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.
Heidi
Thanks for your latest post. I think I’ve got the entire picture now. As far as I can tell, section 2801 is indeed your only real threat here. Estate tax stuff is — presumably, if under USD 5.45mm or whatever — neutered by the US/Switzerland estate tax treaty. Section 2801 is however part of the normal tax regime for individuals, not an estate tax thing, so no protection from that in any treaty.
Its current status seems to be somewhat stalled. It is part of law so should be operational, but as yet the IRS has not provided any route to complying with it, it appears to be “deferred”. This seems to mean you don’t (can’t?) pay it yet, but it will likely come due in future when/if the IRS sorts itself out on the issue. A complete muddle in other words, with no end in sight.
There are some workrounds to section 2801, but of course the cleanest is to either cut US persons out of your will, or have those US persons also expatriate. Everything else is just chipping at the edges.
Idiocy indeed, and on an epic scale. But isn’t that a trademark of US congressional thinking these days?
For those readers more recent to IBS, and in the SFOP and SDOP, some ongoing discussion here which might yield insight into more current experiences in Streamlined SFOP program;
http://federaltaxcrimes.blogspot.ca/2016/07/report-of-doj-interest-in-prosecuting.html#comment-2891309225
Still useful materials here from Moby re reasonable cause and nonwillfulness statements https://drive.google.com/file/d/0B0SLTNWD-Z3YNFdlWmdGM0hSbVNocEpKQTBTY2lZUQ/view , though must be tailored to each person’s facts and circumstances – and developments since his experiences. See as cited at;
http://federaltaxcrimes.blogspot.ca/2016/07/report-of-doj-interest-in-prosecuting.html#comment-2885630453
Though created for an older version of OVDI, and not Streamlined, see still relevant reasonable cause and other materials created by “Not that Lisa!”
http://federaltaxcrimes.blogspot.ca/2013/06/an-ovdi-odyssey-opt-out-success-story.html
http://isaacbrocksociety.ca/2013/06/16/an-irs-ovdi-ordeal-with-a-happy-ending-an-opt-out-success-story-as-told-by-not-that-lisa/
In which month is renouncing U.S. citizenship the most financially sound? Is it best to wait till December (to have 330 qualifying days for FEIE eligibility) or best to wait till January (when little salary has been earned)? Are there financial repercussion to keep in mind or look out for when opting for December or January? Commentary and advice will be greatly appreciated.
@fred, can’t help that specifically, but if you renounce in December 2016 you will only have until June 15th (30th?) to wrap up all your US tax stuff so you can file the 8854 as you have up to that date of the year following your renunciation to file it. If you wait until January 2017 you will have until June 2018 to do it.
This is NOT advice, but something to consider.
A recent comment from a US tax practitioner re certain of those ‘abroad’ (small non-resident taxpayers) outside the US, who intend to comply or come into compliance (for whatever reason) complying ‘going forward’ as still potentially a viable option to weigh;
“…I suspect that most of the nonresidents with smaller income tax and FBAR profiles could probably just do a go-forward strategy. This would avoid having to file 3 prior years income taxes and pay the income tax. The IRS might audit a small subset of those, but I suspect it would be a small subset for their go-forward returns and FBARs would signal to the IRS that there is likely to be little income tax and FBAR penalties to be derived from auditing the prior years.
Keep in mind that all of this is speculation, even if somewhat informed speculation….”
http://federaltaxcrimes.blogspot.ca/2016/10/irs-release-on-offshore-compliance.html#comment-2971304578
@fred
I renounced in early January, which made the final year tax filing a lot easier. As I had no income for the period I was a citizen in that year I did not file a 1040 or a 1040NR. For the year of renunciation I just sent the 8854 to the PA address.
@osgood
I would be a little careful about that strategy. Although you may not technically be required to file the final returns it’s always a good idea to file the dual status final return to ensure you’re fully removed from the tax system.
We’ve had to deal with the IRS on clients that only submitted form 8854 and it took a while to resolve. Would have been a lot easier to simply file the returns.
Cheers
Phil
@Phil – “Although you may not technically be required to file the final returns it’s always a good idea to file the dual status final return to ensure you’re fully removed from the tax system.”
That makes no sense.
“We’ve had to deal with the IRS on clients that only submitted form 8854 and it took a while to resolve.”
I filed my own and had no problems.
See Mr. Hogan’s advice to a client.
Question “I have been a Canadian citizen since 1979, am married to a Canadian, reside in Canada, and have been filing my Canadian taxes annually in Canada. As a Canadian citizen, am I still required to file taxes in the US when I have had virtually no income from US sources since 1976 and am now retired? If so, do I qualify for the streamlined procedures for US citizens living in Canada? (I have never renounced my American citizenship.)”
Answer “Once eligible you would be required to file 3 years of the last 1040 income tax returns (along with all related and required forms and schedules) along with the last 6 year of FBAR forms (foreign bank account reporting forms).”
Typical condor. As most of us know, streamlined is generally a very bad idea.
I have yet to hear about *anyone* having a bad outcome from Streamlined. That includes myself and some other brockers. If anyone has heard of someone having a bad outcome from Streamlined, I would be interested in hearing about this.
Streamlined is the IRS’ official way to become compliant. As such, it is, at least theoretically, the safest way to do so. Having said that, I am also yet to hear of anyone having a bad outcome from ‘quiet disclosure’. So anyone contemplating getting compliant should educate themselves and then pick their poison.
@iota
Phil Hodgen, who many appreciate as providing reasonable advice, also recommends renunciants filing returns even when not required. His reasoning is that once a return is filed, the statute of limitations clock starts to tick. Without a filed return, the IRS can theoretically come back in 5, 10, 20, etc years and badger you, or even your estate, about it.
I agree that *in theory*, if a return is not required to be filed, then it should not be necessary to file one in order to become “fully removed from the tax system”. However, it’s not hard to see how the IRS might, rightly or wrongly, consider a 8854 and filed returns to be more complete/correct/whatever than just a 8854 by itself.
IMO, filing returns that aren’t required cost next to nothing in time and effort (even assuming DIY filing, which should be totally possible), and provide insurance that could one day prove valuable (picture future Democratic government going on another offshore tax cheat crusade).
@tdott – I understand what you’re saying, and I understand why Phil Hodgen, like other tax advisors, would rather file 1040s for his renouncing clients. (Though if I recall correctly, the young girl whose case featured in his “Accidental American” series did not, in the end, file 1040s.)
For myself, I’m not worried about the Statute of Limitations, or what makes the IRS feel comfortable, or little brown envelopes arriving in the mail. My aim throughout was to do as little as possible, tell them as little as possible, and sign as few jurats as possible, while making a good faith effort to obey the law insofar as I was able to understand it. I’m satisfied with my decision not to file 1040s that the IRS can’t require me to file, and I don’t for a minute think I’ll ever hear from them.
@iota – I completely agree with you and that is why I decided not to file the 1040 for the 13 days in January that I was a USC. The instructions on the 8854 are quite clear – You are not required to file 1040 or 1040NR if you are below the filing limits. If they ever challenge it, who cares, I had ZERO income during that period. If there is ever any question that I left the system I will send them a copy of my CLN and 8854.
I am done with even thinking about it.
@osgood – absolutely. Done and dusted .
The IRS is history, for me. 🙂
So much for the ‘benefits’ rationalization for taxing those deemed US citizens ‘abroad’;
http://blogs.angloinfo.com/us-tax/2016/11/28/us-expatriates-no-social-security-in-sight-what-should-you-do/
“…..so, what should the typical expatriate do to plan for his golden retirement years? Many are not given a pension plan by their employers and must devise a way to save for retirement. Unfortunately, I see that a number of expatriates make the mistake of investing in foreign mutual funds, life policies, savings plans, portfolio bonds and similar fund arrangements to save money for retirement.
Such investments end up being a big mistake due to US tax rules that make them completely inappropriate investments for the US individual. So-called PFIC rules will eat up this type of foreign investment in punitive taxes and interest charges, leaving the expat in the poorhouse. Given the significant tax complexities, Americans must be well advised before investing in the offshore market……”
The US deems that the local ‘foreign’ savings of those outside the US are taxable by the US, but those very same deemed ‘UStaxablecitizenpersons’ are offered only the ‘icefloe’ ( https://en.wikipedia.org/wiki/Senicide ) by the US when they retire or are too old/infirm to work.
Has anyone heard anything about the audits of those taxpayers who enter via the offshore foreign streamline? Does IRS audit these taxpayers? Any stories from friends or online? Much appreciated
@charlese
So far as I am aware, there have been no reports of audits from streamline. In fact there are many here who have now passed the 3 year statue of limitations for 1040. I believe FBAR is 6 yrs.
I think they are inundated and would not bother with small fry.
FWIW, I’ve passed my 3 year mark on my Streamlined submission. Haven’t heard anything from the IRS.
To echo heidi, AFAIK nobody has suffered negative results from doing Streamlined.
I just received my CLN formally recognizing my relinquishment as of 2007. Taxes have been filed up to this date. Do I need to do anything else in terms of IRS? Thanks for any assistance. Greg
@greg, just the 8854 form I presume. And congratulations!
Greg, can you remind us of the details. What was the relinquishment based upon? thanks.
The relinquishment was based upon (and approved by) my becoming a Canadian citizen with the simultaneous intention of renouncing any and all ties to the U.S. at that time (and thereafter acting in accordance with that intention: not voting, not using my US passport, not holding property/accounts in U.S., etc.). Those are the only relevant details I can think of. Cheers,
@ greg
The gift of freedom at Christmas — pretty nice present I’d say. Congrats!
@charlese
I filed offshore foreign streamlined about a year ago and fbars at the same time with the streamlined. I have had no correspondence or acknowledgement from the IRS and was told at the time it was extremely unlikely I will hear from them. I am renounced citizen now as of August 2016.