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.
Hello everyone. May I ask few questions regarding Form 8854? I’ve tried reading the accompanied instructions but couldn’t seem to get a clear explanations on a few things.
1) On Part IV Section A Line 1, does it refer to tax after factoring “Other Taxes” into it? In other words, if I’m looking at Form 1040 of year 2014 for example, would it be the value from Line 56 or from Line 63? And if I expatriated in 2015, am I correct to think that the 5 tax years in question are from year 2010, 2011, 2012, 2013, and 2014?
2) If I’m not required to complete Part IV Section B (I’m not a covered expatriate), do I still need to complete Part IV Section C? Should I just tick on the “No” option on Section C Line 11 and leave the rest of them empty? Or do I just skip Section C altogether since it seems to be closely related and connected to Section B (which I’m not required to complete)?
3) On Part V, if I do not have an entry for a line, do I simply leave it blank or should I enter “-0-” or “N/A”?
4) And lastly, am I required to attach a copy of Form I-407 (signed & stamped by the US Embassy) when I file Form 8854? I didn’t see it mentioned anywhere on the instructions and was wondering if the IRS requires some sort of “proof” of the expatriation act.
Thank you.
May be of interest to those still languishing in the OVD and Streamlined programs:
Saturday, October 3, 2015
IRS Makes FOIA Disclosures to Tax Analysts Regarding OVDP and Streamlined Processing (10/3/15)
http://federaltaxcrimes.blogspot.ca/2015/10/irs-makes-foia-disclosures-to-tax.html
“Tax Notes today has an article summarizing some comments about documents it received about OVDP (including its OVDI predecessor). The article is Andrew Velarde, FOIA Response Shows Hints of IRS Thinking on OVDP, TNT 192-1 (10/5/15) [no link available]. The article will also be published in 149 Tax Notes 7 (Oct. 5, 2015). The article provides certain highlights of the FOIA disclosures and links to the disclosures. I list the indicated FOIA disclosures at the end of this blog entry. Subscribers to Tax Notes might want to review the article and the FOIA disclosures.
The FOIA disclosures are internal IRS “job aids” for examiners and others implementing OVDP”…………
The Tax notes article is here, but available to paid subscribers only. You may be able to access it via a guest access pass in a university library.
http://www.taxnotes.com/tax-notes-today/compliance/news-analysis-foia-response-shows-hints-irs-thinking-ovdp/2015/10/05/16836241
Hi:
I have lived in Sydney, Australia for 25 years, the majority of my working life. Just last month, I discovered that the tiny 401K plan that I left behind in the US had been cancelled by its US-based manager. Baffled, I looked into it (Google!) and discovered for the first time the whole world of FATCA. I discovered this site, and read numerous horror stories. Now I don’t know what to do. The last tax return I filed was right after I moved here. I received (bad?) advice that since there is a dual tax treaty between Australia and the US, I wouldn’t owe any taxes, that I wouldn’t really have to file again. The marginal tax rates in Australia are higher than the US.
My Australian husband does not want to know about any of this. He doesn’t believe that I need to do anything. He says we pay enough tax HERE, which is true! I cannot sleep at night because I am afraid of what could happen if I do anything, or if I do nothing. My head spins with the various scenarios I have read about. I have now approached two tax consultants here in Australia who specialise in US taxes. Both are saying I should enter into the Streamlined Program, that I can state that I did not know I needed to file. One of the consultants works for one of the Big Four accountancy firms, and they told me it would cost me A$20,000 to “become compliant”, then $4000 for each tax return in future years. Upon hearing this, I decided to seek out someone else. The other consultant, and independent agent, charges a fraction of that, but still told me that I couldn’t “put my head in the sand” if I still wanted to visit the US in the future. I still have some family living there, whom I still want to visit. She told me they are going to start checking passports for tax compliance at Immigration when flying into the country. Has anyone heard that one before? Needless to say, I don’t know who to trust. I have no intention of going back to the US to live, but I still need to visit my aging parents.
I guess I want some advice on what to do and what not to do so that maybe I can get some sleep at night and not worry so much. Thank you for reading this. This website is very informative.
@ Sleepless In Sydney
Welcome to Brock and so sorry that you’ve had this worry forced on you, like so many others. One of the first things you need to establish is whether or not you are still a U.S. citizen. You didn’t say if you have naturalized as an Australian citizen or not. If so, what year? If so, afterwards did you use your U.S. passport, vote in a U.S. election, etc.?
If you decide to put yourself back into the U.S. tax tyranny system you could certainly take the streamlined route. If your finances aren’t too complicated maybe you could do the catch-up tax forms and FBARs on your own. Those compliance condor fees are outrageous. As for checking for tax compliance upon entry to the U.S.A., that is not happening but who knows what the future holds. I think the only people they have considered stopping at the border are U.S. citizens who are departing the country and have a tax judgment against them for $50,000 or more in taxes owed.
Other Brockers will hopefully weigh in with advice which I’m sure you realize is just their opinions but frankly I don’t think it’s possible for anyone to be an expert on this because even the IRS doesn’t completely understand the rules they’ve made up — too illogical and complex.
Sleepless in Sydney –
You’ve already obtained “advice” that you did not like. That may or may not have been good advice.
Because a veneer of professionalism guarantees you nothing. You’ve already made the significant discovery that a Big 5 brand name mostly buys you big accounting bills. That’s a great start.
Mostly anonymous tidbits from an online discussion group also guarantee you nothing.
With each bit of information that comes your way, one of the questions you have to ask is: Am I trusting this because it is what I already want to hear?
Sleeping well starts and ends with accurate self-assessment of tolerance for uncertainty.
The passport situation was formally studied by the US GAO as an enforcement option in a 2011 document, and has had mention since.
Sadly, no one has the scope or authority to give you “good” advice. As an early voluminous Brocker used to say, there is no substitute for you doing your own drudgery. You are already on your way.
Hi Sleepless. You will find support here. You will get advice, sometimes contradictory, but always well meaning. In the end you will have to decide for yourself.
Let me tell you a story. I have a friend who spent $20,000 on legal and accounting fees and came within days of entering the OVDI. (The deadline was postponed by a hurricane of all things.
This friend earned every penny in Canada over 25 years, had all his retirement money in tax deferred accounts and had a private professional corp. The accountant estimated the cost of OVDI at 200,000 to 500,000. He said he couldn’t narrow it down because he couldn’t guarantee the IRS criminal division would see it as non-wilful.
Talk about sleepless. He didn’t sleep well for months. That was 4 years ago. He didn’t participate and has been thankful ever since. It would have been a hellish nightmare. He travels to the US 3-4 times a year and has had no problems.
Now, you need to decide if you want to become compliant or not and whether or not to renounce. You aren’t forced to do anything.
Should you trust an accountant who wants you to spend $20,000. Maybe-it might be worth it.
Should you trust someone who tells you you won’t be able to travel to the US. Maybe-but she’s not telling you the truth. There is nothing in place for them to do that. Many here will argue that it may be true in the future.
The IRS has trouble matching anything to anybody unless their computers have a social security number to deal with. They are understaffed and overworked and the Republicans aim to keep it that way. They can’t even deliver the mail overseas.
Don’t panic. Take time to understand the issues. There are lots of resources here and at Maple Sandbox. Especially in the sidebars under important information and Building Blocks. It will help if you can somehow get your husband on side although I completely understand his position. My friend’s spouse wasn’t supportive at first but she was in the end. We are here to help as much as possible.
Thank you, Everyone! I am sorry I didn’t remember to supply key details about my “case”, but I didn’t want to write too much on my first post.
@Embee: I am an Australian citizen, as of 2006, just over 9 years. I left the US in 1991. Yes, I have voted in US elections (stupidly, now I realise). I am still a US citizen as well, as I have not performed a relinquishing act. I use my US passport only to go visit my mom. It only gets shown when flying INTO the US, and never any other time. Going to Europe or Asia, I only use my Australian passport. People may tell me I should renounce/relinquish — maybe I will later on down the track, but I would still have to file back taxes, etc to be released from the IRS database.
@PortlandPLC — I am so glad your friend walked away from all that insanity, and that he is still able to travel to the US every year. As for my spouse, he thinks the whole thing is stupid and should be ignored.
@usxcanada — Yes, I am hating what I am hearing, and looking for something I like, and unfortunately not coming across much of the latter.
What I have learned so far is that everyone is different, every situation different. Every decision will be made for different reasons. I am also learning that I shouldn’t just rush into something I might regret later.
Thanks for all your support.
Oh, thankfully the two tax specialists I contacted are now too busy for me, as they are trying to meet their October 15th filing deadlines!!
@Sleepless In Sydney
“What I have learned so far is that everyone is different, every situation different. Every decision will be made for different reasons. I am also learning that I shouldn’t just rush into something I might regret later.”
This is your most important lesson. While we’ll support and advise as best we can, we are not you. Each situation IS different and only you can decide what is the best course for you individually. Therefore don’t rush into anything and do your research before making any decisions whether it be about renouncing/relinquishing, tax, etc. Only when you know what is the best course of action for you should you then implement it.
For the tax side here is the IRS’s web page to start you off:
http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad—Filing-Requirements
There are instances where you may not have earned enough to need to file US returns so check on those. If that’s the case you could renounce and then maybe would just need to file the 8854 form later stating that you’ve never earned enough to need to file.
If you hold joint accounts with your husband, separate them. Keep as much separate as you can if you decide to prepare to give up your citizenship to reduce any possible tax liabilities.
Look into Streamlined, see if you could do it yourself, along with the tax forms. You have to file 3 years of returns and 6 of FBARS to become compliant again, but if you decide you want to renounce you’d need 5 years of filing for the 8854 form so you can add another 2 years of returns to the Streamlined form if you need to. Others have done this.
Remember that you don’t have to be tax compliant before renouncing/relinquishing – you can renounce/relinquish first and then deal with the back filing afterwards. That’s what I did. So long as you can meet the requirements of the 8854 form it doesn’t matter which way around you do things.
I can sympathise regarding your husband as mine was the same. He too thought the whole thing was ridiculous. I however, having had my American citizenship nearly get in the way of us getting a mortgage here in Switzerland, had been researching and after a couple of years I decided to renounce. Luckily I did it a few days before we got letters from our bank asking us to sign W-9 forms. I contacted them telling them I’d just renounced and they agreed to extend the deadline in the hope my CLN would arrive soon which it did. So we were able to sign the W-8EN forms instead and that was the end of the matter.
Thank you @Medea Fleecestealer. Fortunately or unfortunately, depending on perspective, I have too much earnings to be exempt from filing. Also, my taxes are too complicated for me to file on my own — I need a professional now. Ugh.
As for separate accounts, we only have one small one in joint names. It probably would never raise any alarm bells due to the low balance. Thankfully we have most of our stuff in our own names.
Come over to Issac Brock Society Fatca and AUSTRALIA blog. I can put you onto a IRS certified US accountant over here that is VERY reasonable with her rates. JakDac
Hi @JakDac – Thanks, I just went over there and asked!
@Sleepless A few have tried to point out the injustice to the Australian government and the inadequacy of the tax treaty, allowing tax treaty gaps where double taxation flows through. It is not easy to get noticed. Still trying.
@JC – I’ve been thinking of writing to an MP or Senator or both. Is that what others have done too? Is there a coordinated effort, or is it just individuals battling away? I agree it’s hard to get heard. Media coverage is very poor here on this issue. Politicians always have more pressing priorities. I am thinking of sending a story idea in to our 4 Corners weekly current events program. Not only invasion of privacy, but “Ordinary Australians” need to know how much of their tax dollars and bank fees are being wasted on this.
The IRS attempts to explain why the FBAR penalty isn’t out of proportion to tax owed, if any;
“…….. In addressing the relative disparity between unreported income and the FBAR penalty, Acting AAG Tax Carline Carolo said that the FBAR penalty punishes conduct other than tax noncompliance; hence, in effect, there is no comparison. JAT Comment: Why then does the FBAR and OVDP offshore penalty go away if there is no tax noncompliance? Isn’t the civil fraud penalty supposed to be the penalty for tax noncompliance?…..”….
http://federaltaxcrimes.blogspot.ca/2015/10/article-reporting-government-officials.html
So, just what is the “…conduct other than tax noncompliance..” that justifies the confiscatory and possibly unconstitutional FBAR penalty if no US tax is owed, or if in fact an actual refund is owed to the taxpayer, as in the years of the Making Work Pay credits for 2009 and 2010, wherein many of those with low or modest incomes would actually qualify for a refund – even if no US tax was ever actually paid or deducted.
The IRS continues to rationalize their abusive weaponizing of the FBAR. And it was Congress who gave it the ability to levy a new, “NON-willful” penalty in 2004 – a penalty that did not exist before that.
For a very good history of the FBAR, and the invention of the NON-willful penalty,
See;
2006 HOUSTON BUSINESS AND TAX JOURNAL
‘EVOLUTION OF THE FBAR: WHERE WE
WERE, WHERE WE ARE, AND WHY IT
MATTERS’
By Hale E. Sheppard
http://www.hbtlj.org/v07p1/v07p1_sheppard.pdf
A picture is worth a thousand words
http://isaacbrocksociety.ca/anti-fatca-publicity-illustrations-clip-art-etc/
http://blogs.angloinfo.com/us-tax/2015/11/01/3886/
American Citizenship – An Unpleasant Surprise to Many
November 1, 2015
“..Parent or Guardian – What Should You Do?
US tax planning in the kinds of cases discussed in this post is critical. If the individual cannot expatriate currently because he is quite young, it is very important to structure his affairs to minimize any US tax bite during the time he remains a US citizen and in planning for a future expatriation. A well-meaning parent or guardian may often look to foreign (non-US) trust structures to ensure care of the child, or for family succession plans. However, setting up such a “foreign” trust with a US individual as a beneficiary may well be the worst action to take from a US tax planning perspective! The stakes are high. Get proper advice.”……..
Ah, US citizenship, the ‘gift’ that just keeps on giving…….
The passport revocation punishment is back again:
See;
“ACA has written to Congress (November 2015) to strongly oppose the inclusion of the Passport Revocation Provision in current legislation. ACA urges Congress not to act on this provision until it has held hearings and explored alternative ways to solve any perceived tax collection problems. ACA will continue to monitor this issue and advocate on behalf of Americans overseas on this issue. See our letter to members of Congress https://americansabroad.org/download_file/view/780/574/
Last Updated November 7, 2015″
and see;
‘House Approves Transportation Bill with Offsets’
Posted on 11/06/2015 by Cch
“House lawmakers on Nov. 5 approved by a margin of 363 to 64, a six-year highway bill, the Surface Transportation Reauthorization and Reform Bill (HR 22). The measure now moves to conference to reconcile differences between the House and Senate’s separate bills.
The House bill contains two revenue offsets that also appear in the Senate’s long-term transportation bill, the Developing a Reliable and Innovative Vision for the Economy (DRIVE) Bill (HR 22). Both bills would only fund the Highway Trust Fund for three years, with further funding to be resolved by the next Congress.
Both bills include a provision calling for the revocation or denial of a passport in the case of certain unpaid taxes. The measure would authorize the government to deny the application for a passport if an individual owes more than $50,000 in unpaid federal taxes. The provision is expected to bring in $398 million over 10 years.”………
http://news.cchgroup.com/index.php/tax-headlines/federal-tax-headlines/house-approves-transportation-bill-with-offsets/
‘Amazingly, IRS Says You Can’t Rely On IRS Instructions’
Robert W. Wood
“If the IRS gives you instructions how to complete a tax form, you can rely on them, right? You would think so. Yet, instructions are not actually part of the tax law. In fact, there are many tax cases in which well-meaning taxpayers claim their tax position is justified by IRS instructions or publications. In most instances, taxpayers lose, even if they have a credible reading.”…………
http://www.forbes.com/sites/robertwood/2015/11/11/amazingly-irs-says-you-cant-rely-on-irs-instructions/
Interesting re : cook-v-tait
https://renounceuscitizenship.wordpress.com/2013/01/04/does-cook-v-tait-really-mean-that-citizenship-based-taxation-is-constitutional-in-all-cases/
Those considering what to do about their UStaxableperson burden and jeopardy are ill advised to rush into anything. Each person has a different set of facts and circumstances. Careful consideration is key. Don’t be stampeded into making a rash judgement driven by fear and IRS threats and IRS preferences and propaganda.
http://tax-expatriation.com/2015/11/15/u-s-citizens-overseas-are-often-ill-advised-to-go-into-the-1-ovdp-and-sometimes-even-the-2-the-streamlined-filing-procedure/
‘US Citizens Overseas are Often Ill Advised to go into the (1) OVDP and sometimes even the (2) the Streamlined Filing Procedure’ November 15, 2015
…..”..Importantly, these OVDP and streamlined programs created by the IRS are not creatures of any statutory law, for instance Title 26 (the Internal Revenue Code) or Title 31 (the so-called Bank Secrecy Act); or any law for that matter. There are no court cases or Treasury Regulations that spell out the terms of these programs as part of any legal framework.IRS Form 1040 p1
I like to say they are similar to the Hasbro rules of “Monopoly”; a game I was fond of as a child. The IRS is like Hasbro in that they can change the rules of the game as they wish, and often do in the form of publicized frequently asked questions (“FAQs”). The IRS submits these rules of their game and ask, encourage and in some cases (in my view) browbeat taxpayers, often times through their advisers, into participating. See some of the various rule changes…..”…….
….”….the streamlined filing procedures is not part of the law, and also has been modified several times by the IRS. Fortunately, the IRS realized that U.S. taxpayers residing outside the U.S. are not the same as those who reside in the U.S. when they created two separate programs last year in 2014.”………
……….”………….The point of this post is that I have seen numerous cases where U.S. citizens residing around the world were ill advised to participate in the OVDP. In short, if an individual has no criminal tax liability, I think there is little purpose or reason for almost all USC overseas to participate into the OVDP. Analyzing thoughtfully the facts of each case and the law (not the Monopoly rules) is what is important for each individual.
Finally, a clear understanding of what are the Monopoly rules compared to the law is crucial when advising USCs residing overseas. Sometimes, filing through the streamlined procedure might be well advised for a particular taxpayer; e.g., if they would otherwise have substantial late payment and late filing penalties. However, there are plenty of cases where simply filing tax returns pursuant to the law will be preferable in a particular case. This is a process that needs to be thoughtfully considered in each case with a clear understanding of the law – not just the Monopoly rules.”
Hi all! I am not sure that I am posting in right area,,but am need of some advice, not sure where to go,
my daughter is renouncing becoming emancipated from the US and we have heard that one does not receive the CLN without paying/filing taxes. she has lived overseas for 31 years,never working in the states or filed taxes. I am aware that she has to file 5 years taxes and FBAR ,however I do not think she exceeded 10,000 in her savings account. maybe only 1 year …? she would not owe any taxes however the filing is a complication also because we live in a non English speaking country. an professional prepares are expensive. anyway I guess what i am asking is can she renounce, receive her CLN, then file..? thanx
lynn
@Lynn, yes absolutely. There’s no need to be up to date with tax filing requirements for a renunciation. I renounced first and then did the tax side afterwards, though I only needed to file FBAR’s as I had no income to be reported. Once she renounces she’ll have until June 15th of the following year to get the 8854 form done to finally finish off her tax reporting obligations. Whether her CLN will arrive before she completes the tax side will depend on the State Department, but the two are not connected so the CLN won’t be delayed over any unfiled tax returns.
Be aware that the FBAR filing figure is an aggregate one of $10,000 over all your accounts, not just an individual one.
Depending on how complicated her filing requirements are she might want to try and do them herself. Here’s the IRS’s webpage to get her started. If her income hasn’t met the thresholds then she may not need to file.
https://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad
@ Lynn,
No problem with renouncing without having filed taxes as DoS doesn’t ask for proof of tax compliance. So if one applies for a relinquishment-based CLN or renounce this year (2015), they have up til 15 June 2016 to back file 2010-14 so they can certify on their 8854 that they’re compliant for the 5 years preceding expatriation.
The connections between the two departments are:
(1) Dept of State
Dept of State basically doesn’t care about one’s tax status as the citizenship itself (and the issuance of the CLN) is not dependent on one being tax compliant.
DoS’s involvement/connection with tax is the following:
(a) At the consulate the person signs DS-4081, Statement of Understanding of Consequences; one of the 12 items on it is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”
(b) The questionnaire, DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some time ago (in which case you’re trying to illustrate your lack of ties/connections/citizenship behaviour). For renunciations, it’s irrelevant if you have ties/connections/citizenship behaviour or not.
Note: She might not be asked to fill out a 4079. Consulates are not required to use it for renunciations (only for relinquishments) but they’re not forbidden to either (DoS Foreign Affairs Manual, Renunciation, 7 FAM 1264), so some don’t, but some do.
(c) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements, 7 FAM 1243(a).
(2) IRS
To log out of IRS and avoid covered expatriate status, IRS requires that the person file their exit tax form (8854), their final year form, and the five-years-previous-to-final-year forms, by June 15th of the year following the renunciation.
FWIW, if a person chooses not to file, the citizenship itself remains terminated and the CLN remains valid.
Thank you for the quick response, now i would like to ask pacifica777 and media fleecestealer, of your qualifications not that is that important to me , however when i try to tell my daughter it would be nice to know if it was offered by a proffessional on the subject. or if this is your personal experience. I am told I believe everything i read on the internet,from any one ,that is not true however…… only from The issac brock society. I do hope I did not step on toes by the question: and thank you both
again.
lynn
@Lynn, personal experience on my part. I renounced in March 2013 and then contacted a tax professional to check on what I needed to do and engaged them to do the paperwork. I used the Streamlined option to file the requisite number of years for FBAR’s and then filed the 8854 the following year. It wasn’t cheap – it cost me around CHF4,000 to get it all done, but I preferred to have an expert to deal with it all rather than trying to do it myself, having never laid eyes on an IRS tax form of any kind.
For other people’s personal experiences of obtaining a CLN your daughter might like to look at the Consular Report Directory here.
http://isaacbrocksociety.ca/wp-content/uploads/2015/11/Consulate-Report-Directory-2015.11.e.pdf
It lists renunciations/relinquishments from all over the world and may give her an insight into how the embassy/consulate she plans to use works.
There’s also a wealth of information here:
http://isaacbrocksociety.ca/introductory-material-on-fatca-info-session-synopsis-history-of-isaac-brock-society/
A question though – I assume she has another citizenship so how did she obtain it? Did she have it from birth or has she gone through a naturalisation ceremony and gained citizenship that way? If so, then she could apply for a relinquishment instead. Even if she was born dual, if she’s been in the military as an officer or worked in your country government where she had to swear an oath of alligence that would count for relinquishment too. There isn’t much difference between a relinquishment and renunciation these days I’m afraid. She’d still need to do the tax filing and also pay the $2,350 fee. But it might be worth looking at if she qualifies.