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.
allou. In my opinion, you shouldn’t do a thing. NADA. Bupkes. If you enter the streamlined program , you are then in the system until you opt out by renouncing. Lots of time and expense. Why bother?
If you do nothing, they don’t know you exist.
Your children would have to wait until the age of 18 to renounce. They are also safe in doing nothing. Sleep well.
Renounce as soon as you can of course, your children too if they want to and are old enough. Sort out the necessary tax filings for the last 6 years with the advice of a US tax preparer if you need it and when you receive your CLN and the IRS tells you either what you owe or that there’s nothing to pay, say bye bye to Uncle Sam. You can do the tax filings first if you want and then renounce; it doesn’t make any difference really.
I am very similar to you. Born in the US of European parents, left the States as a teenager and have spent the rest of my life in Europe. I renounced in March and am sorting out the tax side now. Luckily for me too, it looks like I will owe very little and am not subject to the exit tax.
Where are you based allou? Check here:
http://isaacbrocksociety.ca/wp-content/uploads/2013/03/Consulate-Report-Directory-2013.03.20.1doc.pdf
for more info/insight to how other renunciants got on at whichever embassy you decide to renounce at. Some embassies require two visits, others only one; some have long queues for appointments and others are very quick in turnaround time so sometimes it may pay to renounce at an embassy further away from your home.
Any more questions, ask away. Someone here is bound to have the answer.
Thanks so much Medea. I and my kids (all over 18) would like to file the 6 years back and we have all the info, but we are unsure how to do this.I know is something called quiet disclosure, but that is apparently not so quiet.
I have read up on the new streamlined system and as far as we can judge, we qualify for that. But that only covers 3 years of back taxes and 6 years of Fbars. With the present year 2012 we would have still be “missing” 2 years to comply/escape and I would really like to get this done with and get back to the normal life I (thought) we had until about 4 days ago…
I have checked out various tax preparers and attorneys both in the US and locally (those that do US taxes) .
The present situation is intolerable and I do think it will eventually change into something more “normal” but don’t see that happening anytime soon and I am too middleaged to want to wait longer.My kids don’t need this Sword of Damocles in their lives.
It is also making me pretty paranoid and unfortunately I don’t think I can use KalCs’ suggestion. Maybe if I was 80 yrs old, but I’m not. I feel like I have been forced from my dream-life into a nightmare. Many decades ago, when I occassionally paid a family visit to the US, I used to have nightmares of not being able to return to my EU residence. Those were my warnings – I suppose I should have paid better attention.
I am still waiting for the CLN to arrive from the State Department. So, for U.S. tax purposes am I still an American citizen? I want to get an extended deadline for the taxes so that I can send 8854 in with them. I have to go to N.Y. to get help with 8854 because no one in Ottawa does it. For this I have to get a Canadian passport and it will take some time. Can I apply for a time extension using form 4868 if the CLN has not yet arrived? For IRS purposes am I still American?
@allou
I agree with KalC, you will be opening a pandora’s box although I can completely understand your desperate feeling to free yourself from the yoke of US citizenship.
Considerations are:
1. Your EU passport does not have a US birthplace, so you should not have a problem with your bank accounts although Switzerland seems to be asking their customers if they have any US indicia and banks in other countries might follow.
2. Do you have any reason to return to the US, family etc?
3. Do you have any investments or accounts there?
If you are comfortable with number 1 and answer no to 2 &3, then I would do nothing, not renew your US passport and vacation elsewhere.
@banany you can send in your final tax return and 8854 before you get the CLN. You can also apply for an extension til Oct 15 if you like.
@allou I agree with KalC and Heidi.
@banany,
You were a US citizen until your the date of your November 2012 appointment re expatriation and hopefully will receive your CLN soon.
Looking back at your comments, I am not clear if you relinquished or if yours, too, was a renunciation as mine was. You refer to both relinquishment and to renunciation in your comments, and I entered yours as a relinquishment in the Relinquish & Renounce database, but now I’m not sure if that is accurate. (It will likely make a difference in what is required.)
I have been told this by Moodys Tax Advisors, Calgary, but I am a renunciant in 2012:
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).
Banany, You are no longer a US citizen. It seems unreasonable that you would need to go to NY for help with 8854. It simply isn’t that difficult . Do what you need to do to get under the magic 2 million mark. Ask yourself-what are they going to do if they don’t agree?
@innocente
Concerning calculation of the present value of pensions for the 8854
The mechanics of calculating the present value of a pension are simple. Excel can do it with the PV() function. The problem lies in the input values to be used in the function. How many years longer are you going to live? What interest rate will you use for this period? (the higher the rate, the lower the present value). Assuming your pension is paid in foreign currency, what will be the average dollar rate for this period? Who knows these things?
@allou, you’re missing the point. It’s not the current tax year (2012) and the next two, it really is back taxes. You can file for 2010, 2011 and 2012 and that should be it, though maybe you might need to do 2013 as well; a tax preparer would be able to tell you exactly If so then you would file 2011 to 2013. No need to keep this going until 2015 just to file 2014 tax.
Luckily I seem to only need to file the FBARs (no income of my own) and I need to file 2008 to 2013 inclusive. So I will do the last 5 and round off next year with the 2013 filing. That will be my tax filing obligations done.
@M14:
You have raised some interesting questions. My situation could be different than yours and others in that I have an annuity rather than a DB. A previous US employer disbanded its defined-benefit pension plan and gave the employees and ex-employees annuities in its place. Indeed, the only figure I have is the monthly amount that will be paid when I turn 65.
To value the annuity that I acquired, I am using the method suggested in an IRS letter and am specifically focusing on the following:
“If the company that issued the annuity regularly engages in the selling of annuities, the value of the annuity is established by determining the price of comparable annuities sold by that company. Usually, the value of the annuity would equal the cost of acquiring an annuity policy with benefits similar to the annuity in question at the date of decedent’s death.”
http://www.irs.gov/pub/irs-wd/00-0057.pdf
The annuity value that will appear on my form 8854 will be supported by the above method, i.e., what it would cost to buy a comparable annuity in an arm’s length transaction with the same insurance company or another one. I won’t need to know my expected life expectancy or have to select an interest rate although these would be implicit in the purchase price of the annuity. Since the amount is in USD, I also won’t have to be concerned with an f/x rate.
I would expect that there is literature on these topics since they would be relevant for estate tax in addition to expatriation purposes.
@KalC + Heidi
I get the point, but it is also a psychological weight to have to carry around and even remotely worry about what the next US law change re expats could be – so I think I will opt out officially.
@medea – I read somewhere that to avoid any possible post-renounciation issues one had to have 6 years back in both tax and fbars etc.
I will just be keeping checking this wonderful site and gradually doing the inevitable…
Can see that many of the posters from last year have progressed to a more peaceful state of mind – nice
@innocente
Thanks for a very good link. You’re right, in that insurance companies have their mortality tables and discount for expected interest rates. However keep in mind that their quote for the annuity will include their not inconsiderable profit and thus overstate (to your detriment) the value of your annuity,
Another question is, is an annuity from a “social security equivalent” of a foreign government to be included on the 8854? The 8938 FAQ states “Payments or the rights to receive the foreign equivalent of social security … or other similar program of a foreign government are not specified foreign financial assets and are not reportable.” Of course this is a different form than the 8854 but one could argue, given the lack of concrete instructions for the 8854, that this guideline may be applied.
Allou 5 full years up to the year you renounce. EG renounce in 2013. You need to back file for 2008-2012. FBars are another matter. There are apparently boxcars full of fbars in Detroit and no one knows what to do with them.
@allou if you plan to renounce in 2013, in order to not be a covered expatriate, form 8854 requires that you file for the 5 years prior to the year you renounce. So, you would have to back file all tax forms, FBARs for 2008-2012, then file a dual status return for 2013 with the 8854.
@Kalc…
Here is where the FBARs are stored…
KalC wites: “There are apparently boxcars full of fbars in Detroit and no one knows what to do with them.”
Perhaps I’m getting simple(r) in my oldish age, but that literally made me laugh out loud.
Thank you, Calgary 411. I relinquished. Still no CLN. What if it arrives after the deadline? Should I apply for an extension? Remember when life was simple and doublespeak wasn’t our national language? Remember crossing the border back in the 70’s? When I came to Canada to live I crossed over in a Ford Galaxy 500. The border guard in Canada asked me where I was going and for how long. I told him I was coming here to live, Then he asked how much was the value of the things I was bringing over. I said, “50 cents including the car”. He laughed and I was on my way.
tdott, KalC,
We should check that story out and take pictures of some rail cars to put on this site. Is there anyone left in Detroit?
I’m happy to know that you relinquished, banany. Was the relinquishment you claimed back from back in the 70’s — when did you become a Canadian citizen? When you became a Canadian citizen, were you told / under the impression that you were losing our US citizenship?. I was. If you reliquished, you were no longer a US citizen as of the date of your Canadian citizenship. From the date that you were only a Canadian citizen then, as I see it, as many have given their advice regarding, you would not have been filing US tax returns and, I hope, don’t have the requirement to file the 8854, certifying that you are compliant with US tax requirements for the past six years, etc. — or filing it and showing that you did not have any requirement to file returns for the past five years (plus year of your relinquishment appointment?) as you were not a US citizen as of XXXX, further back than the years you are being asked to certify.
Review the following posts and comments for further information:
http://isaacbrocksociety.ca/2011/12/12/relinquish-dont-renounce-if-you-can/comment-page-8/#comment-259632
and
http://isaacbrocksociety.ca/2013/03/05/michael-miller-paper-on-the-exit-tax-applies-propsectively/comment-page-1/#comments
I very well remember crossing into BC from Idaho one dark evening in 1969, back brake lights gone on the truck we built sides upon to transport our few worldly goods. My husband’s brother (from Cranbrook, BC) met us at the border and drove behind us for the remainder of the way to Cranbrook so we wouldn’t get stopped. We had a list of the things we were bringing in, young and clueless — crossed with no problem. What a difference those times were. We came from Seattle where 20,000 people were laid off from Boeing when the supersonic transport government program was cancelled. I wasn’t laid off, but I left too. All of Seattle then either worked for Boeing or worked for a company that somehow supported Boeing — so there were soup lines and lots of people leaving for better circumstances. My dad emigrated from Canada to the US when he was four — and I, from the next generation, was heading back.
P.S. As a renunciant, my extension for my required 8854 is automatic since I live in Canada to June 15 (this year June 17, 2013). The application for further extension to file, Form 4868: http://www.irs.com/articles/what-is-tax-form-4868
@notamused
The way I read the instructions for form 8854 seems to indicate that if you are under the filing limits for the year of renunciation, you only need to send one copy of the form to the Treasury.
“If you are not required to file Form 1040NR or Form 1040, send your Form 8854 to the address in Where To File…”
Under “Where To File” it says “Send your Form 8854 (or a copy of your Form 8854 if you are required to attach the original to a Form 1040NR or a Form 1040) to this address: Dept of the Treasury, IRS, Philadelphia, PA 19255-0549”
So, I only see a need to file one copy of the form, unless I am missing something ….. do you agree?
@KalC
Thank you – I had also understood it the same way eg. 2008-2012. Now I am trying figure if I should do the streamlined route or just start filing the years individually – on the printed back forms available. (Maybe this is the streamlined route available from sept. 2012?)
I read somewhere that all paper returns have to be re-typed when irs receives them, I suppose that means someone is reading them and entering them into some irs system. I have been unable to find out if 2008-2011 can be e-filed. Then next step is a receipt/guarantee that they are delivered.
Last question is – as I will file married filing separately – does my spouse have to have a itin number?
All income is under the limits, strange to be thinking I hope I don’t win the lottery – until after 2014…
@KalC
Just a thought but…boxcars full of FBARS sounds like a major security issue. What happens if they “disappear”. All that information of which US persons live where, have which accounts etc. could be a mine of information for any unfriendly element wishing to target US persons. What if one travels, lives or works in a relatively insecure country – where having some US connection is not a plus? I wonder if it is possible to relinquish on the grounds of personal safety – not economic, just the desire to stay safe/safer?
@M14:
“Another question is, is an annuity from a “social security equivalent” of a foreign government to be included on the 8854? The 8938 FAQ states “Payments or the rights to receive the foreign equivalent of social security … or other similar program of a foreign government are not specified foreign financial assets and are not reportable.” Of course this is a different form than the 8854 but one could argue, given the lack of concrete instructions for the 8854, that this guideline may be applied.”
Based on my research and understanding, I believe that the value of any claim or right to future US and non-US social security payments is NOT to be included in form 8854. Below are excerpts from postings I made on 2/3 April in this same thread on this topic:
“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.” ”
http://www.hklaw.com/files/Publication/454a4da6-d692-41b8-b9dd-367f9f8846c3/Presentation/PublicationAttachment/edb41a72-92bb-419c-bf9a-3de0351be763/Packman-March2010.pdf
“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
Thanks for your input on the profit in an insurance company’s annuity which I had also thought about but which makes little difference in my case.
An advantage in the IRS’ use of the estate tax definition of assets, instead of inventing a new one, is that there should be plenty of articles and research on this estate tax definition.
One area that I may or may not look at in more detail is how to determine the FMV of my personal property (furniture, etc.). At this time I am planning to use the household insurance value. This would be straightforward and a supported figure, although somewhat overstated.
Innocente, how did you calculate the FMV of the house for 8854? Last property tax assessment or formal appraisal done close to time of expatriation?
Are you planning to send with 8854 documents (e.g., by appraisers) supporting the value of the assets? Is this required?