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.
Duke of Devon
sinsofthefathers accounts will have already been reported by his banks if the amounts have met the reporting criteria. When he renounces they will have his DOB, and address. I think it safer to play the devils game, file FBARs with the statement that he didn’t know he had to file. Then he can take his ball and not look back.
Thanks all and @Duke of Devon
My banks account would not have been reported yet as the banks are clueless that I am a US citizen (so far), thanks to my Kiwi passport not having my country of birth on it!
I guess the question I have or the conclusion that I am trying to reach; which would returns would receive less scrutiny from the IRS (and have a better chance of sitting there collecting dust till the statutory limitations runs out on it);
1. Streamline (they did indicate that each certificate will be getting reviewed by the IRS, but what does that even mean? will they be scrutinising those returns more? )
2. or just plane old late returns?
I very much doubt that I would have any tax to pay, my only liability will be the FBAR non-wilful penalty (10K per year, over six years…..there goes most of my hard earned savings!)…
What a non-wilful mess! (reverting back to stage 2 of the grieving process (anger!), as I type this!
@sins – It’s unlikely you’ll be hit by the FBAR non-wilful penalty, but even if you did it wouldn’t be $10,000 per year. That’s the maximum.
See https://www.lexisnexis.com/legalnewsroom/tax-law/b/fatcacentral/archive/2012/12/18/what-you-should-know-about-fbar-penalty-mitigation.aspx?Redirected=true for the mitigation guidelines.
See also this statement from the IRS:
https://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures
and if you file Streamlined, they don’t apply non-wilful penalties. So either way, you should be okay.
Thanks @iota
The FBAR mitigation article is great and very informative! Exactly what I was looking for! This will assist me in putting a $ value on a worst case scenario!
Believe it or not, it does help me sleep at night, when I know what are the possible different scenarios I am faced with, and what are the $ liabilities with each!
I’m actually leaning towards sending them 5 years of late returns (instead of streamlining) , and a partial for this year and saying “Adios USA/IRS, it has not been nice knowing you, and let’s hope we never meet again in the future! It’s not me it’s you” 🙂
Glad it was useful. 🙂
“I’m actually leaning towards sending them 5 years of late returns (instead of streamlining) , and a partial for this year and saying “Adios USA/IRS, it has not been nice knowing you, and let’s hope we never meet again in the future! It’s not me it’s you”
Ha ha, absolutely! Good luck with the forms. 🙂
I’d appreciate some advice on my situation. I’ve been reading a lot about the Streamlined process, but everything seems to be geared toward people who have a lot of foreign assets and/or have not paid taxes. Neither of these apply to me.
I’m American by birth, but have been living abroad for the past 15 years. And, I have a very simple financial situation. I have income only from wages, and have no interest bearing accounts, investments, etc. I have no significant cash in the bank because I’m paying off a mortgage. This is all in my adopted country, and I have no accounts/etc in the US except a old 401k.
I filed US tax returns for the first few years of living abroad, but they always came out to $0 owed, since my adopted country’s taxes are higher, so my US taxes are completely offset. And, as well as having no assets as above, my income is moderate.
I haven’t filed my US taxes in about 5 years now, but again, they would all come out ot $0 anyway. So, do I still have to be concerned about this? Am I at risk of penalties, etc?
Should I file now under the Streamlined process? Will it be accepted as reasonable couse that I was under the impression that I did not have to file because I owed no taxes? Also, I only heard about he FBAR requirement in the last couple of weeks — do I have to mention this in the statement as well?
SilentOne,
If you have less than USD10,000 in “foreign” accounts (not US), then you do not have to file FBAR. Since it sounds like you don’t have that much, there’s no FBAR requirement.
All the big penalties that you hear about ($10k per form +) are for failure to file FBAR or 8938 (which has an even higher filing threshold than FBAR). The penalties for failure to file form 1040 are based on the amount of tax due (https://www.irs.gov/uac/What-to-Know-about-Late-Filing-and-Late-Paying-Penalties).
Given the current climate, it might be wise to start filing the zero balance due returns now — just as proof that nothing is due. As for catching up with past returns, that’s up to you (if you’re planning on renouncing, you might as well file them). Since there is no penalty on a zero balance return, there’s no reason to use streamlined.
All of this is just my opinion — I’m not a professional tax preparer. I’m sure others will chime in with their opinions.
@SilentOne, remember that is an aggregate figure of $10,000. If you have $5,000 in one and $6,000 in another you’d have to report both accounts as their aggregate total is over $10,000.
@SilentOne – the IRS would say that you’re at risk of penalties for not filing, because you have to file to claim foreign tax credits or the Foreign Earned Income Exclusion, in order to offset your income so that you owe zero taxes.
If you want to clear it up, perhaps with a view to renouncing and getting out of the US tax system for good, you can either file Streamlined, or you can just file the returns late, without bothering with the Streamlined Procedures. There’s a useful blog article about claiming the FEIE on late returns at http://blogs.angloinfo.com/us-tax/2016/03/25/late-tax-returns-irs-denies-foreign-earned-income-and-housing-exclusions/
Silent One. If you wish to become and remain compliant, just file going forward. You still have time for 2015- There is an automatic extension. For income taxes, there are no penalties when zero taxes are owed.
As far as FBARs are concerned- file going forward if your account balances are greater than 10K US. Keep it simple. You are a true minnow and of very little interest to the fishermen in the IRS- they are thin on the ground and have much bigger fish to catch. Or forget about it all and get on with your life.
Monty Python explains it all.
https://youtu.be/ifmRgQX82O4
Thank you everyone for your advice.
@iota, thank you for the link. It seems to indicate that I’m fairly safe as far as not filing 1040’s. I think I should just start filing now.
Regarding FBAR’s, it’s quite easy to go over the $10k threshold, if I understand it correctly. I’ve been told that I must include the value of retirement accounts as well. I just reread my original message and realise I forgot to include my non-US retirement account (it’s similar to a US 401k, invested in mutual funds; but contributions are mandatory and I can’t access it without penalty). It is certainly well over $10k (I think about $140k).
The delinquent FBARs are the issue that really worry me. @Portland PLCee, does the size of my retirement account change your oppinion? Or should I just start filing now?
And just to be sure I understand the requirements: I also own my home, but as far as I can tell from the FBAR reporting requirements and other asset reporting requirements, I don’t need to include my primary residence, as it’s not for investment purposes. And — and I apologise if this is going off topic — even if I were to sell it, I don’t pay US taxes on capital gains from selling my primary residence, is that right?
Silent One The size doesn’t change my opinion. Everything depends on your own situation and tolerance for risk and pain.
At one end of the spectrum you might want to be perfectly clean and up to date. You can file taxes going forward or go back 3 yrs. or 5 yrs. If you owe nothing, there will be no penalties.
You can file FBARs on line and if you want to file late ones, there is a drop down menu as to why you are late- ” I had no idea’ is a good reason.
There are several hundred million tax returns and millions of FBARs filed every year. They are screened by computers . A very few are screened by humans. The majority of expats file neither. The IRS has its’ budget cut every year and can’t cope with simple fraud such as identity theft. They have closed off all sources of information to foreigners.
The other end of the spectrum is to tell them only what they already know or to quote an Irishman ” I tell them feckin nothing”.
I gather you wish to come into compliance. I would file taxes going forward and FBARs for 5 years. If the amount is small and you weren’t willful there should be no penalties. p.s. the phrase ‘mutual fund’ is strictly off limits.
Not quite. The sale of a primary residence is not excluded from US income taxes or the Exit tax.
That’s how Boris Johnson got screwed. If you make a capital gain on the sale of your principle residence, it is taxed by the US and not offset by tax in your home country. There are probably thresholds and exemptions but that’s above my pay grade. Google it- I think a married couple can exclude 500,000 gain if they have lived in a house for 24 months
SilentOne,
Your retirement account may not need to be reported on FBAR. I don’t know what country you’re in, and each one is different. The article linked here: http://isaacbrocksociety.ca/fatca-and-australia/comment-page-29/#comment-7429100
says that even the IRS doesn’t know whether Australian Superannuation goes on FBAR.
Thank you again. @Karen, that’s an interesting article, and it indicates that the question is not settled. Here’s another take on it:
https://www.taxconnections.com/taxQuestions/Self-Employed-Foreign-Pension-Plan-Australian-Superannuation-Fund-Reportable-on-/68
This argument is that a holder of shares in a Superannuation fund (yes, I’m in Australia) are never going to be 50+% owner of the fund, so there is no obligation to submit an FBAR. TBH, this seems like it may be stretching the definition a bit, but who knows.
@SilentOne,
If you hadn’t guessed, I’m in Australia as well. As you are aware, there are different types of super accounts. My guess is that the accounts discussed in these articles are accumulation accounts where most, if not all, contributions are concessional contributions made through the employer (super guarantee or salary sacrifice). For those who have made substantial non-concessional contributions, or those in SMSFs, the reporting requirements may be quite different. Defined benefit plans are another issue entirely.
While your super may not be reported on FBAR, it may be reportable on form 8938. The threshold for filing that form is $200k of specified financial accounts ($400k for married filing jointly). From what you’ve said above, you don’t meet the threshold (yet), but it is something to keep in mind if you intend to remain a US citizen.
whats the correct answer…..
stay compliant , get compliant ,quit filing,
only anwser i get is welllllllll you could be in big trouble when you cross the border when they start cracking the whip…?
easy solution dont cross?
save the 350.00 yearly fee from the accountants … and have money for groceries ..
dunno
@bruno – the correct answer is the one you can live with. Just learn all you can, and decide which path makes it easier to sleep at night.
well ether way you go on this who can actually sleep at night…
but there must be some actual lawyer type on here who know .. for a fact. what could be done to one .. in canada with citizenship of both us/ca …
nothing at all… true/false ?
just reading this site for the last few years there are different answers all the time ..
1. they cant do nothing your in canada unless you have US assets
2.ignore there threats if they ever start
3. dunno
4.better keep in compliance.
5. bend over cause your gonna get it
6. renounce 2400 alot of cash
7. say bite.. and stay in canada and do nothing .. and never cross again when it comes to that point
8.who knows..
im sure it been asked ive prob asked before but .. dont know whats what with this crap anymore
@bruno, there is no “correct or true” answer. You have to decide what you personally can live with. Some people are happy not to bother filing after getting a renunciation/relinquishment, others prefer to file.
As for what can be done to you in Canada – the IRS can’t do anything. What your Canadian bank could do if they find out you’re American and “wilfully” non-compliant is freeze your account/s and they would report them to the IRS as required under the US-Canadian IGA.
What could be done to you in America if you cross the border in the future – well, the answer is still who knows? At the moment being tax compliant isn’t linked to entry, but that could change in the future. Some US Senators have already managed to link renewal of US passports to being tax compliant.
http://www.emirates247.com/news/report-income-or-lose-us-passport-2015-12-26-1.615107
The Reed Amendment was passed years ago which bars renunciants from entering the States ever again – but at the moment it’s unenforceable. But Mr. Reed keeps trying and may one day succeed.
https://en.wikipedia.org/wiki/Reed_Amendment_(immigration)
The US government changes the rules to suit itself (upping the renunciation fee for example) so no one can tell you definitely what may happen in the future. Unfortunately, as we’ve seen with FATCA, they have the financial muscle to push other countries into doing their bidding whether they want to or not.
I would like to hear a more definitive (authoritative) statement with regards to what Canadian banks can, will or might do on behalf of the IRS. Has there been any indication whatsoever that Canadian banks can or will freeze accounts if the IRS says they are non-compliant? If things are headed that way, it is hard to see how anyone could consider not becoming compliant (or renouncing) unless you want to put your money under your mattress.
@Ken Albanese, you won’t find a definitive (authoritative) statement because no one knows. There is provision in the IGA for banks to report wilfully non-compliant accounts to the IRS. Whether they decide to freeze an account while they wait for you to provide proof of compliancy or the IRS to request further info will be down to the individual bank. Some accounts did get temporarily frozen and others were closed here in Switzerland in the run-up to FATCA coming into force, but the Swiss banks were running scared. I doubt the Canadian banks would react in the same way, but remember the IGA is written to protect the banks, not their clients. If they think they may be penalised under the IGA they’ll do whatever is necessary to avoid that.
All that Canadian banks can legally do is report an account to CRA. That doesn’t mean they might not try to do more. In that case complaints to the CBA, Consumer protection agency, your newspaper and the CBC would all be in order.