This post was prompted by an article written by a Los Angeles tax law firm.
The background is that there are about nine million or so people living outside the United States who are deemed by the United States to be U.S persons. Most of these persons are IRS non-compliant. Some of these persons believe that it is illogical for them to comply with the IRS.
The article points out (correctly) that many of these IRS non-compliant persons, as they age, will develop in old age some disabling cognitive impairment, and therefore will need another person (e.g., conservator, tax attorney) to handle their financial affairs.
The individual having enduring/continuing power of attorney over the person’s finances could be a spouse, relative, close friend, attorney, or professional company. It is likely that this person will instruct a tax lawyer or accountant to handle the tax filings.
What happens when the tax attorney/Conservator in Canada, UK, Australia, whatever, discovers that their cognitively impaired client has a U.S. taint but is IRS non-compliant?
What is the obligation of the tax attorney to the client — or to the U.S. IRS? Will the attorney be guided primarily by fear of personal liability? What is your guess? Will the attorney pursue a Streamlined or perhaps an OVDP “defence” on your behalf? How will the assessment of your state of mind prior to cognitive impairment re: “willfulness” be conducted? What happens if no evidence can be found “proving” non-willfulness? How much cost will all this entail to the cognitively impaired who must live off their retirement savings in an assisted living or nursing home? Can the tax attorney ethically justify bankrupting the savings of a cognitively impaired client to satisfy a tax law imposed by a foreign country?
Given that there is potential liability (in the eyes of the United States) for BOTH the person having power of attorney over the cognitively impaired person’s finances AND the person doing the tax filings, what is the “REALISTIC” solution to get out of this mess? Readers have suggested:
— Renounce while cognitively intact if you can somehow afford the cost “and just be done with the problem” [USCitizenAbroad]? Free yourself now.
— Instruct the person having enduring power of attorney NOT to pay taxes to a foreign government? [This may be problematic. The Conservator may in future worry about personal liability re: U.S. and it is likely that some (many? most?) tax attorneys/accountants will refuse to participate in the tax filings if they have knowledge that the individual is an IRS non-compliant US person].
— Attach a self-generated CLN to the POA instructions (Rebecca’s interesting suggestion)?
— Every individual in the world takes out an insurance policy modeled on Obamacare which would insure them and their estate against the possibility of their being deemed to be a U.S. citizen [USCitizenAbroad]; and/or
— No person who is suspected of possible “USness” will be entitled to have an executor [or Conservator][USCitizenAbroad].
Other solutions?
@Tdott @Blaze
The problem is with the people who are/were of the view that they were not U.S. citizens because they had relinquished. There is no issue with the people who are U.S. citizens. The issue is with the large number of people who take the position that they relinquished U.S. citizenship but do not have a CLN.
There were and are law and accounting firms who put people into OVDP/OVDI who had clearly relinquished U.S. citizenship.
Perhaps an executor who took a “deceased” through streamlined or OVDP without investigating their USness could be found liable.
There is really only one way out of this problem: Before agreeing to be an executor, the future “decedent” needs to warrant their “USNess” or lack thereof.
But what if a mistake has been made?
I can actually see a day where one of two things will happen:
1. Every individual in the world takes out an insurance policy which would insure them and their estate against the possibility of their being deemed to be a U.S. citizen; and/or
2. No person who is suspected of possible “USness” will be entitled to have an executor.
Remember the FATCA IGA clearly allows the U.S. to deem ANYBODY it wants (just read the IGA) to be a U.S. person.
In fact, maybe the best solution is to adopt an insurance program (modeled on Obamacare) where everybody in the world must take out an insurance policy insuring them against possible USness . If they can’t prove they have a policy, then (like Obamacare) they just pay an penalty to the USG.
@tdott My executor has assured me he will not file anything with the IRS. He does not agree with the compliance industry. His professional view is that I have no obligation to the tax regime of a foreign government.
I trust him. I trust the lawyer who drafted my will. I don’t trust the IRS compliance condors.
P.S. I also don’t trust U.S. Consulates. That is one of many reasons why I won’t go near one to report a relinquishment of 43 years ago and pay them $3,000 Canadian to get a piece of paper they should have given me in 1973.
‘under possible solutions:
“Renounce while cognitively intact if you can somehow afford the cost “and just be done with the problem” [USCitizenAbroad]? Free yourself now.”
It’s not a question of whether “you can somehow afford the cost”. It’s a question of whether you can afford to NOT pay the cost.’
It’s both. In some countries, US citizens (likely dual citizens) living and working ordinary lives have annual incomes less than the cost of renunciation.
On the other hand if your income is that low you’d be below the IRS’s (usual) filing threshold (personal exemption plus standard deduction).
“On the other hand if your income is that low you’d be below the IRS’s (usual) filing threshold (personal exemption plus standard deduction).”
A commenter on an article by Forbes contributor Kelly Phillips Erb reported that she found luckily her income was below the threshhold for filing US tax returns, but she was subject to FBAR penalties because inheritance from her mother exceeded US$10,000.
It’s worth adding to the comment thread the exact text of the Internal Revenue Code under the Estate Tax Provisions:
https://www.law.cornell.edu/uscode/text/26/subtitle-B/chapter-11/subchapter-A/part-I
Under no circumstances should anybody agree to be an executor for a suspected “U.S. citizen” or “U.S. resident”. Stay away from them. It could bankrupt you.
“A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.”
Well of course the dead body should pay its fair share. If terrorists kidnap it, the US will send troops to free it. Also it might decide it wants to return to the US some day, to receive benefits and obligations of citizenship. Since benefits no longer include the Fifth Amendment, it might be compelled to be a witness against itself, but that’s part of its fair share.
The compliance industry is complicit in showing no real concern or empathy on this issue;
ex. see answer from nelsona to question and comment from a Canadian with a dependent with a disability;
Vancouver2014
Joined: 18 Jul 2015
Posts: 12
Location: Vancouver
PostPosted: Thu Jul 23, 2015 7:56 pm Post subject: Reply with quote
Just a brief update in case anyone else is in my situation. Yesterday I drove down to Seattle and amended three years of tax statements and filed three years of missing FBARs with the accountant who had taken care of my joint tax return when I used to live in the US. We also filed 3 years of FBARs for my son who was an unemployed student during the short time he was in the US along with a statement to the effect that he did not know about FBARs. The accountant told me it was extremely unlikely my son would get a penalty especially since he has Aspergers (we included a brief note from his family doctor. The accountant told me it was unlikely I would be penalized since the unreported interest income was low but to prepare myself for a possibility of a 5K penalty for filing the FBARs late. He had a handful of former GC holders amend tax returns and file FBARs earlier this year and none of them paid more than 5K total in penalties, not even the guy who had $40K in his TFSA. So for what it’s worth, that’s my experience. I wish more people would post about their experiences AFTER filing late FBARs and amended statements so that readers could assess their issues with a little more objectivity and a lot less panic.
nelsona
PostPosted: Fri Jul 24, 2015 9:52 am
Your son — as I have said all along — will not be penalized, since he did not owe tyaxes — not because he has Asperger’s, which is NOT an excuse.
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nelsona non grata… and non pro
The link to above exchange is:
https://forums.serbinski.com/viewtopic.php?t=9830&highlight=streamlined
“The compliance industry is complicit in showing no real concern or empathy on this issue;”
That wouldn’t surprise me, but your quote doesn’t support that likelihood.
‘Your son — as I have said all along — will not be penalized, since he did not owe tyaxes — not because he has Asperger’s, which is NOT an excuse.
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nelsona non grata… and non pro’
I think the IRS and US courts are on record holding that Asperger’s (and even Alzheimer’s) (and of course death) isn’t an excuse. I don’t think nelsona’s personal opinion is visible in that quotation.