3,618 thoughts on “US expat tax and FBAR: Discussion thread (Ask your questions) Part Two”

1. May 31, 2015, Virginia LaTorre Jeker, JD: http://blogs.angloinfo.com/us-tax/2015/05/31/looking-for-mr-fbar-fast-digestible-fbar-facts/

   Since 2014 FBARs are due no later than June 30, 2015 now is a good time to review some FBAR basics.

   Who Must File FBAR?

   US persons (including a green card holder, or individual who is treated as a US “resident” due to prolonged physical presence in the US pursuant to the US tax laws) who have ownership or control (for example, signature authority) of foreign accounts with an aggregate value of over $10,000 in the calendar year, must file this form. Please note that a non-US individual, who merely makes a so-called 6013(g) election in order to file a joint tax return with his/her US spouse, is not treated as a US person for purposes of filing the FBAR. The term US person includes entities such as corporations, partnerships, limited liability companies, or similar organizations that are organized or created under US law. Estates and trusts are also subject to the FBAR reporting rule.

   Indirect interests in foreign financial accounts can also trigger FBAR reporting. A US person who directly or indirectly owns more than 50% of a corporation by vote or value will be deemed to have a financial interest in the foreign financial accounts owned by the corporation itself. Similar rules apply to interests held in partnerships or trusts that have foreign accounts.

   An FBAR reporting duty will arise if a US person has “signature authority” over a foreign financial account(s) exceeding the $10,000 aggregate threshold. Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. Conceivably this means a US person with internet authorization of a transaction through the use of passwords also has a “signature authority” for FBAR purposes.

   Children and FBARs

   Don’t forget, even children must file the so-called FBAR if it is required!

   New FBAR instructions were added on June 11 2014 to emphasize this.
   …

2. A US codified obscenity and travesty – wherein children deemed UStaxablesubjects-criminals-in-waiting-“abroad” must be schooled in how to report directly to a Financial CRIMES ENFORCEMENT government body. As Jekker points out (and as we have decried before on IBS):

   “…Children and FBARs

   Don’t forget, even children must file the so-called FBAR if it is required!

   New FBAR instructions were added on June 11 2014 to emphasize this. The filing requirement for minors is clarified on Page 6 by adding the following text:

   Responsibility for Child’s FBAR

   Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian, or other legally responsible person must file it for the child.

   Signing the child’s FBAR

   If the child cannot sign his or her FBAR, a parent or guardian must electronically sign the child’s FBAR. In item 45 Filer Title enter “Parent/Guardian filing for child…”.

   Thank the powers that be that due to random factors determined by luck and chance, I never had to school my child in how to report their RESP online to FINCEN or report on it on their behalf.

   This is one of the many compelling reasons for my anger, part of the impetus for me to relinquish – (and thereby tell the US to formally KMA), and even afterwards – though I am no longer a UStaxablesubject – to continue to support the ADCS challenge in Canada http://www.adcs-adsc.ca/

   This is the kind of injury that can never be forgiven – to cast even minors and those deemed legally incompetent as criminals before the fact – and deem their local birthday accounts, education and disability benefits as foreign and suspicious – until FINCEN and the IRS is satisfied annually that they are not.

   That alone is an example of the kind of treatment of those ‘abroad’ that no polite delegation and petitioning will have any impact on. The ‘clarification’ by FINCEN makes very clear that they know exactly what they are doing.

3. http://www.accountingtoday.com/news/tax-practice/irs-issues-new-guidance-on-fbar-penalties-74797-1.html?utm_campaign=daily-jun%204%202015&utm_medium=email&utm_source=newsletter&ET=webcpa%3Ae4501122%3A2531408a%3A&st=email

   In a memorandum last month from three commissioners in charge of various divisions of the IRS, they wrote, “For each year for which it is determined that there was a willful violation, examiners must fully develop and adequately document in the examination workpapers their analysis regarding willfulness.”
   …
   In an email to clients Monday, Dennis Brager of Brager Tax Law Group in Los Angeles pointed out that there have been previous instances in which the IRS has threatened penalties of 150 percent or more, and the new guidance finally places a limit on the maximum civil penalties. Brager noted that this may have been done, in part, to undercut any argument by taxpayers that the penalty violated the Constitutional prohibition against “excessive fines” raised in a case last year in Florida in which a jury determined a penalty of 150 percent of the value of a taxpayer’s Swiss bank account for failing to file an FBAR (see Florida Man, 87, Owes 150% Record Penalty on Swiss Account).

   “If the examiner determines that the conduct was non-willful then in most cases the penalty will be limited to $10,000 for each year regardless of the number of unreported financial accounts,” Brager pointed out. “Previously the IRS position was that it would assert a penalty of $10,000 per year, per account.”

4. Hello everyone,

   I know there is probably an answer to my question within these pages but I have read many and I am getting confused and scared!

   I wondered if perhaps, if I gave some information, informed users could give me some advice.

   I am basically at a quandary as to what to do:

   Facts:

   Born in England in the 70s, English/EU mother, American father. American father resided solely in England for the rest of his life (and obtained British citizenship). I was schooled and educated only in England. I have a strong regional accent, play rugby and drink tea. 🙂

   I hold a British and a US passport. I have recently found out the US passport is de facto ‘proof’ of citizenship. I have not used the passport since 1999 and it lapsed around 2006. I have no plans to return. Whilst not a solid argument, I don’t feel I ever knowingly applied for a US passport – I was essentially a child, although the valid from date on the last one would imply I was 19 years old at the last renewal.

   I have lived and worked in England most of my life on a modest salary. I moved to Switzerland 7 years ago where I now live and work. My salary would average around 130,000 CHF a year.

   A few months ago I started a limited company as an IT specialist here in Switzerland. As such I have bank accounts here, and in the UK.

   My father died a few months ago and this is what brought the situation to a head. I was left some shares in his estate to the tune of about 3 years Swiss salary. These are with a US broker. After these were transferred, I was informed that I had a US social security number by a relative in the US. For the transfer I had to fill in various forms which, at that time, I filled in as an English person.

   I have since sought advice from various sources (3 x professional, 2 x personal in similar situations) and it’s hugely varying. The typical response from American-Americans is “What, you?!” I also don’t wholly trust the advice of people who want my business. They will of course push me in the direction of their service.

   Part of me thinks, just deal with it and be done with. The other part thinks, I’m low on the radar, I’m 99% sure I don’t owe anything anyway, and I’ve been OK this far. One assumes the law wasn’t created to victimise unwitting ‘Americans’.

   I haven’t ever filed, as I didn’t know it was considered necessary until this year.

   Like many on here, I really resent having to pay to renounce! Equally, I feel like filing or renouncing are like admitting I’m part of that system, which I don’t think I am.

   Any tips on how to proceed? Keep on living, as I have been, in blissful semi-ignorance? Try to relinquish then file? File, then relinquish?

   Wild Cards: I went to a school with military cadet force. I asked a former teacher whether being an officer in the cadets counted as military service. He said it did. Could this be a possible relinquishment? I was 18, and an NCO.

   Is there any mileage in the argument that I did not knowingly apply for these passports (as an adult)? and that letting them lapse and only using the British one was my desire to relinquish?

5. My 2 cents/pennies. My children were in a similar situation although more on the radar as they knew they had US citizenship. I was too, though born a Brit – thank goodness. We decided to go the DIY route did the required back filing and the various forms. Wrote polite letters for each return explaining our previous ignorance of the filing requirements. Did the Fbar reporting. Renounced and received CLNs. My suggestion would be do the same. I know it is difficult to get through it, and will cost you at least $3000 for all the time, energy and postage plus renunciation fee. But then you will be free to get on with your life without a nagging fear. It will be worth it – good luck

6. @Paul, if your bank or brokerage doesn’t know you’re technically a U.S. Citizen, you’re in a safer position because of your UK birthplace. They would however probably ask questions if you either sent or received money (such as your inheritance in the U.S. share-dealing account). Even though I’ve renounced, I will continue to have to demonstrate that I am no longer a ‘U.S. person’ when opening new accounts because I’m tattooed with a U.S. Birthplace.

   You’re in a position to feign ignorance though, in my humble opinion. 🙂

7. Military service? No, because you renewed your passport afterwards. And while the teacher may have said it counted as military service I don’t think the Americans would consider it as such as far as getting a relinquishment from it goes. You would need documents showing your rank, would a school provide that? And did you start at the school at age 18 or younger than that? If younger, then you were a minor and it wouldn’t be accepted.

   Letting them lapse shows your desire to relinquish, again no.

   No, the law wasn’t created to victimise unwitting Americans, but that is exactly what has happened.

   The question is, has the money been transferred to you already or is it still in the process of being done? Is it going into a UK bank? If the answer to both is yes, then providing your bank doesn’t throw a wobby and you pay any necessary UK tax, you might be better off just forgetting about the American connection altogether.

   If you try to renounce, then you should according to the US, do the necessary filing to bring yourself into compliance so you can then check out of the system with the 8854 form. BUT you need to be careful of your Swiss bank accounts. If your bank finds out you have an American connection they could freeze your accounts until they’re sure you’re US tax compliant if you haven’t already informed them of your US Person-hood as you should have done. It could also affect your business account/s as most Swiss banks I believe are no longer offering business accounts to US Persons.

   Although you have an SSN you’ve never used it so effectively aren’t in the US tax system and you don’t have a US birthplace which would raise red flags when travelling to the US on a British passport. Nor does your Swiss bank know of any US connection, unless you’ve already told them. So best to forget it and just be British I think.

8. Paul. You say you have lived in Switzerland for 7 years. If your Swiss banks haven’t yet given you a hard time, then don’t give them the opportunity. You also said the shares have been transferred and you filled in the forms ‘as an English person’ If this went smoothly, my advice would be to keep calm and carry on. Medea’s advice is spot on. Don’t enter the US tax system if you can possibly avoid it.

9. @Paul – I revise my opinion – if you are as “invisible” as the other Brockers believe, then stay that way. And do absolutely nothing to attract interest.

10. @Paul … don’t mean to rain on the parade here given so many recommendations to just lay low… this is not a recommendation as much as it is a concern. If you already have a US passport, you are in the US system. It might be different for someone who has no US birthplace and has never had a US passport, but wouldn’t that mean there are already identifiers for you in the system? Whatever you decide, good luck!

11. @readytogo If he travels on a British passport with a British birthplace why should the US even think he may be American? If he had a US birthplace then yes, it would be a problem, but not with a British one. There’s no indication from his passport of any US connection whatsoever.

12. @ Medea Understood, for travel. But the concern I posed was that as a US passport (even if expired or unused) holder he may not yet be in the IRS system, but IS in the US system. Period. It is not too hard to imagine that at some point a connection may be made. Again, I am making no recommendation, just a concern. I was a US passport holder (no US birthplace), despite not having used it in years and never having resided in the States. Nor was I in the US tax system. I relinquished to be completely free of the system. It was complicated and scary enough for me without an estate in the middle of it. That would make me think twice (either way) given the complexities of the situation.

13. Paul

    Before deciding to enter the system you need to calculate the worst case non willfulness tax and penalty you could be hit with

    There are brockers like you in circumstances who entered the foreign system and would under no circumstance face any tax or penalty

    Next you need to investigate what ability a foreign government has to collect from you in the United kingdom

    Above all you must remember this is foreign law by a foreign government what would you do if you learner that you were a citizen of Eritrea would that change your life

    If you enter the system what do you seek to gain

    Is that gain worth the risk that you calculated yourself

14. Paul

    Based on what you told us and non willfulness you would be facing a good chunk of cash in penalty and tax

    Though in theory you could skate cleanly

    Your project if you do decide to go forward is not diy

    In the end you can expect to pay the band

15. @readytogo, there is always a possibility of course. But unless the IRS decide to start tracking people by their ancesty I can’t really see it being a problem. The money is being paid to the estate I assume and who and where it goes to from there isn’t any of the IRS’s business and anyone can hold US stocks as far as I know. So again no obvious connection to worry about as no indication that the stockholder was American. I guess the real question is did Paul’s father file his US tax returns as required and does he need to wrap up this as part of the death process. If his father didn’t file, then I don’t know whether there would be any flags raised by the money transfer or not, but I doubt it unless citizenship of the stockholder is on file somewhere where the IRS could access it.

    And as you point out is he isn’t in the US tax system, only on record as a birth and having had a US passport at some time in his life. But there’s no way to match up someone holding a British passport as being the same person who held a US one. For all the US knows he could have died. The IRS, which is what we’re mainly concerned about here, doesn’t know anything about him at all except for the SSN which has never been used. Paul didn’t even know he had an SSN until a relative told him. So why put himself into the tax system now, when assuming the transfer as gone smoothly, he doesn’t need to. To all intents and purposes he IS British and always has been. Why rock the boat and possibly endanger his business here in Switzerland by starting to file US returns? Better if he just forgets the American connection altogether and gets on with his British life.

16. @Paul
    It’s a difficult situation. The fact that you renewed your US passport as an adult and that you have a S.S. number means you are in the system. (It doesn’t matter that you would prefer not to be, sorry.). The financial records pertaining to your fathers estate in the USA are on record and may have been reported to the IRS/Treasury/FINCEN, etc. On the other hand, you do have the huge advantage on your side of not having a US place of birth and are not a US resident. The big question is whether the US will start to take a closer look at the data they already have. Whether you decide to continue flying under the radar or not, I’d advise you not to go to the USA and definitely make sure you don’t have any (further) financial ties to the USA.

17. @Notamused, but he/she needs to also assess what abilities said foreign government has to collect on any claims that they make extra territorially.

    I think many Brockers and Brock Lurkers get too uptight on what is in fact FOREIGN LAW. Someone on these board rightly wrote that said FOREIGN government can send a letter and if they get angrier they can send another letter and if they get rootin tootin mad, they can send another letter.

    But most importantly this person from the UK must absolutely make sure they are in good order with HMRC.

    P.S. Once upon a time, I was an uptight Brocker but the therapy has helped. 🙂

18. Paul; One other important and it relates to your self identification.

    You state that you solely carry a British Passport and therefor hold yourself out as a British Citizen, an EU Citizen and a Commonwealth Citizen.

    Your Country is a party to the “CONVENTION ON CERTAIN QUESTIONS RELATING TO THE CONFLICT OF NATIONALITY LAWS.”

    There is a certain FOREIGN COUNTRY which is not a party to that agreement.

    As a British Citizen you are expected to follow British Law.

    The UK Government has actually published the prime source document pertaining to the above and its entitled The Master Nationality Rule;

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/267945/dualnationality.pdf

    I would highly recommend that as a British Citizen that you read the formal guidance on your nationality status and act accordingly.

19. and if they get really really really rootin tootin mad they might send another letter but IMO and as long as you don’t cross the border back into amerika what are/can they really do besides send yet another letter?

    bank with a “local client base” institution, don’t have anything to do with American funds or financial transactions and what can or will they do besides send you more letters

    don’t cross the border, don’t tell them who you are or where you live. make them work to find you

    are they really going to show up at your door step with guns and hand cuffs?

20. @allou – thanks for your input. Fingers crossed.

    @monalisa1776 – thanks for the input. The US broker’s British branch knew I was looking into it, but they know I filled in the paperwork as an English person.

    @Medea Fleecestealer – many thanks. Yes, once the shares are sold, the money will go into my UK account. Interesting point about proof of rank as it was something I was going to look into. I have many photos but they could simply be seen as fancy dress!

    @readytogo – thanks for the input and well wishes!

    @george – thanks for the input. From reading the PDF I guess the Swiss would consider me ‘Majority British’? And the FOREIGN COUNTRY I assume is the USA?

    @notamused – thank you. No plans to travel further west than Ireland at this point in time 🙂

    @mettleman – thank you! This is exactly how I feel. I am such a small fish if anything did happen it would be farcical.

    So thanks everyone. I really appreciate all the comments. There are too many unknowns for my liking and even if I become compliant, with this dodgy law, it feels like crawling on hands and knees asking what level of punishment will I get. From what I have read, there are no hard and fast rules so in ‘coming clean’ I may still get punished. As it is, they don’t know anything about me. It goes completely against my instincts to divulge this sort of information (to anyone!).

    Well, it’s Friday night, I’m going to sit on the balcony and listen to Ennio Morricone and worry about this another day. Wishing everyone a good weekend.

21. After all the t’s are crossed and the i’s dotted, your final 1040 / 1040NR and 8854 (Expatriation Statement certifying your US tax compliance), you may wish to celebrate with a long-dreamed of trip.

    One Brocker was given a final tip today that if there is travel abroad routed through the US, be sure to get all destinations stamped in the Canadian passport so day count for the substantial presence test that can deem one a *US Person for US tax purposes* does show correctly that you left the US (you were only passing through to another destination)!

22. @Paul, the main thing is not to rush any decisions. This has come at you out of the blue so take a few deep breaths and don’t panic about it. Research all your options thoroughly and only then decide which is the best one for you personally.

23. Another US filing issue to keep an eye on:

    http://thefranco-americanflophouse.blogspot.ca/2015/05/will-fun-ever-end-possible-new-us.html

    http://taxpol.blogspot.jp/2015/05/gotcha-yet-another-obscure-asset.html

    Thursday, May 28, 2015
    ‘Updated: Gotcha! Yet another obscure asset reporting form for US persons’
    “UPDATE: as of sometime this afternoon (depending on your time zone), the BEA has updated its website to extend the filing deadline to June 30 for all new filers. Moreover, it appears that the BEA definition of US Persons is generally limited to persons resident in the United States (with specific exceptions, see comment from Andrew below). As I mention in the comments, I am a bit wary about drawing conclusions of law from instructions to forms but I do think that the instructions at least form the basis for reliance that most physically non-resident US citizens should not be required to fill out the BE-10. The sudden deadline extension nevertheless suggests that a number of people have been caught by surprise by the new reporting obligation, so that my main point about educating one’s regulatory target is still apposite. I have revised this post accordingly.

    It seems that in the United States, the asset reporting forms and non-filing penalties just keep on coming, and yet the will to inform individuals about their obligations–especially those who live outside of the United States and do not receive client alerts from big US law firms or big 4 accounting firms–remains curiously absent. The Bureau of Economic Analysis does a survey of “US Direct Investment Abroad” every five years. In past years, if you were required to file, the BEA contacted you.

    Not any more; now you are just supposed to know that the BEA exists and has its own reporting requirements, and that if you are a US person (which includes individuals), you are supposed to go and file a report to them, separate and distinct from all of of your other tax and financial asset reporting requirements. I do not know what the definition of US Person is for BEA purposes, and whether it includes US citizens and other persons, regardless of their residence–looking into that now. The definition of US Person for BEA purposes appears to diverge from that for tax purposes, such that in most cases reporting is required by those physically resident in the United States.

    BEA reporting is subject to a civil penalty of $2,500 to $25,000 for nonfiling, plus $10,000, or a year in jail, or both, if the nonfiling was wilful. I am not sure who is responsible for collecting this fine but if it is the IRS (as is the case for FBAR), then I wonder why the Service doesn’t bother to tell taxpayers about the form and its deadline anywhere at all on the IRS website.

    A BE-10 form must be filed by any US Person that directly or indirectly held 10% or more of the voting securities (“US Reporter”) of any non-U.S. business enterprise (a “Foreign Affiliate”). There are no de minimis exceptions: no matter how small your nonUS corporation might be (or have been-you must file for the year even if the corporation ceases to exist), you must report or face the penalty. US Reporters must file Form BE-10A for themselves and may have to file additional BE-10 forms for their corporations……..”…..

24. @Badger

    This requirement has been the subject of great discussion on several blogs, including Prof Allison Christians and a couple of FB groups, and it’s been determined that non- residents are excluded (thank goodness).

    http://taxpol.blogspot.ca/2015/05/gotcha-yet-another-obscure-asset.html

    Someone on the American Expatriates FB page actually went to the effort of calling the BEA press office and had it confirmed that it doesn’t apply to Americans living permanently abroad.

25. For a reminder of the complexity / absurdity of what *US Persons Abroad* must face each year to keep that US citizenship — for how many more years of your life?

    Don’t Miss Filing Deadlines Related to Foreign Income and Assets

    IRS Special Edition Tax Tip 2015-11, June 10, 2015

    All U.S. citizens and residents must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2014 tax return is Monday, June 15, 2015. Similarly, the deadline to report interests in certain foreign financial accounts is the end of June. Here are some important tips to know if these reporting rules apply to you:

    • FATCA Requirements. FATCA refers to the Foreign Account Tax Compliance Act. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file Schedule B, Interest and Ordinary Dividends with your tax return.

      You may also have to file Form 8938, Statement of Special Foreign Financial Assets with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form instructions for details.

    • FBAR Requirements. FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.
    • View the IRS Webinar. You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on
      the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:
      • FBAR legal authorities
      • FBAR mandatory e-filing overview
      • Using FinCEN Form 114; and Form 114a
      • FBAR filing requirements
      • FBAR filing exceptions
      • Special filing rules
      • Recordkeeping
      • Administrative guidance

    You can access IRS forms, videos and tools on IRS.gov at any time.

    Additional IRS resources:

    • Comparison of Form 8938 and FBAR Requirements
    • International Taxpayers
    • International Tax Topic Index
    • FBAR Reference Guide
    • Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
    • IRS Tax Map
    • Treasury Department End-of-Year Exchange Rates

    IRS YouTube Videos – International Taxpayers:

    • Introduction to the International Taxpayers Webpage
    • Filing Requirements
    • Filing Status If Married to a Nonresident Alien
    • Foreign Earned Income Exclusion
    • Individual Taxpayer Identification Number (ITIN)

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