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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.

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

  1. Trying to figure out form 8621 (PFIC). There are some explanations at Hodgen’s blog but they are only partial and simplified. The IRS instruction for the form is of no help, at all. I don’t want to spend a fortune to CPA to do this. Perhaps I could just fill the lines that are comprehensible and leave the rest blank. Has anyone here been able to fill this form correctly? 8621 is probably the worst form IRS has been able to produce. There should be a prize for that achievement.

    For 1040, which software works best, TaxAct or Turbotax?

  3. Joe. I can’t resist although I don’t think you are listening. The IRS computers depend on matching information on wages and investment income with information supplied to them. They process several hundred million returns every year. They (the computers) don’t receive any information from your employer or about your investments unless they are US based. They audit fewer than .5% of returns. In other words they can only process what you give them.
    If you feel you have to, report income from your pfics as received; not as accrued.
    Filling in the forms incorrectly might well be worse than not filling them in at all. Someone will have to deal with them and it will raise a flag.
    See B.C. Doc’s post of Dec 2 on this thread- good advice.

  5. The willingness of the IRS to absurdity never ends. The IRS in a webinar states that infants are responsible for filing FBARs (which are online only now):

    “…The IRS posed a question near the end of its webinar on June 4, 2014, regarding
    electronic FBAR filing that supports this analysis.185 The IRS asked: “Do I need to
    file an FBAR for my infant son who is a US citizen and has foreign financial accounts,
    but is not required to file a tax return?”186 The correct answer was: “Yes. There are
    no age limitations on FBAR filing. An FBAR should be filed on behalf of your son
    if he has reportable foreign financial accounts. Remember [that] tax filing status is
    not a consideration for FBAR.”187 Although the IRS stated that the guidance it provided
    during its webinar may not be relied upon,188 it is reasonable to assume that
    such guidance is not misleading…..”….

    182 FIN. CRIMES ENF’T NETWORK, BSA ELECTRONIC FILING REQUIREMENTS FOR REPORT
    OF FOREIGN BANK AND FINANCIAL ACCOUNTS (FINCEN FORM 114) (2014), http://www.fincen
    .gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf [http://perma.cc/FZ9U
    -LWYZ] [hereinafter FORM 114 INSTRUCTIONS].
    183 United States Territories and Possessions include the Commonwealth of the Northern
    Mariana Islands, District of Columbia, American Samoa, Guam, Commonwealth of Puerto
    Rico, United States Virgin Islands, and Trust Territories of the Pacific Islands. See IRS GUIDE,
    supra note 26.
    184 Id. (explaining that a U.S. citizen must file an FBAR if he or she meets all of the
    necessary elements, no matter where he or she resides).
    185 Id.
    186 Id.
    187 Id.
    188 Id.

    quoted from;
    Tyler R. Murray
    The Eighth Amendment and Tax Evasion: Whether FATCA Non-Compliance Fines and FBAR Penalties Are Excessive
    Repository Citation
    Tyler R. Murray, The Eighth Amendment and Tax Evasion: Whether FATCA Non-Compliance Fines and FBAR Penalties Are Excessive, 24 Wm. & Mary Bill Rts. J. 553 (2015), http://scholarship.law.wm.edu/wmborj/vol24/iss2/8

  6. When filing the back taxes I assume you use the latest versions of the forms. Or do you have to get the 2011 version of 1040 for tax year 2011?

  7. You need to file 2011 on the 2011 version of the form. Forms change each year 8n response to changes in tax law. Your 2011 tax has to be computed using tax laws in effect in 2011, so you need to use the 2011 form.

  8. From Phil Hodgen [Friday Edition] Filing and tax payment deadlines for Americans abroad
    … a happy by-product of my preparation for a webcast I will be doing for the California Society of Certified Public Accountants.

    Overview

    Here is the overview:

    Filing Deadlines

    • Default rule: April 15. If your “tax home” or “abode” is in the United States your filing deadline is April 15. This is the default rule.​
    • Automatic extension: June 15. If your “tax home” or “abode” is outside the United States, your deadline for filing your income tax return is June 15. This is automatic and you do not need to file anything to get it.
    • Normal extension: Use Form 4868 (whether you qualify for the June 15 deadline or not) to make extend the filing deadline to October 15.
    • Extra extension: Another extension is possible for some people — to December 15.
    • Foreign Earned Income Exclusion. For people who need time in order to qualify for the foreign earned income exclusion, Form 2350 allows you to select your own filing deadline to achieve that goal.

    Payment Deadlines

    • Default rule: The tax due on your tax return is payable on or before April 15.
    • Some people: If you qualify for the June 15 extended deadline to file your tax return, you can pay your tax — without late payment penalties — on or before June 15. However, you will owe interest on the tax due, from April 15 until the day you pay the tax. No further extension of the payment due date is possible.

    Filing Deadlines

    The filing deadline rules are not too difficult to understand — after you ignore the confusing instructions for Form 4868.

    Standard Rule: April 15

    The standard rule is that you must file your income tax return on or before April 15. IRC § 6072(a).

    Treasury Regulations: IRS Says June 15 For Some People

    The IRS has authority to give extensions of time to file a tax return. IRC § 6081(a). For some Americans abroad, the IRS has given an automatic extension (you don’t have to ask for it, you just have it). T. Reg. § 1.6081-5(a)(5) is where the IRS has done this.

    An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of . . . United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico[.]

    This requires you to have your “tax home” and “abode” outside the United States and Puerto Rico. Note that the Form 4868 instructions are fatally vague on this point, implying that merely being abroad (as a tourist, for example) is sufficient.​

    The Form 4868 instructions say:

    Taxpayers who are out of the country. If, on the regular due date of your return, you are out of the country and a U.S. citizen or resident, you are allowed 2 extra months to file your return and pay any amount due without requesting an extension. Interest will still be charged, however, on payments made after the regular due date, without regard to the extension. For a calendar year return, this is June 15, 2016. File this form and be sure to check the box on line 8 if you need an additional 4 months to file your return.

    The Form 4868 instructions are ambiguous. They say — flat out — that if you are outside the USA on the regular due date of your return, you get an extra two months without requesting an extension.

    This is referring to the two month extension established by T. Reg. § 1.6081-5. I know of no other extensions.

    The Form 4868 Instructions make it sound like a tourist who is abroad on April 15 can qualify for the automatic two-month extension of time to June 15. This is wrong. Only someone whose “tax home” or “abode” is outside the United States will qualify for this automatic two-month extension for the filing deadline for Form 1040.

    The Instructions do not agree with the law. Rely on the “automatically until June 15” extension only if you are sure you satisfy the “tax home or abode” requirement. It is trivially easy to extend the filing deadline simply by filing Form 4868 if you are uncertain on this point.

    Extension to October 15

    You can get an extension of time from April 15 until October 15, using the traditional method of filing Form 4868. This is authorized by IRC § 6081(a).​

    You must file Form 4868 in a timely manner. This means you must file it before April 15 (if your tax home and abode is in the United States) or before June 15 (if your tax home and abode is outside the United States.)

    Note that this is a little bit confusing. For an American living abroad (tax home and abode is outside the United States), there is an automatic extension from April 15 to June 15, and the normal six month extension (using Form 4868). Does this mean that the six month extension starts on June 15 and expires on December 15? No.

    Both extensions start on April 15. For April 15 through June 15, both extensions apply to an American living abroad. They are like concurrent prison sentences, to use an unfortunate comparison.​

    On June 15, the automatic extension expires. But the Form 4868 extension continues on for another four month, expiring on October 15.

    Further extension to December 15

    If October 15 is not enough, you can apply for and receive one more extension of time — to December 15. This is done by sending a letter to the IRS. T. Reg. § 1.6081-1(b).​

    Publication 54, *Tax Guide for U.S. Citizens and

    Resident Aliens Abroad (2015)*, at page 4, gives you the rules:

    [T]axpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:

    Department of the Treasury
    Internal Revenue Service Center
    Austin, TX 73301-0045

    You will not receive any notification from the Internal Revenue Service unless your request is denied.

    The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350[.]

    Form 2350: Long Extension For Foreign Earned Income Exclusion Purposes

    An entirely different extension system applies for Americans abroad who have not yet qualified for the foreign earned income exclusion (see Form 2555) but expect to.

    Form 2350 allows an American abroad to select a filing deadline far enough in the future so that they will either qualify for the physical presence test (330 days or more in a 12 months period are spent outside the United States) or for the bona fide residence test (a full calendar years elapses where the taxpayer is a bona fide resident of a foreign country).

    I suggest picking a date that is a month after you expect the qualification for the physical presence test or the bona fide residence test.

    Warning: FinCen Form 114

    Important: I do not cover the filing deadline for FinCen Form 114 here. The law recently changed — but it is not in effect for the 2015 tax year paperwork.

    The filing deadline is still June 30, 2016 for your 2015 tax year filing.​

    Next year (when you file the FinCen Form 114 for calendar year 2016), sanity will prevail and the filing deadline for the FinCen 114 will be synchronized with the normal income tax return filing deadlines.

    Tax Payment Deadlines

    The government encourages you to pay your tax promptly by imposing penalties and interest if you do not.

    Here we look at the payment of the tax due that is shown on your tax return as filed. What is the deadline for paying that tax if you are an American abroad?​

    Treasury Regulations: IRS Says June 15

    The IRS has extended the time for payment (as authorized by IRC § 6161(a)(1)) for certain U.S. citizens and residents abroad:

    An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of:

    (5) United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico; and

    6) United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico.

    ​As a result, you can defer payment until June 15 for the tax shown on your return.

    Payment Deadlines, Interest, Penalties

    Payment Deadline: April 15 Unless the IRS Says Otherwise​

    The general rules is that tax payment is due at the time that is set for the filing deadline. IRC § 6151(a). Since the filing deadline is April 15, this is the default payment deadline.

    Therefore, the default payment due date is always April 15, unless you find an explicit allowance for extra time to pay your tax.

    IRS Says June 15 for Some People

    The IRS has extended the time for payment (as authorized by IRC § 6161(a)(1)) for certain U.S. citizens and residents abroad:

    An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of:

    (5) United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico; and

    (6) United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico.​

    As a result, these people can defer payment until June 15 for the tax shown on your return, and will not be treated as paying their tax late.

    You Will Owe Interest From April 15

    However, you will owe interest on the tax due on the return. The interest will run from April 15 (the normal due date) until you pay the tax.

    This is an underpayment of tax. The general rule is in IRC § 6601.

    An underpayment exists when the taxpayer does not pay a tax on or before the last day prescribed for payment:

    If any amount of tax imposed by this title (whether required to be shown on a return, or to be paid by stamp or by some other method) is not paid on or before the last date prescribed for payment, interest on such amount at the underpayment rate established under section 6621 shall be paid for the period from such last date to the date paid.

    IRC § 6601(a).

    The “last date prescribed for payment” is a defined term. It is the due date as it should be, without taking extensions into account:

    The last date prescribed for payment shall be determined without regard to any extension of time for payment or any installment agreement entered into under section 6159.

    IRC § 6601(b)(1).

    The additional two months for filing and payment (from April 15 to June 15) is an extension granted to taxpayers by an exercise of discretionary power by the IRS in T. Reg. § 1.6081-5(a).

    Therefore, when determining the application of the “interest payable on underpayments of tax due” rules, we ignore that two month stub of time, and compute interest on any tax due starting with April 15.

    Late Payment Penalties Accrue Starting on June 15

    You will not owe late payment penalties if you pay the tax on June 15 rather than April 15.​

    The penalty for not paying the amount shown on the tax return is imposed by IRC § 6651(a)(2):

    In case of failure . . . to pay the amount shown as tax on any return specified in paragraph (1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate[.]

    The relevant language is that magic phrase “on or before the date prescribed for payment of such tax”.

    Since the IRS has “prescribed the date for payment” to be June 15 (see T. Reg. § 1.6081-5, as authorized by IRC § 6161(a)(1)), the penalties for late payment will start on June 15, rather than April 15.

  9. Just curious i had a accountant doing all my previous years . who has now quit ,,, and looking around for another no way can i afford there fees of 350 and up that i have been told when calling around..
    im on a border town so my thought of saying screw the whole thing are out,,, cause i seem to go over every week or 2 ? all my incomes Canadian i own or have nothing in USA i know a ton of other duals that dont bother and could care less.. which now i think they are right,,,,,,
    But im up to date so keep going so looking at previous years just a 1040 and a 1116 were filled i think
    so am i same to follow the previous years … or keep searching for a accountant to doit?
    apologizes if this doesnt make sense or supposed to be posted here …. taxes make my brain go to mush

  10. Appreciate any comments on the following.
    Assuming that I now have a second citizenship along with US citizenship.
    Assuming that I relinquish my US citizenship
    Assuming that i have not lived at all in the US in excess of 20 year
    Assuming that there were no forms of any kind filed in the US for many years
    Assuming that after relinquishing, I do not file any additional US forms

    What are the chances of extradition in the future for not filing the “supposedly required” forms.
    Does any of this pose a problem for obtaining a 10 year visa to visit the US?

    I know that there may be a lot to comment on here so I lok forward to this discusion.

  11. My amateur guess. There might virtually no risk of extradition but if you’re inside the US extradition’s not necessary.

    But you still might be perfectly ok, as most people don’t seem to get questioned about the US birthplace at present. Only, given that they’ve successfully imposed a system whereby anyone with a US birthplace is treated as guilty until proved innocent, there doesn’t seem to be any reason they couldn’t start systematically checking tax records for anyone with a US birthplace travelling on a non-US passport.

    If they felt like it, they could do such a check, let you in, and then keep you.

    At one time I might have pooh-poohed such an idea as paranoia, but in the light of FATCA it seems entirely possible, even probable.

  12. Chance of extradition = zero. Do you have any idea of the cost to extradite someone? Problem with VISA none at present unless you visit Syria or Afghanistan . In the distant future- nobody knows

  13. Hello there,

    I came here for advice since I don’t really know what to do. I am a Canadian citizen that worked on various types of work visas in the US 5 years and moved back to Canada early 2013(before Fatca).
    While I was in the US, I kept most of my banking and investment accounts in Canada. An inheritance made my account balance to get near 600k. I never heard about Fbar until getting back in Canada 2 years ago. Accountant that did my taxes never mentioned it and left blank the section pertaining to foreign accounts, though most of the income from interest was reported on schedule B. Also, I was negligent and left out some interest tax slips that I received late, and never got back to accountant to amend the income tax returns. I never filed the Fbar either, because of its life-altering penalties.

    This week I got a job offer in the US, but I’m not sure if it’s worth taking it because of my compliance problem.
    I phoned 2 Tax accountants that counseled more or less the same options:

    Option A) Go Streamlined Foreign – no penalty- BUT certification of non-willfulness might be challenged -basically issues regarding time elapsed between taking corrective measures and time knowing about filing requirements ( more than 2 years).
    Option B) OVDP would nullify all risks – but it’s a financial suicide
    Option C) If I’m willing to take the risk , file going forward in 2017 ( hope the IRS don’t look for the past)
    I remain undecided over which option is better even after talking to lawyers.
    It’s quite a dilemma because I like working in the US, its people, (but these tax laws and the politicians that made them a lot less 🙂

    Any advice ?

  14. Depends on what your status was when you were there. If it was with a green card you are supposed to be liable for taxes even after you leave until you formally give it up. If on some other type of visa I have no idea what your liabilities are.

    Streamlined- see the warnings under ‘our resources’
    OVDI I assume you are not a criminal- stay well away
    Option C) Probably your best choice.

  15. I never had a green card. I was employed under various work visas, and my understanding is that my us tax liabilities stopped when I stopped fulfilling the substantial presence criteria.

  16. Phil Hodgen is always worth reading. This week a discussion as to why TFSAs are not foreign trusts. To simplify, all you may be required to do is report income of the account annually.

    Also a warning about the absurd problems of filing with a non resident spouse.

  17. Despite unsubstantiated warnings, there have been no reports of people getting negative or unexpected results in the Foreign Streamlined program, which many people have gone thru (including some Brockers).

    Whether this is the best course of action for any particular individual is a different matter.

  18. The notion that a TFSA is a (foreign) trust has always had me scratching my head.
    And Phil Hodgen goes on to great length to say that they are *mostly* not.

    For 2 out of 3 types of TFSA he says with confidence that they are not foreign trusts. For the 3rd type he’s not definitive:

    Look at your TFSA plan documents. If it is a deposit account or an annuity, your job is done. The TFSA is not a foreign trust. Make sure you have reported your income correctly for the previous five years. Make sure you did the magic Form 8621 if your TFSA held mutual funds.

    If your TFSA is an “arrangement in trust” you must report all of the income, just as you do for the other types of TFSAs. But you also need to make a decision on the “foreign trust” question.

    So, it’s not a definitive statement that TFSAs are not foreign trusts, and as usual with this crap, do your own diligence and make an informed decision that you are comfortable with.

  19. I may be mistaken but I believe I have read somewhere that the IRS started processing the streamlined applications recently . And since many applicants were not providing enough info to support the certification, they enhanced the information required to prove non-willfulness in their FAQ.
    That certification seems scary to me.

  21. Interesting. Foreign Streamlined has become much more formalized. It does sound like the IRS is getting stricter with it. Having said that, it would be counter-productive to get stricter with Foreign Streamlined and not do likewise with “quiet disclosures”.

    Nonetheless, anyone who is genuinely non-willful (or not provably willful?) should be OK; although admittedly the longer times passes, the harder it would be to claim non-willfulness.

  23. Hi everyone. Hoping someone may be able to shed some light on the following.

    Do only ‘US persons for taxpayer purposes’ have social security numbers?

    More specifically, is it possible to acquire a SSN for the sole purpose of collecting spousal social security benefits as a non-resident alien?

  24. @AnonForAReason – The FBU at the London Embassy told me my ex-spouse would not need to have a SSN to apply for ex-spousal benefits. I don’t think he ever did because it was a small benefit, hardly worth the trouble, but that’s what I was told about the SSN.

  25. AnonForAReason@

    I think what you are looking for here is an ITIN number. This is the only US tax ID available to non-resident aliens, and appears to be usable most places where an SSN is normally used. I don’t know offhand if an ITIN would work for your specific use case.

    To answer your more general question, it’s certainly possible to have an SSN yet not be a ‘US person for tax purposes’. Anyone who has in the past worked temporarily in the US on, say, an H1-B visa will have one, as will anyone who has surrendered a green card or renounced US citizenship. All of these categories of folk are no longer ‘US persons for tax purposes’, but the SSN is for life.

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