for more job flexibility. That’s when the trap starts to spring. This is a bad tax policy for the US — merely one of many — but it persists, and in fact worsens, because there’s really no ready way to gauge what would have happened if the US instead adopted more conventional and reasonable tax policy.
@Roger, it’s not convenient, and frankly I’m surprised Brazilians are still lured by the American “brand” image. But for me, a tourist visa to visit America is better than having US Citizenship and living outside the US. That way, I only have to deal with one countries laws.
This US system creates conflicts everywhere in my life. Brazil is already shaking me down for enough taxes and sometimes this “citizenship”-based system conflicts with the “residency” based system in Brazil. And one day, should I ever actually need US citizenship back, I’ll just ask for it back. I don’t know what the heck I would do in the US, but I’m just saying…
@watcher,
Here nis a pretty good on-line site which explains the tax consequences of expatriation for both US citizens and long-term US residents. Footnote 7 refers to the law with respect to who is considered a long term resident and who is not. I have not been able to access this information to find out for sure, but I have “heard” that for IRS tax purposes the definition of who is a “resident” of the US includes persons who are physically present and working here even though they do not hold permanent residence green cards. I cannot determine from the information I have at hand if this is correct or not, but perhaps someone else knows.
Here is the reference:
http://www.troutmansanders.com/files/Uploads/Documents/New%20Exit%20Taxes%20for%20the%20U.S.%20Expatriate.pdf
@Roger Conklin
From the horse’s mouth: http://www.irs.gov/instructions/i8854/ch01.html
“Expatriation tax provisions apply to U.S. citizens who have relinquished their citizenship and long-term residents who have ended their residency (expatriated).
…
You are an LTR if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your status as an LTR ends.
…
You are a lawful permanent resident of the United States if you have been given the privilege, according to U.S. immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if you have been issued an alien registration card, also known as a “green card.””
So while it’s unclear exactly what the IRS means by the weasel phrase “generally have this status if you have… a green card”, it seems that H1B, L1 and other work visa holders won’t have to worry about the exit tax. None of these work visas confer permanent residency; all are instead time limited in some way or another. This agrees with everything else I’ve read on the topic, and is why immigration advisers are now starting to recommend non-immigrant visas over green cards.
Interesting things. Some questions. Brazil has no Tax Treaty with the USA. I am not sure to what extension and when this will happen. So I am not sure when Brazilian Banks will report US clients (to agree Brazil would expect the same from the USA). I am not sure if Brazilian Banks will know who is a dual citizen and who has a green card. So it seems that Brazilians who want to comply with FBARS will have to volunteer this information. Also dual citizens of course will pay taxes to both countries. SInce there is no treaty, self-employed persons will have to pay Social Security Self Employment Tax in both countries. This is double taxation. Also Brazilians who have a pension from their work in Brazil will not pay Income Tax in Brazil but will pay in the USA. Further, Savings accounts in Brazil don´t pay income tax in Brazil but will pay in the USA. Finally the “excluded income” allowed by the USA on earned income in Brazil it is not excluded when computing USA taxes in Social Security Income in the USA. For self employed dual citizens working in Brazil this is a nightmare.
Come to think about it I became an US citizen by choice, because I believed and I trusted this Country that was good to me. Even with all me confusion and fear about these FBARs let me confess that I still believe that the IRS will not be unfair with Americans living abroad that are trying to comply and do things right. This will be an-American in my mind. It seems to be that FABARs applies to all Americans who have accounts in foreign banks, not only Americans Living Abroad. I am not an expert but it seems to me that an American living in the USA and investing US money in foreign banks must come clear. I am not sure they can be placed in the same group of Americans living and working abroad who by necessity have to place their money in “foreign” bank, local money, fruit of their work in the “foreign” country. I don´t understand, if I am reading it correctly why in the case of an amnesty the penalties for people who did not know about FBARs and want to comply are so severe. Can anyone clarify me on that?