Here is the link to the IRS News Room. I expect that within the next year, the U.S. will pass a law applicable to every country, making this (IRS News Room) the home page on every browser of the world. Not only is intended to be the “Latest News”, but it is intended to be the only news.
Here is the part that announces the December FS – the information to U.S. citizens and dual citizens living outside the United States:
Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.
FS-2011-13, December 2011 – This fact sheet summarizes information about federal income tax return and FBAR filing requirements for duel citizens in Canada, the United Kingdon and other countries.
Do you see anything wrong with this? There are at least two mistakes. Do you think the use of the word “duel” is a Freudian slip?
How could the Mayans have possibly anticipated this for 2012?
This IRS Website states:
“Note that penalties will not be imposed in all cases. As discussed in more detail below, taxpayers who owe no U.S. tax (e.g., due to the application of the foreign earned income exclusion or foreign tax credits) will owe no failure to file or failure to pay penalties. In addition, no FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause.”
If you believe this, I have a bridge in Brooklyn that I will sell you real cheap.
@Roger Conklin
Are you saying that the IRS will never accept that there was “reasonable cause”. The IRS is barred by statute from imposing a penalty if there was “reasonable cause” and all the returns have been filed.
http://renounceuscitizenship.wordpress.com/2012/01/26/looking-for-mr-fbar-in-search-of-fbar-fullfillment-and-consciousness/
I wrote a lengthy post on this at the time that it came out. This really has become a diplomatic problem for the U.S. It seems to me that if they presume FBAR penalties that they will just drive people further underground. Whether he is being “up front” or not Mr. Shulman has said that the primary goal is to get people back into the system. At the time that this FS came out I wrote a lengthy post about it.
http://renounceuscitizenship.wordpress.com/2011/12/18/update-on-the-irs-fs-for-u-s-citizens-and-dual-citizens-living-outside-the-united-states-no-additional-relief-for-canadians/
I tend to think that Shulman is correct in that most good faith disclosures (even amended returns showing worldwide income) will be honoured via reasonable cause…I believe that a lot of the fear is being stirred up by attorneys and accountants drumming for business. They’re all ‘in bed with each other’ so the IRS goes alone with the professionals’ tactics. It’s buyer beware.
I’ve had to really keep my wits about me but feel I found someone who was genuine and who has enabled me to hopefully resolve my prior incorrect filing and delinquent fbars.
Apart from people who joined the official OVDP and OVDI programmes, there doesn’t seem to be anyone who’d been hit with FBAR penalties who has merely filed delinquently pleading reasonable cause.
I’d have thought that people who’d filed delinquent fbars, last summer would have heard back by now if the Treasury were planning to impose draconian fines on them.
I agree that American citizenship can be a burden as I am permanently settled in the UK with my British husband; but I also feel a duty to be honest and compliant, given that it’s where I come from and how I was raised. I love my family and would not want to spurn them by renouncing.
I am critical of the system as it presently works but feel resigned to having to budget for the annual compliance costs and double taxation. We all have our reasons for staying or jumping ship but I don’t like to burn bridges, myself.
The Taxpayer’s Advocate, in her recent Report to Congress described the IRS amnesty program as a Bait and Switch program. There were many who came forward with understanding that Amnesty meant Amnesty, only to discover that they were subjected to very significant failure to file penalties by the IRS. “Reasonable cause,” for example is a very imprecise term because what may seem like a very reasonable cause to the taxpayer may well not be interpreted as such by the IRS. Just be very careful and be sure your case is absolutely Iron Clad.
Agreed that one must be very careful and work with competent professional help. Seems to me that anybody who enters into the OVDI program is presumed to be a criminal – therefore would not be able to please “reasonable cause” unless they opt out (and if one is to “opt out”, why enter OVDI in the first place?
Therefore (and this is not legal advice), it would seem to me that the key to “reasonable cause” might well be avoiding OVDI.
http://renounceuscitizenship.wordpress.com/2012/01/10/irs-reopens-the-offshore-voluntary-disclosure-program-and-promises-new-procedures-for-u-s-citizens-living-outside-the-united-states/
@Roger, they told me that their approach seems to be working for past clients who had genuinely not understood their filing and reporting requirements. But they also admitted that it’s still a leap into the dark, especially there can be a six year statute of limitations on amended returns that had more than 25% under-reported income.
Most of this under-reported income came from what were tax free UK mutual fund investments that are very mainstream here in England. There had never been any intention to evade US taxation. I simply hadn’t understood that the US/UK tax treaty has get out clauses that still allow for US taxation, thus rendering it almost ineffective.
I’d imagine that my amended returns couldn’t help but raise red flags because the total amount of pages for several years amended returns came to close to 600 pages with 2011’s probably going to be close to 300 pages!!!
I had ‘gone native’ and assumed I could invest like the British, especially as I also have British citizenship. Oh dear, what a mess! Frozen in the headlights…all I can hope is that they’ll realize that I had been naive and not understood all the implications…there was obviously no intent to evade or commit fraud.
So I’ve made a huge mess that my accountant is trying to clean up for me. If I’m bludgeoned though, I will not go down without a fight but am hoping and praying they will be merciful, especially as it had all be done completely unintentionally.
I had only been a student in my early 20s when I came to the UK, so have effectively spent all my adult life in England; I actually understand the British system better than the US’s in spite of having been born and raised in America. I have spend over half my life in the UK and consider it home but nonetheless regard my US citizenship as sort of duty, perhaps similarly to a sheik who has two wives!, LOL
My first love though is England so if it came to a major confrontation, I’d have to choose my British citizenship as my only passport. But I’m hoping that I can have everything resolved smoothly and that I can remain a dual citizen who loves both countries.
I am quite willing to fully cooperate and be compliant and pay any taxes to the US though hope that the system will be reformed so this burden of cost and worry can be removed from my shoulders…it’s an albatross.
In the meantime, I don’t want to ‘make waves’ because I feel vulnerable, having a less than straightforward situation. But after my statues of limitations run out sometime in 2016, I may become more vocal about my views. Peace to all
It was the internet and smartphones that made me realize how we really are now in the 21st century…information literally at my fingertips…thus no more excuses for not having known all my filing requirements.
The real bugbear is the fact that non-US mutual funds are taxed very harshly as ‘passive foreign investment companies’ PFICs, requiring the obscure 8621 forms that I had never heard of before last spring…the reason I wound up heavily taxed was because of phantom capital gains taxes that my foreign tax credits didn’t cover.
It’s SUCH a mess. I literally live day to day waiting to see what arrives in the post. I wouldn’t be at all surprised if the wanted to conduct a correspondence audit, for instance, so have done all I can to have my records completely ready just in case.
The point is, it’s very difficult for expats to invest without taking expensive financial advice which we didn’t do; being a DIY investor was a major mistake in this instance.
I’d imagine that many people me have what are termed ‘PFICs’ because I’d imagine that investing in mutual funds where they live is probably fairly common. They’re taxed in an onerously complicated way which I simply don’t understand; had I known at the time, I wouldn’t have touched UK mutual funds and just kept straightforward savings bonds which produce foreign tax credits and simple reporting.
I’ve lost all incentive to saving any further and feel sorry because most of what’s being taxed had originally come from my husband. So his assets as a UK citizen are indirectly being threatened by what to him is a foreign government. I believe he thinks I was stupid to come forward but with FATCA coming, I concluded that there was no way around it, literally frozen in the headlights… :'(
@Renouncecitizenship, I agree that OVDI is not necessarily appropriate for many people but that the way the IRS officially word things can catch people off guard. My accountant is on the conservative side ‘dots all her i’s and crosses her t’s’ but is nonetheless ‘streetsmart’ about how it all operates.
I am certainly not a cheat; perhaps I have technically been negligent but would consider that I took ordinary due diligence. Don’t think people can file without professional help unless they simply have straightforward bank accounts. Even pension plans can complicate things because they can be considered foreign grantor trusts with heavy fines for not filing 3520, etc.
It’s Orwellian. I’d imagine that anyone with problems similar to mine could be risking a major examination if they ever tried renouncing within the statute of limitations which can be six years, especially for FBAR.
@Monalisa1776
Thanks for those interesting comments. I was struck by this part of your comment:
“I’ve lost all incentive to saving any further and feel sorry because most of what’s being taxed had originally come from my husband. So his assets as a UK citizen are indirectly being threatened by what to him is a foreign government. I believe he thinks I was stupid to come forward but with FATCA coming, I concluded that there was no way around it, literally frozen in the headlights… :’(”
The truth is that the only people who are impacted by this are the people who saved and invested. The others simply are not.
You have heard the saying:
“The law in its majesty prohibits both the rich and the poor from sleeping on the park bench” – point being that only the poor are affected.
No U.S. citizens living outside the United States knew about: FBAR, PFICs, SubPart F income, etc. etc. But, the only people penalized by the collective ignorance (which I have come to see is absolutely the fault of the IRS and the U.S. government) are those who have tried to be financially responsible.
This is completely consistent with the “class warfare” mentality of Obama and the rest of his administration. The truth is that Obama, et al:
– do begrudge success
– do NOT want to reward people taking personal responsibility
Don’t know if you saw the State of The Union address this week. I perceived it as being a declaration of war on those who work hard and save and invest. It was proof of a point that I have made many times that:
Democracy in the United States is just a process to get somebody else to pay your bills.
I don’t blame you for not wanting to save anymore – the Obama Administration has made it clear that they plan to take it from you!
“Not only is intended to be the “Latest News”, but it is intended to be the only news.”
And they want to “plug” everyone into the US tax system very quickly. The US embassy here says that children born to Americans abroad are to be handled in this manner:
1. Register at the consulate
2. Request passport
3. Obtain social security number
WTF? What do babies born in other countries need a social securty number for?
Geeeze,
Why? So the IRS can more easily sink its tax fangs into them. But rest assured, whether their parents register them with a US consulate abroad and even though they never have a US passport or visit the US in their lives, their incomes will be subject to US taxation and the IRS will hunt them down like a blood hound hunts and gets the rabbit.
Roger,
Yeah, I know. I verified all of this yesterday on the embassy’s website. It’s crazy to think that my son will have to decide and if he doesn’t want US citizenship, he will have to pay a big fee to reject it. I didn’t ask for US citizenship, and he sure as heck didn’t. Haha, I was joking with my wife yesterday, saying “No Disneyworld for him!!”
I honestly don’t know if the US is trying to help people by making life easier, or the desire to have subjects overseas that have to help the empire. Who knows!
Geeeze,
As an American I never, ever imagined that would recommend that a US citizen renounce his citizenshp, but our tax laws have made me rethink this. If your son renounces his US citizenship before he is 18, then the reunciation is not irrevocable. If the tax laws change (which at this point is highly unlikely) and he would want to relocate to the US, he could regain it with relative ease. And under 18 he would be less likely to have amassed a huge fortune for the IRS to take away by means of the Exit tax. Even renouncing he should not have any problem obtaining a tourist visa as a Brazilian to enter the US to visit Disney World.
@Roger, for me it’s not soooo much the taxes. If I only had to file a simple for every year, that’s not such a big deal for me. I also have business aspirations, but the forms are complex as hell in America and any business I do here would have nothing to do with the US.
What I’m really going to renounce over is the FATCA, I’m afraid that in 2013, my Brazilian banks are going to lock all of my accounts and tell me I have to move my accounts elsewhere. Or I will be limited in some way with investments compared to other Brazilians. This is what really has me scared.
And since the FATCA traps one’s money in America, Someone in my situation inevitably triggers interest income, dividends, capital gains in America, and that adds even more tax forms to the 1040. * I just want everything in Brazil *. That way my life is just easier. I already pay an account R$ 320 (USD $188) /month here. I don’t want to pay again in America!
US Citizenship feels like this hell that is tough to get out of.
@Geeeze, I can relate!! It’s not so much the taxes that bother me as it is the fact that I’ll have to budget at least a thousand pounds per year for my specialized accountant to file my 1040s. It will, if anything, probably more like double that which is onerous for someone like myself who only earns a modest income. I will have to stick with the same firm at least until my statutes of limitation have finally run which would be mid 2016 at the earliest due to unintentionally under-reported income. I’d want them to be able to represent me if the IRS decide to play rough.
I’ve had to move most of my assets out of the mutual funds into a US compliant portfolio run by a specialist investment house over in the UK. This should hopefully make things more convenient for my US reporting obligations but suffers from high admin charges which will put a drag on any potential growth or income.
It almost seems better just to move most of this stuff back to the states but I would feel safer to have my assets all in the UK, at least till the statute of limitations have run. The advantage of the US-based account is that it would obviously be compliant for the IRS and the running costs are much, much lower. So I am torn.
I really think they will probably not bother people who make a good faith effort to be compliant though. I agree that the real issue if for people who could have their foreign accounts closed. I also agree that we get the short end of the stick with investments because expats in the UK can’t take advantage of tax-free savings/investment plans because the US doesn’t acknowledge them, due to the get out clauses in the tax treaties that allow for US taxation.
I’ve grown resigned to this and have decided to no longer bother doing any more investing. Anything extra will just stay in the bank; if necessary, I’ll probably just have to open up an account with a US bank based abroad if I lose my UK accounts. It will have higher charges but such is life.
Monalisa1776,
Correct me sombebody if I am wrong, but I believe that it likely will be no easier to open an account with a US bank abroad than to have or open one with a foreign bank abroad. US banks abroad serve primarily foreign customers and have to same nightmarish IRS reporting requiement under FATCA as foreign banks. So I would expect that there won’t be much of any behavioral difference between one or the other with respect to FATCA.
Mona, it sounds like you are just throwing in the towel and keeping US citizenship. Is that correct?
Me… I’m also scared to death of the potential consequences of these capital controls (hard to move money OUT OF America). When a government ties your hands, usually the whipping begins soon after. Since people can’t take their money out of America, the US can do whatever it wants to do with the dollar. They don’t want it strong, that’s very clear!
I think I’ll keep an account in America, but the tendency for me is to try to move the bulk OUT OF there. After I renounce, I can put my money anywhere I want to. Brazil doesn’t care if you have money outside of the country; you just have to declare it. And there are no threats, intimidation, nothing like that… very different from the US.
Roger, it’s really somewhat of a nightmare now when you think about it. Most American banks demand that you use a US-based address. But what if you don’t have any family there anymore, or you really don’t want to inconvience other people?
On the other hand, IF this FACTA really goes into place, and banks really refuse to open accounts, then US Citizens with only a US passport are screwed.
Like I said somewhere else on here, I don’t know if this was intentional, but this “punishment” is much harsher than the needing to file a tax return. In 2013, I’m betting we’re going to see mass renunciations AND mass returns to the US. The people who have lives in different countries will renounce. The people who are working a low-paid job with little future will probably go back. That’s my bet. My wife already scheduled a date with the Policia Federal for me to put in my application for citizenship here. Woohoo!
@Geeeze, as I’ve already mentioned, I can’t risk renouncing now when I’ve had to make a less than straightforward disclosure in which I owed substantial US taxes on UK mutual funds. The annoying thing is that if they had just been in ordinary shares I wouldn’t have probably even owed any US taxes because foreign tax credits would have covered me, but the fact that I suffered onerous PFIC taxation meant that I had to pay tax with interest on phantom gains in the funds.
I don’t want to risk the ire of the IRS by renouncing while still in the early stages of a disclosure which could still result in a thorough examination and possible FBAR fines. I’d tend to think they’d be more forgiving if they saw that I’m making every effort to be compliant any pay back what I owed promptly. If I were to renounce right now, I could be deemed an enemy of the state and thus be treated ruthlessly.
So for now, I’ve had to throw in the towel but not necessarily forever; I just hope though that things will have improved by 2016 to 2018 so that I wouldn’t have to still be considering renouncing by then.
One thing I find encouraging is how this blog is getting to be a hub for our concerns so quickly. It gives me hope that perhaps with enough numbers, our voices will finally be heard. But I still keep thinking of Tiananmen Square with possible mass shootings and tasks if they get pissed off enough with our potential dissent. Just sayin’
@Roger, I’m actually more optimistic that there will be a growing market for financial services for US citizens abroad, whether it be for investments or banking. I’d imagine that charges would be higher than for normal banking but at least we’d still be able to have some form of account where we live. I believe it could be a growing industry if this FATCA thing is really for real.
The leaders of the US seem all to belive that the massive US trade deficit with China ($270 billion at last conunt) is because the Yuan is overvalued with respect to the dollar, and is working hard to strong-arm China to revalue is currency. That isn’t working so the next best goal seems to be to devalue the dollar in order to make labor costs in the US as cheap as they are in China. To their way of thinking somehow this will create an equilibrium in US trade with China that will make the US trade deficit “go away.”
But is is a head in the sand policy if I have ever seen one. In 2010, when the Euro was worth $0.89, the US had a $29 billion trade deficit with Germany. By 2010 the value of the Euro had risen to $1.38. That was 55%. What a bonanza for US exporters! This should have not only wiped out the US trade defict with Germany but transformed the trade balance with Germany into a tidy trade surplus. Do you suppose that is what really happened? No, just check the figures. The result was an increase in the US trade deficit Germany to $34 billion.
What went wrong? These economic theorists todahy seem totally unaware that exports don’t sell themselves. It takes your own feet on the ground to sell them, which Germany has in abundance but the US does not. And why do you suppose that happens? It is as simple and obvious as 1, 2, 3.
Germany encourages its citizens to pick up their families, relocate abroad, learn new languages and cultures and build the infractructure necessary to capture foreign markets for German products. Germany considers its citizens who do this as patriots. Germans abroad pay taxes to their host countries but Germany never taxes them back home in Germany on the income they earn living and working abroad. In low tax countries. Exports create 33% of Germany’s GDP whereas they are responsible for only 8.9% of the US GDP. Germans can often even take salary cuts and end up with substantially more take home pay that they would be staying home and paying higer German taxes.
But the US does just the opposite It considers any US citizen who would relocate abroad to be a tax evading traitor, so it makes sure Americans will stay home and not go abroad to sell the American products that creates jobs at home. So it punishes those that go fiscally by continuing to subject them to US taxes, on top of the taxes they pay abroad. They are allowed to claim a foreign tax credit for foreign taxes, but if the tax they pay abroad is less than the US tax on that income, they must pay the difference to the IRS. And they must also keep such detaled records and file so many additional very complex IRS and Treasury Department forms that they must hire a highly qualified tax accountant, the cost of which is in the thousands of dollars, to make sure their records and tax filings are letter perfect since even irrelevant mistakes may cost them tens of thouands of dollars in fines and penalties. On the average the US citizen who relocates abroad must be compensated from 3 to 5 times more than a German citizen in order to receive the same after-taxes income of the German citizen.
So the Germans, and all of our industrialized trade competitors go to China and elsewhere in theworld and sell their much higher priced products that create jobs in Germany, which at 5.6% has the lowest German unemployment rate in 20 years. If it was not for China’s trade surplus with the US China, instead of a $128 billion world trade surplus would have more than a $40 billion woworld trade deficit.
Ricardo’s economic theories might have been valid in the 18th century, but to put faith in them in the 1st century is like believing that the world is flat and that the sun revolves around the world.
Correction in the last sentence to my prior post: “in the 21st century is like believing…”
American banks that are located in the US today usually require that US citizens abroad have a US address, because that it a defacto requirement imposed by the Patriot Act that obligates US banks to “know their clients.”
As I understand from what I have read, It is not illegal for US banks to have US citizen clients that don’t have US addresses, but since it costs them much more to be sure such accounts are totally legitimate and are not fronts for funding terrorist activities or illegal money laundering, US banks generally require that such accounts maintain a rather high minimum balance and they may be subject to higher service charges.
“Where freedom dwells, there is my country.” – Benjamin Franklin