I published a letter that I sent with my 2009 tax, which was late because of sheer frustration about what to do. In the letter, I explained that I had relinquished my US citizenship. Yet the IRS seems to think that I do not qualify for the Foreign Earned Income Exclusion. If you will recall, they sent me a threatening letter asking for more information, to which I replied about a month ago, possibly with insufficient time for them to take it into account (though I don’t see how they could not have received it before June 12, as it was sent in early May). The original 2555, filled out by my cheap tax preparer (no longer qualified according to the new rules), did not include the dates of my residence abroad. Thus, I amended that form and resent it. This shows the problem of finding a good tax preparer. If one is cheap, he will make mistakes. If a tax preparer makes no mistakes, expect to pay over a thousand dollars for a simple return. In any case, I will appeal this decision within the 60 days.
Here is the important bit of the IRS bill explaining the changes:
I would appreciate any input from readers. It seems they lowered my total taxable income due to a calculation error, then disallowed the FEIE, and reassessed the taxes based on there being no FEIE.
Even though the IRS knows I am no longer a citizen, this is likely not malice but merely incompetence. I have lived outside the United States since 1986, and this is not my first return. My story has always been consistently the same. And they have flimsy grounds on which to charge my “account” (which I consider a dead issue, as I am NOT AN AMERICAN–I said that in my accompanying letter).
Hey IRS stupid people! Good luck collecting this bill! I will not be paying it–you are wasting your time and other taxpayers’ money. I AM NOT LOW HANGING FRUIT!
I was hoping that this divorce could be painless. But I guess the IRS, the stalking ex-spouse, has other plans.
With regards to your comment calling the US “Form Nation”.
I just added up all the pages of documentation that I have filed attributable to my decision to renounce, including Tax forms, Fbars, SSN application, Renunciation application, Requests for Canadian documents etc.
I am currently at 175 pages.
That doesn’t even include supporting documentation that I created but wasn’t actually filed with anybody.
And I am not finished with the process yet. No wonder I am stressed.
This just in: http://www.wthr.com/story/18936653/irs-hit-with-audit-for-mismanagement-and-fraud
They can’t cope with what is happening INSIDE the US, and they want piles of incomprehensible forms and insane failure-to-report penalties for back years and years from millions ‘abroad’ – who most probably owe them NO taxes?
What will they do with all that paper?
@Badger: Howard may be one of those intelligent, highly educated, caring folks at IRS that Steven has told us about. And, what does IRS do? Downgrade his performance rating and slash his income.
Steven has also told us the computers in Washington are going to “blow a fuse” when data from banks around the world start to arrive. They can’t handle information now. As you said, how are they going to handle it in the future?
Isn’t Austin where most of the Canadian returns are currently on hold? I wonder what this will mean for them.
And IRS dares to call us “tax cheats” and “tax evaders!” Enough said.
@blaze, re; “Isn’t Austin where most of the Canadian returns are currently on hold? I wonder what this will mean for them.”
That’s what I think I read on another thread or two. If the promised ‘new’ processes for those with ‘low compliance risk’ basically only allows ‘unicorns’ to use the ‘commonsense’ method, there will still be masses of paper generated.
@Badger…
Thanks for that link. I saw the this story over at Accounting today..
IRS Overlooks Reports of Tax-Exempt Organizations Violating Tax Laws
Couldn’t help but say…
They are probably too busy looking for phantom deficit reducing dollars from FATCA enforcement the world over.. No time for anything else, close to home 🙂
badger
@JustMe, reason does not prevail apparently.
UPDATE: So, I procrastinates on this one, just a little. The 60 days approaches; August 9 or 10 would be the absolutely last day to avoid paying this bill. After 60 days, I has to pay the bill first, then I asks for a refund if I gets a favorable decision that my FEIE is allowable.
So Sunday night, I finally writes up a letter to the IRS but I feels funny. What if the letter never makes it to them? Then, the IRS says I has to pay this bill (LOL–I plans never pay them a penny ever again no matter how much they says that I owes–not directly, in any case–maybe they makes me pay through the CRA, but they are gonna have to go through the CRA–sorry Mr. Mopsick–he doesn’t like it when I gets cheeky).
So today, I calls them on the phone on the number on the letter and I pushes like three buttons–if you are calling about … then push 1, blah blah blah–so finally I pushes the last 1 and almost immediately a lady on the other end says, “IRS, my employee number is blah, blah, blah, how can I help you.” I am like falling on the floor I’m so surprised that I gets someone in like less than one minute. If I’d knowed that I would have called like months ago.
So I tells her my problem: y’all disallowed my FEIE, but I lives in Canada for like the last 100 years. And she says that the problem is that they never receives a correctly filled out 2555 to that effect, and she can’t relieve me of the 3K bill that I owes without that they receives the 2555. I asks, Even though I am telling you that I live in Canada? She answers that she can’t do a thing ’til she gets the 2555 filled out correctly. So she even gives me a fax number, and hear this, the correct address (no where to found in the letter) where I can send my 2555. She then puts a hold on the account just in case they doesn’t get the 2555 and my written explanation within the 60 days. So I guesses that I lives to write another blog post.
The cost: Skype call, 30 cents. Less than a postage stamp. I’ll fax the letter tomorrow with the 2555. Probably costs another 20 cents. Still less than a postage stamp.
Yay, Petros lives to blog another day! It seems they are awfully long on form fixation and extremely short on common sense. But wait … I’m beginning to think your comment might be a flight of fancy because you claim you actually spoke to a person there and got a correct address. Seems a bit fishy to me. 🙂
@Em, that’s a true story. I swears it. But I can’t swear that the address that she gives me today is a good address.
*Petros,quite by coincidence I got a letter from the IRS today. Mine is plain vanilla since I live in the US and don’t claim any foreign earned income exclusion. I had received a letter a month ago advising me that I owed them $156.00 plus $10.92 penalty plus interest for a total of $164.34. The reason: Because they had failed to credit my account for $156
*By mistake I just sent a reply that was incompete: Here is the complete reply:
*Petros, quite by coincidence I got a letter from the IRS today. Mine is plain vanilla since I live in the US and don’t claim any foreign earned income exclusion. I had received a letter a month ago advising me that I owed them $156.00 plus $10.92 penalty plus interest for a total of $164.34. The reason: Because they had failed to credit my account for $156 in Federal tax withheld at source on interest and dividends and duly reported on Form 1099. They had picked up the income reported on this 1099 but failed to pick up and credit me with the tax withheld. After spending 3 hours on the phone with the Tax Advocate and two IRS agents I was told to submit everythng again with a request that they reopen the case. This I did the very next day by fax.
Today, one month and 2 days later I received an acknowledement that my letter had been received and stating that within 60 days they would contact me again to advise me “what action we are taking.” At least they did not send me another bill with additional penalties. So I will leave sleeping dogs lie. No use losing sleep over it.
@Petros, you could probably forget about the form 2555 and simply claim foreign tax credits for the “excluded” amount which more than likely the foreign tax
would cover since Canadian tax rates are higher than the US rates. As a matter of fact I understand that in quite a few countries with higher tax rates, US citizens are ignoring the FEIE and using foreign credits to offset the US tax on the FEIE amount. That way they can take advantage of US 401(k) contributions to reduce their US tax obligation which they could not do if the foreign income had been excluded under the FEIE provision.
Sometimes there is more than one way to skin a cat.
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I just got the same letter with a demand for $12000, $8000 in tax, $2000 in interest and $2000 in penalties.
My 2008 return only included the first page of the 3 page form 2555, and my response that included the missing pages did not arrive in time.
I am not woried about it, its just going to take several months and be a pita to fix. I was hoping to file my final tax return and the 8854 mid January, right after the new forms are available. Now I am going to have to wait until this is cleared up first.
What a mess.
@Just a Canadian, I hope you won’t pay this bill. I did not, and finally, they eliminated the taxes, fines and interest. As I said in an earlier comment, I was able to call the number on the bill and actually get someone. But if you want, I can give you the fax number in Philadelphia for international tax returns that the lady gave me and save you the trouble of calling them.
As I understand it the only problem is that pages 2 and 3 of my 2555 were missing. Once they get the missing pages the correction will slowly work its way through the system and everything will be cancelled out as it should be.
I am certainly not going to pay the bill because I owe nothing, they just don’t know it yet.
*All,
As I understand it US banks are already required to report, I believe it is to the IRS, for forwarding to Canadian tax authorities interest earned on US bank accounts held by persons who are subject to Canadian tax on this interest (which to non-resident foreign citizens is not subject to US tax. Do I understand this correcty? How does it work?
Is this reporting of persons who have a Canadian address, regardless of their citizenship, does it apply to only persons with Canadian citizenship.
If this is true then there apparently already exists a mechanism for this reporting of US income to Canadian tax authorities from US sources. Is this a provision of the tax treaty between the US and Canada, or is a supplemental agreement of some sort?
Is is currently any reciprocity involved on the part of Canada reporting to the IRS the bank interest income of “US persons” who have bank accounts in Canada who have addresses indicating they are residents of the US?
I am just wondering out loud what sort of reporting arrangements already exist between the US and Canada.
@roger conklin- As I understand the way things operate between Canada and the U.S. the historical practise has been that Canadian banks have always reported to the IRS the financial income of U.S. residents with Canadian bank accounts but no legal Canadian residency.
Since Canadian financial account applications only ask for proof of legal residency, driver’s license and provincial health care card, and not citizenship there has been no reporting of the financial affairs of U.S. citizens, who have legal residency in Canada to the IRS.
FATCA threatens to undermine this distinction and therefore I agree with you when you say that FATCA has unilaterally torn up all previous tax treaties. The U.S. wants more than is being asked of it. It would seem to me that if the level of contractual performance that is required is not equitable then the contract is no longer one between equals.
FATCA allows the U.S. to unilaterally restructure the financial industry of another sovereign country. This is unacceptable from a national sovereingty point of view.
If I have made an error I hope that someone will correct it.
I am following up on an old thread here.
It took four and a half months but the IRS finally processed my missing form 2555. Instead of owing $12000, I actually owe $0. That is what I was expecting but it took them a long time to figure it out.
I can now file my final tax year and form 8854 without having to explain why I wrote down $0 for my 2008 taxes owed when their files show something else.
Thank goodness for that stroke of luck, Just a Canadian!! You’re almost at the finish line. Congratulations.
Just A Canadian, I find it appalling that it you had to go through all that hassle and it took you four and a half months just to demonstrate to the IRS’ satisfaction that you owe them NO money, after they threatened that you owed them $12,000! In case any “homelanders” are listening (which is doubtful of course) your experience is a perfect example of what really makes US expatriates mad as hell about US citizenship-based taxation. It’s why I’m so glad that I have been able to document my long-ago relinquishment of US citizenship and am out of that nightmare. The longer this absurdity goes on for the rest of you, the less I am inclined to ever visit there again. I voted “no” with my feet in the 1960s and 1970s and will continue to vote “no” with my vacation money.
Best wishes for your continuing journey.
Just a Canadian, I appreciate that you let us know how things turned out. Unconscionable that you had to go through that – to prove that you owed 0. Just the kind of thing that the Taxpayer Advocate wants to keep tabs on for her next report to Congress.
Soon this will all be just a bad memory for you.
Best wishes.
Mine was $22,000. Another incident was about $2000. Both were 9-16 months in length (can’t remember).. After surviving it, I consider it a benefit that the IRS was wasting its time on my cases—that keeps them from finding time to screw something else up on my later tax submissions.