US expat tax and FBAR: Discussion thread (Ask your questions) Part Two
Please ask your questions here about US Expat tax and FBAR.
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NB: This discussion is a continuation of an older discussion that became to large for our software to handle well. See US expat tax and FBAR: Discussion thread (Ask your questions) Part One.
@ Isabelle,
(1) Re tax filing and expatriation.
The deadline for the filings — 8854, plus the previous five years that have to be filed by the time the person signs their 8854, certifying they have been tax compliant for the five preceding years — is June 15th of the year after the expatriation, so 15 June 2016 for people who expatriate this year (looks like one can get a six month extension of that as well.) So, even if he chooses to go the CLN route and file taxes, there’s no rush to file them.
(2) Re: “I’ve read stuff that would seem to indicate that *I* am a non-resident alien and that means that I need to file too.”
No. From what you’ve written, I don’t see how you would have a US tax obligation. You’re not a citizen or green card holder and, as far as I know, don’t have US income.
(3) I think you’re on the right track, as you called it “on a fact-finding mission.” Nate definitely has a few options for what he can do or not do. It’s a really individual decision, because everyone’s fact set and risk tolerance is different. Usually while digesting all the information and mulling things over, one solution starts to feel right. Sometimes neither/none feel great, but still one seems to fall into place as the best choice and you feel yourself more and more confident that that’s it. In the meantime, of course, as Blaze and PLC have said, don’t rush into doing anything.
You’re definitely doing the right thing reading a lot and asking questions about all options, so you can mull the different options over in detail and come to an informed decision that will work best for you.
@IB
I know exactly what you mean about not having to look over your shoulder the rest of your life. Unfortunately Nate will have to go on the radar to go off of it, but as you say, better it be done when you have little to lose if Nate may have difficulty with being a renegade in the future.
Thanks everyone.
@Blaze. I haven’t because I’m still fairly recent to the “oh man we need to deal with this” game. He came to my town last year but we missed it because we didn’t know about him then. Didn’t even realize there was something to do At that point.
We have contacted him and he responded saying that he’d get in touch next week. I want to talk to him but it’s really tight right now so we can’t really swallow his fee.
I did go on his website and try to bone up there and started watching videos on presentations he gave.
@Isabelle Brock
I know it’s VERY difficult to do (I’m like a dog with a bone with things too!), but if you follow any piece of advice from here the best is: slow down and just gather as much information as possible first. Don’t even think about the decision(s) to be made yet. Really try to take to heart what Portland PLC and Blaze are telling you – slow down.
It’s great that you’re looking at all the pros and cons of each way of dealing with your situation. Keep compiling that list as you find out more. Ask questions here and make notes. Don’t dismiss any options yet. Try to think of this as information gathering only at this point.
Honestly, I think almost all of us have driven ourselves to sleepless nights and high blood pressure (or worse) trying to figure out what to do. It’s hard to slow your racing mind as you learn about this. It’s easy to become obsessed, but it will do you NO GOOD and my end up being very detrimental.
John’s great and if it gives you comfort, maybe talking to a lawyer will help. But if money’s tight, you can likely figure this out on your own. A lawyer can advise, but you and Nate ultimately will be the ones to make the decision, not the lawyer.
The 5 years of filing are confusing, but you don’t need to think about that right now. That’s just another con on your list at this point.
You seem like an intelligent person Isabelle. Between you and Nate you WILL figure this out and make a decision which will work best for you. Nobody is pushing you to make a decision right now except YOU.
@Isabelle I don’t know where you live, but John has more information sessions planned. I am organizing one in London Ontario on April 23.
Breathe! Deeply and slowly.
I have a relinquishment appointment for December 2015 and hope that I will be successful in obtaining a CLN. But in the meantime, My fiance (who is not a US person) and I are planning to sell each of our individual homes, purchase a home together, get married, and consolidate finances, and he will also retire and collect a pension Are there any words of wisdom about how to structure our finances in the event that the US does not recognize my relinquishment and deem me to still be a US person for tax purposes?
CanadianGirl,
I hear winter weddings can be quite lovely.
Is there some reason why the appointment takes an 8 months wait? Would a renunciation appointment be sooner? I wouldn’t want to make all those changes until I was out of the IRS system. Especially not selling your house, if it would mean any gains to you.
You could conceivably do a wedding blessing with all the trimmings, but not the legal marriage arrangements until after the appointment date. Your Anglican clergy are prepared to do this (and I have) if there is a reason why you need not to sign the legal documents on the date of the ceremony. You would then have a civil service when it was safe.
@Canadian girl.
How about a relinquishment trip to Mexico or a pre honeymoon trip to Europe? I hear Luxembourg were offering 1 month appointments, you could email multiply embassies and take whatever suited.
@CanadianGirl, any joint assets will have to be included in any US tax returns, the 8854 form, etc. How long ago is your relinquishing act date? If it’s before 2004 then you may avoid all that, but if it’s more recent then you’re still going to have to file the 8854 at least. Either postpone everything until you have your relinquishment accepted or renounce if you have to, or make sure all accounts are still kept separately and don’t put your name on the mortgage.
Heidi’s idea of going elsewhere to do the deed might be a good one for you, but check with the embassy first if you can do it. I know that Germany restricted renunciation/relinquishment appointments to German residents only some time back so other embassies may be doing the same.
@heidi I like your idea….I hadn’t considered that option before, but it might be a possibility.
@Media Fleecestealer My relinquishing act was most definitely pre-2004 (1987). Postponing will not be an option due to other governing factors in our lives.
We will not have a mortgage (Yeah for us!). What about having my name on the deed to the new home? Is that a potential problem? Perhaps we could hold off on merging some of our accounts until after Relinquishment.
Should relinquishment not succeed, there’s isn’t a chance I’m handing them a single red penny to renounce!
@CandianGirl, yes having your name on the deed makes the property one of your assets for US tax purposes. However if your relinquishment application is successful you won’t need to do anything on the tax side anyway. Still, I’d avoid any joint accounts or having your name on the deed until the relinquishment is confirmed and you know your CLN is on its way.
@Canadian girl.
I do not know your details but should whichever embassy balk on recommending your relinquishment you can insist they send your file to Washington as many others here have done and been granted relinquishment. Washington make the decisions and know the rules.
I believe some UK renunciants have gone to Edinburgh as London was backed up. Perhaps as a Canadian you may have Scottish connections? 🙂
I believe Krackerjack went to Mexico but had a choice of going there or a Caribbean island….can’t remember which one! Just find a list of US embassies or consulates, email them but take Medea’s advice and include the fact of where you live just in case.
Canadian Girl. Since your relinquishing act was 1987, you have NO obligation to file anything. Nada, Bupkis. There is a link under ‘ how to renounce/ relinquish’ to explain.
Therefore it matters not whether you mingle your finances or not. Base your decision on everything other than US taxes .
You said, if they don’t recognize your relinquishing act, you won’t renounce. Does that also mean you won’t try to become tax compliant? If you are not in the system, it isn’t all that difficult to remain out of it.
Much of what you do depends on your assets. In theory , it would be better to keep accounts separate. For your peace of mind, your house should be held jointly. Any capital gains are in the future. You could always gift your half to him if you need to later on.
@CanadianGirl; Arctic Greyling’s reported at Sandbox he got into a South American Consulate quickly. It was either Columbia or Argentina. However that was about a year ago so I don’t know if that has changed.
Maybe your wedding guests could give donations to ADCS as their gift to you.
I’d just point out the longest backlogs for CLNs are in the Western Hemisphere division. Hence, I’m not surprised Krackerjack’s Tijuana’s renunciation still hasn’t completed since it’s in the same division all the Canadian backlog goes through. Europe would be second busiest. East Asia next,then near east/South Asia, and Africa would be least busy.
I am almost entirely canadian but born USA and naturalized CDN. Lived only about 1.5 yrs in USA long ago. I have been doing my own US taxes for about 30 yrs and it has been zero in the end. While i had decent income in 2004, going forward my investments may the main income.
I have done most of the required forms in the past, excepting the more recent requirements for 8621, 3520. I closed some TFSA accounts in 2014, but have a herd of different non-registered mutual funds to deal with.
For the last several weeks i have been working almost full time trying to do my 2014 taxes, and have come to realize that i may need to file a lot of changes for up to 10 years to account for those added forms and to add 1116 to help reduce the tax associated. As i get each step further it gets more complex so i now realize i likely will need a tax preparer to assist in this.
So my question is to understand the various options, cost, knowledge etc in choosing one. I see alternatives like:
– local in town, small firm, large firm
– offshore preparers with websites like greenback, and now H&R block expat services, and others
– USA based preparers specializing in the expats
– canadian based preparers in larger cities (toronto, montreal etc)
I expect i will also need a consultation at some point re citizenship, but wondering if i need to get all the taxes out of the way first?
I should be safe from the ‘exit tax’ due to dual birth and net worth well below the $2m.
I would be interested in thoughts on what sort of tax preparer to look to, and if a legal consultation might be good before fixing up taxes or after.
Sorry if i have posted in the wrong place. Really was not sure how this website works and where to post.
@MostlyCanadian, can’t really advise you on the tax side, but no you don’t have to get all the tax sorted out first before you renounce. You have until June 15th of the year following your renunciation to file the 8854 form to close out your tax obligations and given that there seems to be several months to wait for an appointment at most of the Canadian embassies/consulates it could be that you wouldn’t be able to get an appointment until early 2016 – which means the 8854 has to be filed by June 15th 2017. You do know there is a fee for renouncing of $2,350 though; it rose last September from $450.
@MostlyCanadian,
You said you “naturalized CDN”. That terminology usually means were not born a Canadian but applied for it later. But then further down in your post you mention being born a dual. I gather you really were born dual (at least one Canadian parent)?
Correct, entire family and both parents are entirely canadian. I used wrong terminology. I have cert of registration abroad, which is dated a 2 months after birth. I was born in US, moved to canada a few month later. Also worked for 13 month in US in the 80’s. I presume that means dual same as dual at birth?
Re tax obligations, very good to know, i had thought i needed to get taxes in order before starting the process, so was going complete any re-filings needed before starting the process. I will look into that right away.
@MostlyCanadian,
OK, so you have been a dual since birth, which as you mentioned gets you off the first two Form 8854 covered expat tests of tax bills being greater than (about) $160,000/year for the last 5 years and a net worth > $2M. You just need to certify 5 previous years of tax filing compliance which you have underway.
With the form omissions and mutual funds that you mentioned, your tax situation is not simple and could be expensive. I have no idea what to advise for complicated filings other than you likely need good cross-border tax expertise.
@Isabelle Brock, re;
“…Speaking of teaching, he’s been contributing to the employer pension plan (Ontario Teachers’ Pension Plan). Is that going to account for anything in this process?…..”
I am not an expert, but I had to figure out what to do re my insignificant OTPP (which had not been paid out yet) re Form 8854. Since I am not eligible yet for retirement, I had not received any payouts or benefits as income. Thus there was nothing to report re annual US tax returns, and it also did not have any FBAR requirement.
If Nate decides to renounce, and then to be compliant with the US demands to formally exit for tax purposes by filling out Form 8854 (along with 5 years back US tax returns – and possibly 6 back FBAR/s), the OTPP value will have to be reported on the 8854 as an asset as if he had actually received it ( a creative and convenient IRS/US Treasury fiction) as of the day before he renounced/relinquished. That shouldn’t be too much of a problem as it sounds as if he hasn’t been contributing to it for very long, so the value won’t be very high – and if he has been teaching and contributing for less than the required time to become ‘vested’ (2 years), his OTPP value would be calculated as a lump sum comprised of the contributions to date plus whatever bit of interest accrued (see annual statement or contact the OTPP) – if not vested (and thus ineligible for an actual future pension) and not locked in, it would be valued as if he cashed it out as a lump sum – rather than the (commuted?) value it would have accrued as an actual future pension payable out over time after retirement. The lump sum in the scenario where the OTPP member isn’t vested is easier to figure out for reporting than a calculation of some imaginary future pension.
The OTPP was very unhelpful and defensive when I contacted them to find out whether they were going to be subject to a FATCA reporting obligation, and whether if so that they were going to proactively alert their members re FATCA issues, but in the end, the OTPP pension contribution accounts are not FATCA reportable accounts by the OTPP under the IGA as far as I was able to determine (at the time I spoke to them their strategy seemed to consist of “hoping” that they would be exempt. I pointed out to their rep that they probably have many many Canadian citizen/residents) members who the US would deem to be UStaxablepersons , but they weren’t interested in addressing any of the FATCA issues, and I think really would have preferred me to just go away and stop asking them uncomfortable questions. In my opinion they showed no interest or care for how it might impact their members, and no interest in alerting any of them.
This upcoming webcast is a must:
http://taxpol.blogspot.ca/2015/04/upcoming-event-on-delivering-tax.html
Monday, April 13, 2015
“Upcoming event on Delivering Tax Benefits through the Tax System
On April 24, the American Tax Policy Institute is live-streaming an all-day conference “Delivering Benefits to Low-Income Taxpayers through the Tax System.” The conference is organized by Les Book, Villanova University School of Law and Deena Ackerman, U.S. Department of Treasury.
Beginning at 8:45 a.m. (EST) on April 24, you can view the livestream conference webcast.
Prof. Allison Christians will be presenting on panel 4, “The International Approach to Delivering Benefits Through the Tax System.”
She says:
“….The premise I am studying: The inclusion of all US persons in the tax base regardless of domicile, juxtaposed with the blanket denial of eligibility for income support based solely on domicile, reveals the manifest injustice of citizenship-based taxation…….”..
So when will those deemed ‘UStaxablecitizenserfsabroad’ be allowed to deduct VAT taxes, or taxes like our Canadian HST and GST as well? Probably never.
See;
http://www.accountingtoday.com/news/tax-practice/texas-florida-win-as-us-house-backs-state-sales-tax-break-74318-1.html
..”.Washington, D.C. (April 16, 2015)
By Richard Rubin
Bloomberg
(Bloomberg) The U.S. House of Representatives voted to let taxpayers deduct state sales taxes on their federal returns, a victory for residents of Texas, Florida and other states that lack an income tax.
The 272-152 vote would reinstate a tax break that expired at the end of 2014 and make it a permanent feature of U.S. tax law. The bill would save taxpayers—and cost the federal government—$42.4 billion over the next decade..”..
If you ever wondered why No ONE can hope to get the correct answer when doing US taxes, look at this link from Phil Hodgen. “Check out the carefully crafted flow chart that describes the thinking you need to do in order to compute capital gains tax”
http://hodgen.com/schedule-d-from-a-programmers-point-of-view/