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.
Thanks north 49. It’s nice to hear of other people’s experience and know your not alone. I was born in the US became a Canadian not too long ago. Unfortunately my birth cert. is not enough. I proved my time in Canada now they ask the same for the US. I am going to spend some time deciding what to do. Thank you for your comments!
@IRScompliant
I didn’t include CPP. I think Innocente has the right idea, no government social security plans and present value of private plans.
For anyone interested, I commented this on another post (another 8854 link that may be helpful):
http://isaacbrocksociety.ca/2011/12/12/relinquish-dont-renounce-if-you-can/comment-page-6/#comment-254720
The FBAR civil penalty statute of limitations is six years for the assessment ….After assessment, Treasury has two enforced collection procedures. First, Treasury may sue for collection, provided it brings suit within two years of the later of date of assessment or the date the person was convicted of an FBAR violation. If Treasury obtains a judgment in that suit, Treasury will then have the judgment remedies applying to judgments generally. Second, under its general statutory authority to offset debts owed by a person to a Government agency against debts any Government agency owes that person, Treasury may offset against a person’s FBAR liability against payments the person is otherwise due from the federal government.
FBAR penalties constitute debts owed to federal agency. 31 U.S.C. § 3701(b)(1)(F) (2001) (debts include “any fines or penalties assessed by an agency”)
“Debts may be collected irrespective of the amount of time the debt has been outstanding.”). Prior to amendment (2008) there was a 10 year offset period. After the amendment there is no limitations period to offset payments due the person against payments the person owes the U.S. for nontax debts.
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Caroline Ciraolo, her pdf of a powerpoint presentation titled “Collection of the FBAR Penalty,” which may be viewed or downloaded here.
http://www.federaltaxcrimes.blogspot.ch/2013/04/fbar-penalty-collection-beyond.html#more
Innocente, thanks–however skimming through the legal stuff in the notice (which I previously gave up on), I can’t find a straight answer that I can understand. The wording astonishes.
I too will list on 8854 only my defined benefit pension. However, my tax adviser advises that, to be compliant with wording on the form, a “note” should be included stating that I have US social security/Canada CPP/other national social security.
I haven’t decided on what is best.
Mike, how can IRS enforce tax collection overseas? I seem to be the only pessimist here, but I expect that in future tax treaties encouraged by PR engines will change to make this happen and reciprocal.
@IRSCompliantForever
Re ur question: “how can IRS enforce tax collection overseas?”
A way I haven’t considered before, is “Administrative Offset” on any US sourced government payments due to you. Think Social Security.
See this I just posted…
They can’t That’s why it ‘s silly for so many of us to try and play by their rules.
Methinks Fred has the right idea
From ‘America still hates citizenship based taxation’
Fred says
April 1, 2013 at 11:59 pm
Simple solution: Make shit up.
As long as it’s “passable”, it’s good enough.
http://thefranco-americanflophouse.blogspot.co.nz/
A new post in the flophouse. They are Always insightful.
I was born in Canada to a US citizen and am therefore an accidental American. I have found the oath that I swore to the Queen, dated 1979, which I will be using in my efforts to relinquish this US citizenship. My question, please, if the State Dept provides a CLN dated to 1979, will I still have to provide tax reports and FBARS (I have no SSN and have never filed in the US)?
Thank you!
Need advice, please
Katherine –
No, you’d be off the hook because of the statute of limitations. What was the context of the oath?
(But also, if you have a Canadian birthplace and have never asserted a claim to US citizenship, I would let sleeping dogs lie. The United States isn’t administratively aware of your existence, and there’s no reason to expect that to change.)
no you do not. we have multiple opinions to back this up. Lsgoon consulted 3 lawyers They ll agreed. Davis & Co in vancouver agrees. Michael Miller agrees. Forget about it . you will be free.
Katherine, no you will not. That’s way too far back in time for them to come and chase you. If you can relinquish there’ll be no tax obligations to fulfill.
What I’m not quite sure of is if your Oath will stand as proof of an intent to relinquish. I assume being born in Canada you are Canadian as well as American from birth so the US may say it doesn’t. In which case you’d have to renounce and do the necessary tax filing. Of course if you swore it as part of being employed by the Canadian government in some capacity that might be different. Someone else may have more insight to the Canada/US side than I do though, as I’m based over in Europe.
@Innocente
How are you going to calculate the present value amount of your defined benefit pension? Thanks.
Lord Jim, my pension benefit company, and I expect most, will provide the value if I make the request in writing.
IRS appears to have structured their rules so that there is a negative consequence in even knowing the value of your pension: If you know the value you have to report this on 8938 and the pension value may put you over the limit forcing you to file 8938.
“In general, the value of your interest in the foreign pension plan or deferred compensation plan is the fair market value of your beneficial interest in the plan on the last day of the year. However, if you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension or deferred compensation plan on the last day of the year, the maximum value is the value of the cash and/or other property distributed to you during the year. This same value is used in determining whether you have met your reporting threshold.
If you do not know or have reason to know based on readily accessible information the fair market value of your beneficial interest in the pension plan or deferred compensation plan on the last day of the year and you did not receive any distributions from the plan, the value of your interest in the plan is zero. In this circumstance, you should also use a value of zero for the plan in determining whether you have met your reporting threshold. If you have met the reporting threshold and are required to file Form 8938, you should report the plan and indicate that its maximum is zero.”
@IRSCompliant
One can enter the yearly distribution amount of a non-US pension on the 8938, which is also entered as income on the 1040.
The calculation of the present value of a defined benefit non-US pension for the purposes of the 8854 is, to use your term, tricky, and I haven’t yet found a viable method.
Lord Jim, then I think that 8938 is tricky too.
Let’s say that you know the value of the pension because it is provided in your yearly statement, or just because you asked on the phone. The FMV is $800,000, a large amount, because you are age 66 and have been contributing for 25 years.
The distribution to you for the last year was $20,000.
On 8938 do you enter $800,000 (the FMV?–see below) or $20,000? Am I wrong about the FMV?
“In general, the value of your interest in the foreign pension plan or deferred compensation plan is the fair market value of your beneficial interest in the plan on the last day of the year.”
@Lord Jim:
Determination of the “Present Value” of a Defined Benefit Pension or similar:
This is how I am doing it. First, the only value I have and can obtain is the monthly payment that I will receive at age 65. On several websites that offer annuities, I’ve entered the monthly payment amount to be received at age 65 which then calculates the purchase price of annuity from an insurance company. This is a proxy of the present value of these stream of future payments which has the advantage that it is an arm’s length market price. I believe that it would be acceptable for form 8854. Hope this is useful.
@IRSCompliantForever:
Notice 2009-85 defines property as anything that would be included in a person’s estate. Although I have not researched this extensively, future social security and similar payments would not normally be included in a person’s estate, i.e., there is no cash value to them at time of death (possibly excepting the minor social security burial fee) and so should not be considered as assets on form 8854. Just my opinion.
“Exit Tax Base
While the statute generally subjects a covered expatriate to the exit tax on the FMV of all property, wherever located, on the day before the expatriation date, it does not define what property is considered to be included in the covered expatriate’s tax base. Notice 2009-85, however, explains in section 3.A. that for purposes of determining the tax base, a covered expatriate is deemed to “own any interest in property that would be taxable as part of his or her gross estate for Federal estate tax purposes under Chapter 11 of Subtitle B of the Code as if he or she had died on the day before the expatriation date as a citizen or resident of the United States.” ”
The above excerpt came from this somewhat readable article on Notice 2009-85:
http://www.hklaw.com/files/Publication/454a4da6-d692-41b8-b9dd-367f9f8846c3/Presentation/PublicationAttachment/edb41a72-92bb-419c-bf9a-3de0351be763/Packman-March2010.pdf
@IRSCompliantForever:
Notice 2009-85 defines property as anything that would be included in a person’s estate. According to the below, social security is not included in a decedent’s gross estate and, therefore, it would not be included on form 8854, in my opinion:
“Taking Stock
Among those often overlooked items that are includable in your estate are your rights to future income, such as your right to payments under a deferred compensation agreement or partnership income continuation plan. Likewise, your interests in any business you own at your death are includable in your gross estate. In addition, your personal property, investments, real estate, retirement plans, and proceeds of life insurance policies that you own are also included. The value of Social Security survivor benefits, either lump sum or monthly annuity, are not included in your gross estate.”
http://www.massmutual.com/planningtools/educationalarticles/articledisplay?mmcom_articleid=9a16531cb3a4a110VgnVCM100000ee6d06aaRCRD
Innocente, thanks–I think that this is an argument that social security (or equivalent in other countries) need not be included.
Official Word on Due Dates for 2012 renunciant / from Roy Berg, Moodys Tax Advisors:
The due date for the 8854 and other returns is 6/15 (6/17 for 2013) if you reside outside of the US.
The due date for the FBAR is 6/30 (no extensions).
The instructions for Form 8854 state the following:
“If you are not required to file Form 1040NR or Form 1040, send your Form 8854 to the address in Where To File, later, by the date your Form 1040NR (or Form 1040) would have been due (including extensions) if you had been required to file”.
So, if I renounced in Jan 2013, I would be under the income filing limits for 2013 and therefore not required to submit a 1040 (or 1040NR) for 2013. My filing requirements would seem to be a single copy of 8854 submitted by June 2014 and nothing else (other than 2013 FBAR maybe).
Have I interpreted this correctly? Thanks to everyone here for the help.
@Hogwarts
You’d still need to send the 8854 to the Treasury Dept. as well, i.e. one copy to where you would normally have had to file 1040/1040NR and one additional copy to the Treasury Dept. (address in the 8854 instructions). Apart from that, yes the 2013 FBAR (at least for the time period up until your renunciation).
http://www.accountingtoday.com/news/IRS-Trouble-Dealing-Foreign-Currency-66264-1.html?ET=webcpa:e6918:241779a:&st=email
with comment from Roger Conklin:
Any comments on the best procedure for me:
1. Dual EU/US born in country 1 and naturalized US (done as child, had no choice)
2. 40 yrs. residency in EU country 2 with passport from EU 1 country of birth
3. married to citizen of EU country 2 who has never had any US connection
4. grown children citizens of EU country 2 by birth and one parent, registered as US by me when they were born, they have never been in the US excepting a few short holidays
5. all records in EU country 2 register me as citizen of EU country 1
6. have not filed US tax in about 35 yrs. didn’t know I had to continue to do it after I was a permanent resident here in EU country 2….until last week…
7. income and assests low enough so me and kids eligible for streamlined procedure -additionally they qualify for the “exception” clause in renounciation
8.We want out of the US “trap” – the only reason I ever kept it was because my dad insisited we should – too bad I took his advice.
Thanks for a all the wonderful information here -. I have learned so much in less than a week -on the other hand I have slept very poorly….