Thanks to Congress and the IRS, ordinary taxpayers who migrate from one country to another face incomprehensible tax reporting and payment obligations, involving a burden of time and accountants’ fees all out of proportion to the actual monetary amounts involved. Immigrant and emigrant taxpayers who have failed to comply with these requirements despite their best efforts face huge fines. In response, voluntary groups are picking up the slack and holding seminars at their own expense to warn immigrant taxpayers about the burdens they face. The World Journal, a Chinese-language newspaper based in New York, reports on one such seminar held in Florida this past week. I’ve translated their article below.
Specialist explains tax reporting on overseas assets
Reporter Chen Wen-di, Orlando
The Central Florida Taiwan–U.S. Chamber of Commerce recently conducted three lectures in the Mingxian Restaurant, to share information about tax reporting, real estate, and loans. Taiwan Chamber of Commerce Vice-Secretary Liu Kwang-ran, an accountant, gave a tax-themed lecture “Choosing to truthfully report overseas assets or give up your green card?”, real estate agent Lin Chih’s lecture topic was “Latest Trends in Greater Orlando Area Real Estate: Analysis and Suggestions”, while loan specialist Liao Mei-fang analysed various types of loans and then opened the floor to questions. Roughly 60 members attended and had animated discussions. The event was organised by Secretary Wang Kwan-liang. Consultant Chen Shiu-mei reported on her experiences participating in Chamber of Commerce meetings, while Florida Chinese American Academic and Professional Association secretary Mu Chun-jong announced that they would hold their annual meeting and North America lecture activities at DisneyWorld in September.
The lectures began after lunch. Liu Kwang-ran first explained the requirement for overseas assets above certain thresholds to be reported to the IRS, and for foreign financial institutions to report U.S. taxpayers’ accounts to the IRS. FBAR for accounts exceeding $10,000, and FATCA for foreign assets exceeding $50,000, should be reported to the IRS. The targets are people evading taxes with overseas accounts, and the IRS has already established various kinds of expensive fines. As she explained the reporting requirements, those whose overseas assets exceed $50,000 must must attach Form 8938 to their tax return. Those who do not file could be fined $10,000, while those who are notified once but still do not report could be fined $50,000 as well as 40% of the amount of unreported tax owed.
The World Journal is a pro-Taiwan newspaper with a subscriber base consisting primarily of immigrants from Taiwan, so they’re using the Taiwan-style nicknames for FBAR and FATCA: “Fat Papa” (肥爸, Féibà) and “Fat Coffee” (肥咖, Féikā). Apparently Taiwan’s translators honestly believe that the IRS is going to get “fat” by stuffing itself with expat and immigrant minnows. Fortunately, neither of these translations have caught on in Hong Kong or mainland China. I personally prefer a different translation for “FATCA” I saw on a Chinese-language bulletin board a couple of months ago: “more bandits” (匪加, fěijiā). Unfortunately, this strikingly-accurate alternative translation hasn’t caught on with the newspapers.
Overseas assets that should be reported include: accounts managed by overseas financial institutions, other overseas investments in financial assets managed by non-U.S. banks, such as stocks or securities issued by foreign companies or legal persons. For persons resident in America, single or married-filing-separately taxpayers: assets greater $50,000 at the end of the year or $75,000 within the year; married-filing-jointly taxpayers: assets greater than $100,000 at the end of the year or $150,000 within the year; persons resident overseas: those whose tax-law home has been outside the country for one full year, and/or have continuously lived outside the country for at least 330 days in 12 months. Foreign financial institutions must report U.S. taxpayers’ accounts to the IRS, as well as all their significant holdings of foreign companies’s shares, and all foreign financial institutions must sign agreements with the IRS before 30 June 2013.
Aside from this, she also explained the exit tax and the renunciation tax. The exit tax and the renunciation tax are taxes paid when a U.S. resident or citizen gives up status. Renunciation does not simply consist of letting your green card expire; you still must pay the renunciation tax, beginning on the earliest effective date (???). On the day of renunciation, you must file Form 8854 and affirm that you have fulfilled the law’s requirements for income tax filings for the past five years. If you do not file this form, then your renunciation is disregarded, and you retain your resident status and still must pay U.S. tax on your global income. At the time of renunciation, capital gains are calculated on all property as if sold at market value, and after applying a $650,000 tax exemption are included in income. All retirement funds and other tax-exempt or tax-deferred accounts must be included in the income calculation. If there are losses, only $3,000 can be deducted.
U.S. citizens and permanent residents must report “global income” for their income tax. However, China and the U.S. signed a China–U.S. tax treaty. Many green card-holding Chinese international students who returned to China are Chinese citizens. Residents of China can choose to file [U.S.] taxes as non-residents as long as they spent more than six months per year in China, and their Chinese income is not subject to U.S. tax. U.S. citizens do not have this option, and must pay [U.S.] tax on all of their Chinese income. Hong Kong, Macau, Taiwan, and other places also do not have tax treaties with the U.S., and because of this residents of these places who have U.S. green cards must file [U.S.] taxes as U.S. residents. If you meet the requirements, you may also have the opportunity to choose the Foreign Earned Income Exclusion.
The translation of “Foreign Earned Income Exclusion” here is a complete disaster: “foreign labour power income tax exemption” (海外勞動力所得免稅, hǎiwài láodònglì suǒdé miǎnshuì). This sounds like some sort of obscure benefit for employers. The IRS’ official Chinese terminology for the FEIE (國外所得收入抵免部份, guówài suǒdé shōurù dǐmiǎn bùfèn) is only marginally better; it translates back into English roughly as “Foreign Income Offset Portion”, which makes it sound like it can be applied to all foreign income (rather than just wage income). Of course, if Congress and the IRS didn’t insist on trying to tax the entire world, there’d be far less need for any translations at all. Non-Anglophones — and even native Anglophones — already have enough trouble understanding Form 1040, with the only saving grace being that many can get by without filing it at all if their employer handles the withholding for them (at the cost of missing out on some potential refunds). It’s nothing more than a cruel joke to expect non-English speakers to understand the Form 3520 or 8621 filing requirements for any money they may have left behind in their home countries.
Real estate broker Lin Chih explained the condition of the real estate market with a data-filled video, and also provided analysis. He pointed out, at present foreclosures of residential real estate have already fallen, ordinary real estate transactions show less haggling, and international investment opportunities are picking up. Broadly speaking, it is still a buyer’s market. Lin Chih analysed the benefits of international investment: due to rising oil prices many urban-area houses are becoming new favourites due to their accessibility. In some areas, [residents] don’t even need to drive but can walk to various malls in order to complete shopping errands or [participate in] recreational activities. He also believes commercial property investment is a good choice, as warehouses, offices, or retail space all have many vacancies at present. Other than that, apartment buildings are also a good investment. and in particular multi-family units have a good outlook.
The third lecturer was loan specialist Liao Mei-fang, who discussed the situation with regards to ordinary loans, and explained various types of loans such as FHA, HARP, and HAMP. She pointed out, as long as you have good credit and sufficient income, it is possible to refinance, and if you meet the requirements, there’s no limit to how much you could borrow, and interest rates are low. At present many people have been refused for loans, because they do not meet the conditions.
So, sixty taxpayers have got the message: give up your green cards and invest overseas. That just leaves 100,000 other Chinese Americans and Taiwanese Americans in Florida …
Immigrants at the bottom of the economic ladder rarely worry about the US tax system, and probabably don’t need to, but those who are moving to the US to set up businesses really need to be concerned, so this sort of thing is important for them. Once they have moved here they soon realize they wished they had known about them before they made the move. So this kind of activity is not only welcome but important. If you have money to tranfer to the US when you come as an immigrant, it is easy, but it is a lot more difficult to “pick up your dolls” and go back home and take your new wealth with you to go back where you came from to continue life or to retire as a result of US tax laws.
I am impressed Eric, at the fact you can read/translate Chinese. Wow!
The nicknames are cute but I agree “more bandits” – that is juicy.
I suppose this information is not (?) included in whatever the process is for immigrating to the US? I should probably look however, if it isn’t, then it’s just another evasion of responsibility for proper notification of one’s requirements. Same-old, same-old.
I think some of the information is incorrect. To my knowledge, you are entitled to renounce even if you have not complied with US tax requirements.
Yes, that is true. It is also untrue that you have to file the 8854 on the day of renounciation.
One thing I had never thought of though, was mentioned on Phil Hodgen’s site. Once you do renounce, you create a time limit for getting the 5 years of returns done so you can certify on the 8854 that you are compliant. I guess strange things could come up to prevent that getting done and then one would be “covered.”
@greyowl: I’m guessing the journalist was just summarising what she understood from the talk, and wasn’t able to do much fact checking. On the way back into English I’ve probably introduced some translation errors too. The sad thing is, we can see the errors easily, but there’s a lot of people for whom news reports like this are their only real source of information on the topic.
@nobledreamer: well, I’ve been here for a decade. Kinda had to learn, otherwise my career would have stalled 🙂
@Roger: the other problem is that the E2/EB5-visa investors often get their tax advice from their immigration consulting firm’s lawyers — who have an obvious conflict of interest: they want the client to go to the US so they can get paid and puff up their “success rate”, and they have no desire at all to point out the drawbacks or ongoing costs to the client.
But L1 and H1-B workers have it even worse. Not only could their savings easily exceed the FBAR threshold, but they may also have home country purpose-savings plans that can’t be withdrawn or closed, and that the IRS sees as PFICs/foreign trusts trusts/CFCs/FDEs. $500 in a foreign retirement plan means you’re stuck filing Form 3520 or 8621 for the rest of your life. But they certainly can’t afford $300/hr advice from a tax attorney to assess their situation and advise them whether the increase in wages from migrating to the US is really worth the risk of massive international taxation fines …