This article by Bloomberg is their reporting on the submissions to House Ways and Means Tax reform. It has been mentioned in multiple threads here at Isaac Brock, and was highlighted at ACA, so thought I would pull it out for better visibility. It merits comments and email to the journalist. I did send them one to thank them for drawing attention to the U.S. Expat plight, and provided the link back to the anecdotal snippets from other submissions like those @AbusedExpat has been posting.
Thought I would also highlight whitecats response to this story which caught my attention.
It must be a full moon or something because FATCA and the USA war on ‘tax cheats’ is getting to me more than usual. I posted this as a comment to this article:
OMG, Israel Jackson, you are so misinformed, and very rude. How many times have you told someone to shutup or called them stupid in your comments to this article? This alone shows your lack of intelligence and inability to think ethically, empathetically and critically.
The foreign income exclusion amount of 92K (or so) applies to ‘EARNED’ income only – meaning money you receive from an employer. It does not apply to any other sources of income such as pension income, investment income, unemployment benefits, disability benefits, etc. Try being a pensioner who is a dual citizen living outside of USA and you will be double taxed. Imagine being unfortunate enough to have lost your job and be collecting unemployment benefits – you will be double taxed. Try buying non-USA mutual funds in the country you live in – you can’t because USA considers these to be ‘passive foreign investment income corporations’ and taxes the hell out of them.
I was born in the USA to Canadian parents and left as an infant thus am dual from birth – not by choice. I have never been schooled or worked or invested in the USA, yet USA expects annual tax returns at the cost of a couple thousand per year, and annual FBARS for all my bank accounts which USA says are ‘foreign’.I live where my accounts are, so HOW ARE MY ACCOUNTS FOREIGN?
Unlike other Canadian citizens, because I am tainted with a US birthplace, I cannot take advantage of any of Canada’s registered savings plans – cannot save for retirement, cannot save for my kids university, and am required to jump through hoops every year to prove I owe little or no taxes. In addition I am required to report on every detail of every bank account with my name on it which are held in the country where I live and am a citizen of. I must spend thousands every year preparing US tax returns and ‘foreign’ bank account reports which are much more complicated than the reporting required by US citizens living in US.
Do US citizens in US have to prepare detailed reports of each and every bank account they have in US? No, but I have to report all my locally held accounts to the USA and hope to GOD there are no breaches of privacy of my personal information that might subject me to identity theft. Even the government of Canada does not require me to annually report the details of each and every account I hold.
I pay high taxes where I live already – higher than Americans in USA do. I want to be able to save for retirement so the Canadian government won’t have to pay to take care of me in my old age – I know USA won’t. Who will take care of me if I am not allowed to take advantage of my own countries registered retirement plans?
Why not renounce you say? Because, I never had a clue until now (at age 50) that USA even considered me a taxpayer. Why would I? It makes no sense to tax people who DO NOT LIVE in USA, never worked there, never earned income there, and never plan to live there. No other country does this. Since all the publicity surrounding FATCA, I discover I am in big trouble for not filing all these years, even though I have always paid taxes to the Canadian government. USA will not let me renounce unless I can prove 5 years of US tax compliance which requires paying 10′s of thousands in lawyers and accounting fees and risking PENALTIES for previous non-filing of ‘foreign bank account reports’ (aka accounts in MY country of residence).
Soon, thanks to FATCA, my own local banks will be required to send all the personal details of every account my name is on (including those held jointly with my Canadian only spouse) to the IRS because USA thinks it owns a piece of me and apparently anyone who is remotely connected to me.
Isreal Jackson and others with similar mindsets, before you whine about people not ‘paying their fair share’, maybe you should RESEARCH and try to understand what is really happening instead of blindly taking up the pitchforks and assuming everyone who does not pay taxes to the US is a witch that should be burned at the stake.
@Pacifica,
You said, ‘Legally one does not have to be up-to-date on taxes in order to renounce. The only legal requirement is that the expatriate is up-to-date with IRS (IRS exit form,8854, and the 5 previous years tax forms filed) by June 15th of the year following their renunciation.’
Ok, so am I correct in that one is required to file 5 years of previous tax forms, whether they do it just prior or just after renouncing. In other words, to renounce is to commit to 5 years of filing. You don’t have to prove it when renouncing, but you have to commit to it. Is this right?
@bubblebustin – Don’t think you may not be qualified. Apparently some people in the IRS think that I am a candidate for the Streamlined Program and I was a filer. The program is supposed to be for non-filers and people who do not have amended returns, but that requirement is possibly being waived. I also have PFICs and a possible trust (that was an unpleasant surprise that neither my ex-lawyer nor my accountant picked up).
I think the Streamlined Program is being used by the IRS to clear out the backlog. It moves the minnow cases along a lot faster. They are as sick of us as we are of them. I will let you know what program I ultimately am handled under.
If as ‘NotThatLisa’ says: ‘They are as sick of us as we are of them’, why the hell don’t they just let us all go now and drop all of this amnesty nonsense?
Just open the net, let all the minnows out, and continue on their merry way hunting the big fish.
@WhiteKat,
You’re correct. You may find the following of interest / use: from Phil Hodgen, a respected US tax lawyer: Phil Hodgen discussion and comments: The exit tax paperwork for people who have never filed
@Calgary411,
Thanks for the link.
@ WhiteKat,
Correct. It is not a requirement to renounce. In fact, if one fails to file the previous 5 years and 8854 after renouncing, the loss of citizenship itself remains valid.
For a person who’s not up to date with taxes, renouncing is, as you put it, making a commitment to file. It is a tax obligation (line 10 Statement of Understanding of Consequences) and renunciation puts the person on the radar. DoS sends copy of the approved CLN to IRS (7 FAM 1240 Interagency Coordination and Reporting Requirements) and not filing the 5 years and the 8854 by the following June 15th can result in a person becoming a “covered expatriate” even if they are under the $2 million limit.
@NotthatLisa
Where did you hear that the requirement of being a “non-filer” may be waived as a condition for “streamlined compliance”?
@Whitekat @Pacifica
Not sure that renouncing is making a commitment to file 5 years of taxes at any time. Explore this line of reasoning:
The failure to certify 5 years of tax filing means you are a covered Expatriate. What are the consequences of this?
1. Makes you subject to the Exit Tax – For many people it will make no difference, there is an exemption of approx. $660,000
2. Means that if you leave anything in your estate to or make gifts to Homelanders they must pay tax on them.
The issue not filing the 5 years really needs to be explored. You can see my opinion on this – but I acknowledge it is just my opinion. Get competent advice.
@USCitizenAbroad, Whitekat, Pacifica
“What if you can’t certify that everything is all up-to-date?
Simple answer. You will be a “covered expatriate” as far as the exit tax law is concerned.
You become a “covered expatriate” if you have $2,000,000 or more in net worth, you paid $151,000 or more in income tax over the prior five years–this is the 2012 number, or you fail to certify that you’re in good shape for the prior five years of tax obligations.”
Read more:
http://hodgen.com/the-exit-tax-paperwork-for-people-who-have-never-filed/
calgary411, thanks for the link. Gives my wife and I a lot to think about with regards to her filing. Thank God, I was born in Canada to 100% Canadian parents. All I have to worry about is my spouse.
I’ve also read elsewhere that even if you are exempt from the exit tax because you are a dual at birth, you are still required to for file 5 years.
I have to agree with US citizen abroad. If you get “competent” advice, they will however lead you down the path of compliance. Most of the people who have been screwed over royally got “competent” advice, because their advisers set them down an expensive path of tax compliance needlessly.
Suppose one is a citizen of a country like Canada, has all one’s assets in Canada, has no investments in the US, and one renounces and fails to provide 5 years of tax returns and the Form 8854. What exactly is the IRS going to do to you? What do you fear can happen? Are they going to set off a diplomatic incident and arrest you if you try to enter the United States? Are they going to assess a tax liability based on a random guess as to your net worth? These are questions that are worth exploring before seeking “competent” advice. They seem unlikely to say the least. If you have a you’ve been in compliance to date, then it is a good idea to finish the process–but if you haven’t filed in years, then it is probably better to give them nothing. Many who renounce are not low hanging fruit and the effort that the IRS would have to expense to get juice from a prune pit is not likely worth their effort.
The “competent” advice caveat should itself come with a caveat.
🙂 good news today : I have been a non filer and had submitted amended returns just got the lovely news that my VD has been processed and accepted as filed . No changes to my FTC carry overs or AMT tax credits just a few minor corrections and most importantly they will issue a 3800 FBAR warning letter and I AM DONE !
My case is a little bit different because I had a wrongful Tax Lien of $560K issued against me because of non filing but apparently this circumstance helped me to push my case to the front of the line , any line . That took now just 6-7 month !
@Tim, you gave us a teaser with the Florida widow 🙂
Jack has a post on his website about it:
For those who don’t want to wait. The judge has freed the lady and not even given her probation.
http://federaltaxcrimes.blogspot.com/2013/04/sentencing-judge-on-offshore.html
“judge Ryskamp chastised the government for prosecuting the 79-year-old woman when 38,000 other people in the same situation were given amnesty”
“Based on these facts, did it ever occur to the government to dismiss these charges,” Ryskamp said. “Instead, the government decided it had to make a felon out of this woman?”
“Judge Ryskamp’s sentencing is unprecedented in a number of respects: calling the government’s case against Mrs. Curran ‘tragic’ and ‘unfortunate,’ putting her on probation for effectively five seconds, urging Mrs. Curran to file a pardon application with the president, and telling the prosecutors they would be spiteful to oppose it,” Hochman said.
Feel free to create a new post. I don’t have priviledges to do so.
@Petros, @All,
And that is exactly the dilemma.
I hope others who have a similar case as mine go to the correct professional for their first advice. I went to a cross-border accounting firm rather than FIRST a competent immigration lawyer. I started down the path of no return because I took the advice of the cross-border accounting firm. I am one who could have, instead, CLAIMED MY RELINQUISHMENT of 1975 when I became a Canadian citizen and was warned I would be relinquishing my US citizenship by doing so.
The first thing anyone should determine is if they are able to RELINQUISH rather than to have to RENOUNCE. There can be a big difference in years, life credit units and retirement savings gone.
For others, “Accidental Americans,” there is, to me, no justification that they should be subjected to US citizenship; i.e. THAT SHOULD BE A CHOICE FOR THEM, NOT A “GIFT”, some of whom cannot escape the US citizenship shackles (again, like my son)!
White Kat. You can renounce regardless of when you choose to file. At the time some one renounces they will be given a form telling them that they are supposed to contact the IRS. At that point they have the option of contacting them OR NOT. The 5 yrs. arise because that is the number of yrs. you file in order to avoid being considered a ‘covered expatriate’
As I understand your situation there would be a very large temptation to ignore the whole thing. Remember, your inheritance can be paid to you regardless. Estate taxes in the US are paid by the estate; not the heir(s) Once the estate taxes are paid , and there is a 5 million exemption, the estate can be paid to anyone.
At present there is no prohibition on expatriates returning to visit the US nor is there likely to be.
They have their hands full with real tax evaders, identity theft , Obamacare, budget cutbacks, 200 million tax returns, large numbers who actually owe them money and can’t pay, obsolete systems, 78000 pages of rules and on and on. They don’t have time for minnows unless the minnow insists on jumping into the net.
Although I see renouncing as making a commitment to get tax compliant by June 15th of the following year, I tend to agree with USCitizenAbroad, Petros and KalC, too.
I see it as a commitment in that it puts you on the radar and, in my interpretation (I’m no expert, for sure), it’s a legal commitment. BUT in the practical world? For some people, there might not be any consequences at all if they never file, for reasons USCitizenAbroad, Petros and KalC have pointed out.
To actually file or not to file? I have no opinion in general. Like everything else about this, each person has to make their own decision based on their own life circumstances after serious research and thought.
As far as timing, however, I do feel that if I wanted to renounce, were not yet compliant and wanted to complete my tax obligations (5 years back-filing and 8854), I would be comfortable renouncing first and filing the back 5 as soon possible, wrapping it up with the final partial-year and 8854 by the following June 15th, as others have done. But once again, each of us and each of our lives are different.
@Kalc,
Thanks for your comment. I am for now, just sitting back, waiting and watching. Jumping into the net, at this point doesn’t make sense to me. Regarding inheritances, my main worry assuming I stay ‘non-compliant’, would be having my bank find out about my US personage, and giving me a hassle (for example 30% withholding) on the US to Canada transfer when the time comes.
@WhiteKat and others
It’s more that just a matter of *filing* 5 years of returns by June 15, no? Isn’t it a matter of filing 5 years of returns and having the IRS deem them acceptable? I.e., that’s what being compliant means?
I ask because I’m also wrestling with my next move.
@Tdott
Unfortunately the IRS doesn’t send a nice Notice of Assessment like the CRA does so you may not ever know if they agree because there’s no statute of limitations for those who’ve never filed before. However, I suspect that if they don’t agree you”ll hear back in a timely manner. Thoughts?
tdott and bubblebustin,
This might help? http://isaacbrocksociety.ca/expat_tax/comment-page-4/#comment-201852
@Petros and all
Re “competent advice”
Petros is correct that you need to be very careful with where you get your advice. A great reminder of that is the story of the d’addario woman described by @NotthatLisa as follows:
http://isaacbrocksociety.ca/2013/04/17/excellent-submission-to-the-ways-and-means-committee/comment-page-6/#comment-298728
“The submission that came closest to home for me was that of partially disabled Canadian Patricia d’Addario. It is the account of yet another OVDI victim who acquiesced and is paying $78,000 of her family’s retirement savings for simply being unaware of the FBAR form. She obviously participated in OVDP 1, which forced examiners to brutally question every foreign transaction. Things have lightened up a bit in OVDI. We in OVDI are benefitting because the injustices that were done in OVDP 1 to Americans abroad have been recognized.
By the way, my submission went up two days after I sent it in. I think the queue was being managed in a Last In First Out (LIFO) manner.”
You will see in her submission that she “called up” the U.S. lawyer in the article and was advised to enter OVDI. Her life has been destroyed as a result.
There are many other examples.
Here are some thoughts on Petro’s “The “competent” advice caveat should itself come with a caveat.”
Competent advice means that the advisor is looking after YOUR interests. Not the interests of the IRS and NOT the advisor’s personal interests. For two years, I have in comment after comment, tried to make people aware that US advisor’s are subject to the IRS Circular 230 which many interpret to mean that they must advise compliance. Furthermore, anybody who has been reading this blog will know of many instances where lawyers advise “minnows” to enter OVDP. So, I agree with Petros that you must be careful. On the other hand, you can’t get your advice from a blog like this. (Including anything that I suggest in this comment.) Here (just my opinion, this is not advice of any kind) is how you might organize yourself so that you can have a productive discussion with an advisor.
1. Those of you who have lived outside the US for a long time MUST begin with the question of whether you are a US person at all. US law has many expatriating acts. You may no longer by a US person NO MATTER WHAT THE IRS SAYS. The fact that you were born in the US is the beginning of the inquiry and is NOT determinative. This means that you do NOT call up some advisor and say “How do I come into compliance”. Unless it is a very obvious case, you will probably need help here. But this is NOT tax help. It is NOT compliance help. It is: “am I a US person at all” help. You may have lost your citizenship.
2. If you you ARE confident that you are a US person, then the issue is whether you have been filing or not. If you have been filing, as a famous author once wrote: “It was the best of times and the worst of times”. On the one hand, you may be able to get out (renounce) very easily. On the other hand, you may have problems because of things you didn’t know about. FBAR, PFICs, sale of home etc. Then the question becomes: do you file amended returns or not. The law does NOT require you to do so. There may be problems with the “audit lottery”. You need to explore the question by asking: what happens if I do file amended returns and what happens if I don’t file amended returns. There is rarely a clear answer.
Obviously, (at a minimum) you must correct the problems on a “going forward” basis. You should be mindful of limitation periods. But, remember that the failure to file certain information returns prevents the limitation period from starting.
In some ways those who have been filing are in worse position than those who have not. For example, at least at present “streamlined compliance” does not seem to be an option for those who have been filing.
3. If you have never filed – this is where it gets interesting. It is impossible to know what to do without determining your possible tax liability. Therefore, you should probably get tax returns prepared for a period of up to 6 years. Take them away and consider them. Do you owe tax or not? The answer to that question (I would think) would be a key factor in your attitude toward what you want to do. Also, in a general sense, the question of whether you want to renounce (and most everybody has to at this point) may affect what you want to do. The fact that you may NOT be required to be tax compliant to renounce, doesn’t mean that you might not want to be tax compliant when you renounce.
4. At this point, you are armed with enough information to make a decision. If you seek “competent advice” remember that the advisor is NOT there to tell you want to do, but to help you make a decision. Quite obviously, advisor’s generate large fees from getting people into compliance (and this may or may not affect their objectivity). In selecting an advisor remember that anything you do has implications for your Canadian taxes as well. There are plenty of good US tax advisors in Canada who also understand the Canadian tax implications of what you do.
In terms of your options: here is a post that lies out a number of options (just to make it clear that there is a lot out there).
http://renounceuscitizenship.wordpress.com/2013/01/15/what-a-fatca-iga-would-mean-for-non-compliant-u-s-citizens-abroad/
There are three very important broad principles here:
1. There are very very few people who should even consider OVDP (and after the last bait and switch I don’t think anybody should);
2. All decisions and advice are largely based on the tax that you may owe;
3. The advisor is NOT there to tell you what to do, but help you make a decision.
So what’s “competent advice”. It means advice from a advisor who:
A. Has the objective skills and experience to help you make a decision; and
B. Has the moral conviction to help YOU do what is best for YOU.
As usual, USCitizenAbroad, thank you for outlining what we all need to know to make the decisions right for us and our families. There are unknowns down the road.
We all must, as Just Me says, do the drudgery — read, read, read — and that is before going to any professional so that person is not talking above our heads. We have that responsibility to ourselves and to be a knowledgeable participant in the discussion with whomever we hire to help us (if that is needed — perhaps not, but very much so in my case!).
We all have different levels of risk and some of us our stronger than others. This turns out to be a minefield that we must understand and negotiate to get from this dark side to the brighter side where we can breath and sleep soundly and get on with our lives.
@USCitizenAbroad – Uhh, that could be my case. It is bizarre. Supposedly, I was approved as a 2011 Opt Out. The day after I received that communication I was advised that the agent had received a call and was in discussion with someone as the view was that cases like mine should be processed under the Streamlined Program even if there were amended returns There was no confirmation of whether this was going to happen or not. I really do not know what to expect next. This is par for the course. I am waiting for something definite in the regular hardcopy post.
@Mike Tarrantes – Congratulations! It must feel great. On a selfish note, the short time it took to close your case just goes to show that those minnows who entered OVDI are still the whipping boys in the offshore disclosure debacle. No one (except the Taxpayer Advocate) seems to care that many of us are left hanging for 2 years or more.
You said you were a non-filer, but filed amended returns. How can that be? I also understand that you were in the Streamlined Program. Were you under the $1500 threshold?