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.
@fred
congratulations on your upcoming renunciation. After my renunciation, I liquidated all my US stock. I didn’t want a single asset left in the USA. they were not large holding. However the brokerage house would not accept that I was a non US citizen until I had the CLN so I waited until I had that. then I informed them I was no longer a US citizen by faxing them my CLN so they would update my status and sold right after that. the capital gains will be reported here in the UK only. This was my experience.
I did a lot of research at the time and saved some links to articles because I am due to inherit an IRA at some stage in future so maybe this link I saved might help re the IRA. it does have some information about covered and non covered expatriates.
http://finance.zacks.com/happens-united-states-ira-retire-different-country-5750.html
@UK Rose – Thanks for providing some insight into your experience with liquidating your assets, I plan to do the same. Regarding the article you posted; the article fails to mention that for OECD countries (and some non-OECD) the U.S. has tax treaties which could change the default 30% withholding tax to a lower rate, even 0% in some cases. I was just wondering if any IBers have experience in liquidating their IRA prior to 59.5 years of age and what tax (if any) they paid.
Badger –
Excellent compilation on FMV of residential property.
The kind of info for that nonexistent get-out-clean checklist.
Do not underestimate the size of the Canadian cohort for whom
[whatever] + [pension] + [principal residence] = [covered ex danger]
Admittedly, downward trending CAD mitigates.
@DoD — “Can you share how long you waited for your appointment and where it is? We’ve been waiting 4 months and haven’t heard a word. (Vancouver)”
I’d be inclined to send the consulate another email, to the same address where you sent them all your required documents, and mention the 4 months and inquire as to whether there is something else you need to do or send at this time. I know someone who had waited about as long a year ago and then phoned the consulate to inquire. There might have been some glitch, but they then got an appointment, I think within weeks.
Thanks. I plan to do that. Do they even answer the phone?
A quick question (or two) about Form 8854 (Section V):
1. Marketable/Nonmarketable stocks and securities: I do not hold any of these outside of my RRSP (Canadian IRA)–do I have to list these as such or is this covered by the “Pensions” section?
2. Pensions: as just stated, I have an RRSP (retirement pension). I also have a pension plan through the company I work with. Is this reportable? If so, and this is getting very wearying, do I need to list the value of that pension at the date of the relinquishment (as if I retired on that day)?
3. This is all ridiculous–not a question, obviously, just a venting.
Thanks for any assistance in these matters. Cheers, Greg
DoD,
The US consulate people in Canada never responded to my follow-up email question about my documents, but did respond immediately to my email telling them that I am cancelling my request for an appointment because I was able to renounce elsewhere.
Greg. Keep it simple. Anything in the RRSP is included and not reported separately. Only Include the value of the RRSP as of your last statement.
Theoretically the company pension is reportable. If it is a defined benefit plan, it is almost impossible to determine its value. A defined contribution plan may be slightly easier. I.E. You might know what it’s worth and its cost base.
If you are comfortably under 2 mill., you might consider leaving it out. ‘Only tell them what they already know. ‘
@Fred
Here is a table with IRS Tax rates negotiated under treaty with various countries from irs publication 901.
https://www.irs.gov/PUP/individuals/international/Tax_Treaty_Table_1.pdf
I see that Belgium/France has a 0% withhold on pensions and annuities, so I would assume you will only pay tax on it in Belgium.
Soc Security is however 30% but Belgium may have a separate treaty in which you can get a tax credit for this in Belgium (as is the case for Switzerland). But I guess you may be a long way from Soc Security payments if you even qualify.
@FRED
Correction. 30% irs withhold on US pensions and annuities if you are resident in France, 0% for residents of Belgium.
BUT France may offer a tax credit with a treaty, as do Switz.
@FRED
Not sure where you are resident but…
It looks like there is a revised French/US tax treaty 1980 in which tax credit will be given to pensions taxed in the US with some provisos.
http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1083&context=njilb
(See private pension section)
Newest on change to FBAR filing deadline (now April 15th) AND 6 month automatic EXTENSION to October 15:
“………… To implement the new law with minimal burden to the public and FinCEN, FinCEN announced it will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Since this six-month extension will be “automatic” each year, taxpayers do not have to request any extension. “……………
http://blogs.angloinfo.com/us-tax/2017/01/02/new-year-new-fbar-rules/
http://www.cgma.org/magazine/news/pages/fbar-automatic-extension-201615731.aspx?TestCookiesEnabled=redirect
‘
FinCEN grants permanent automatic extensions for FBARs’
“The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced Monday that, to implement the new due date for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), of April 15th (April 18th for 2017), it will automatically grant all taxpayers filing the form a six-month extension every year to October 15th (which will be October 16th 2017 because October 15th is a Sunday). FinCEN explained that this six-month extension will be automatic each year and that taxpayers do not have to request extensions.
Section 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date of FBARs to April 15th to coincide with the due date for individual income tax returns. Before the change, the form was due on June 30th, a date that did not coincide with any other individual income tax return deadline, and no extensions were allowed……”…….
@Heidi – Thanks for the input, that’s a very useful table! I’m a resident of Switzerland.
If I understand the legalese in the US/Swiss treaty correctly, IRA withdrawals will not be subjected to US withholding and only taxed in Switzerland. The table you sent seems to confirm this.
Also this: https://www.taxesforexpats.com/articles/expatriation/what_happens_toyour_401(k)_after_you_give_upus_citizenship.html
@Fred
It seems there are two Freds on IBS and I believe the other lives in Belgium, so I was a little confused. Maybe you should call yourself Fred II. There is no US witholding on my US IRA, but then I am retired and I didn’t take an early withdrawal. I am taxed entirely in Switzerland. I am now a Non resident alien and had to show a W8BEN to the US IRA.
BUT I believe there is a Tax and penalty applied for early withdrawal (before 59.5yrs), you should call your IRA fund manager and find out. If this is the case, it may be prudent to leave the funds in place and wait until retirement.
The AICPA website is a very valuable resource.
For ex.
An important reminder of this option which might be helpful to some, depending on circumstances, if certain conditions are met:
http://www.aicpa.org/InterestAreas/Tax/Resources/IRSProcedureAdministration/Pages/IRSPenaltyAbatement.aspx
‘IRS First-Time Penalty Abatement ‘
“What is the IRS’s first-time penalty abatement waiver?
The first-time penalty abatement (FTA) waiver is an administrative waiver that the IRS may grant to relieve taxpayers from failure-to-file, failure-to-pay, and failure-to-deposit penalties if certain criteria are met. The policy behind this procedure is to reward taxpayers for having a clean compliance history; everyone is entitled to one mistake. Individuals and businesses may request FTA for any failure-to-file, failure-to-pay, or failure-to-deposit penalty; FTA does not apply to other types of penalties such as the accuracy-related penalty.
FTA Waiver Qualifications
To qualify for the FTA waiver, a taxpayer must meet the following criteria:
Filing compliance: Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS.
Payment compliance: Must have paid, or arranged to pay all tax due (can be in an installment agreement as long as the payments are current).
Clean penalty history: Has no prior penalties (except an estimated tax penalty) for the preceding three years. Note: If the taxpayer received reasonable cause relief in the past, he/she/it is still eligible for FTA…….”………………..
Petros, thanks for your very helpful comments on the 8854. If I could ask another question about average net tax income liability, that would be helpful. How does one determine that? I have looked at the 1040 forms that my accountant has submitted over the past five years and am stymied about my liability. In general, I have never owed taxes to the IRS after application of the so-called “foreign credits”. Where there is a monetary difference is in my investments (very limited gains) that have always been covered by my standard deduction. Can I therefore say my “average net tax liability” is zero? I just want to make sure that I am filling this section out correctly as I don’t want to give the IRS information that is completely ludicrous (i.e., indefensible)–like the number zero. Thank you very much. Greg
Greg I just realized your case is more complex.. Your CLN documented a relinquishment from 2007. Did you stop filing US tax returns after that?
Form 8854 is quite different for those who expatriated between 2004 and 2008 because the law changed radically in 2008. And then we get into a discussion as to whether your expatriation date for tax purposes was the year you became Canadian (2007) or the year you told them ( 2015)
If you stopped filing in 2007, it would be extremely tempting to not bother with 8854.
Greg. It’s actually above my pay grade. However, I would think your average income tax liability means after foreign credits and so is Zero for the five years . Your net worth is under 2 million and you can attest that you fulfilled your obligations. You’ve done your best. I doubt they will be all that interested in you. They have much bigger fish to catch.
DoD, thanks. I think you must be right in terms of the average income tax liability (and will go with that): zero it is. Greg
Good recent info for those wanting to get FBAR for 2016 out of the way asap and who don’t want to wait for FINCEN to update the form to reflect recent changes to filing date;
‘Can I File My 2016 FBAR Now Even Though Form 114 is Not Yet Updated?’
January 23, 2017
http://blogs.angloinfo.com/us-tax/2017/01/23/5431/
This blog is worth following for the information – which often touches on convoluted issues and mechanics of filing from abroad which I have not seen elsewhere. I am not providing this as an endorsement of the commercial services, just saying it has been very helpful source of useful information.
A friend here in Canada, who is a citizen of both Canada and the US, filing taxes with both countries, would like to know what others who file US taxes do about their TFSAs? Do you file the Form 3520?
She’s researched into it, but found conflicting information, most accountants recommending filing the 3520, yet others saying it’s not necessary, so she’d appreciate hearing what people are doing about this. Thanks.
@pacifica. Back when I still filed US returns (before I went from scared to mad as hell and quit filing) I simply declared the account and its income on the appropriate schedule. No 3520 and saw no need to confuse the IRS by mentioning that it was a TFSA. On his website Phil Hodgen did an in depth analysis of the IRS trust rules and whether or not a Canadian TFSA would meet the IRS definition trust according to those rules. He concluded it wouldn’t because no matter what assets were in the TFSA, they always remained under the direct control of the beneficial owner.
https://hodgen.com/canadian-tfsas-and-the-certification-test/
I never heard anything to the contrary from the IRS.
@pacifica777
My mother’s accountant was going to summit 3520s when she renounced and did the streamlined route. He changed his mind at the last minute and just handled them like savings accounts. It’s been a few years and she never heard anything back.
I was never a filer but I also read many conflicting opinions about it. When I read a positive one (probably Phil’s analysis) I simply stopped reading about it. 😉
@pacifica, I filed the 3520/3520A for the TFSA that I had opened just before I to my horror found out about all the punitive demands of US extraterritorial citizenship based taxation. I did report it conservatively, because I was doing a ‘noisy’ filing and relied on the advice of the US tax lawyer and accountants who said that the TFSA had to be reported that way. My goal was to comply and then to renounce, and to get my CLN.
There was then, and so far as I know now, no ruling by the IRS regarding the TFSA as a foreign trust. I did read sources but cannot say how definitive they may be and am of course not endorsing the source or the opinion. I have not seen anything more recent and these are several years old;
http://www.skltax.com/wp-content/uploads/tmp/Reed-USTFSA-CCH.pdf
http://wolterskluwertaxcentre.intelliconnect.ca/2014/09/18/classification-of-the-canadian-tfsa-for-us-tax-purposes/
I archived this from Serbinski (usual caveat that I am not endorsing them) which was later taken off their site, and no follow up comment was made, so who knows whether anything came of it;
“NEW Development: 3520/3520A Filings and Penalties:
We have recently been invited by IRS to present cases in which clients have been subjected to large penalties or other sanctions when filing compliance forms for TFSA and RESP accounts. We have been advised that IRS will take our position before congress to see if the foreign grantor trust rules can be streamlined in the same way that RRSP filings have been simplified. ”
https://web.archive.org/web/20121028025112/http://www.serbinski.com/index.shtml
If I was doing this now; backfiling quietly, or only in order to renounce and was a minnow, and not a covered expat in terms of assets, I would NOT have filed the 3520/A and just have treated it as a savings account, or dissolved it if I was planning to file quietly prospectively going forward.
It was very costly and difficult to have 3520/A s prepared, and I couldn’t despite my best efforts (after firing the lawyer and tax firm who prepared my back filing package) figure out how to file the last bit of the incomprehensible reporting for it during my last filing – and found it very difficult to find anyone else local who would do it. Some locals said they never would do a 3520/a for TFSAs, some said they’d stopped doing it, most had no idea what I was talking about. One demanded I sign a letter of agreement and refused to give me even a ballpark figure or range to prepare it though it was a very small TFSA without mutual funds or anything fancy and almost no return at all.
Ironically the less expensive tax preparer who did my later final filing for the TFSA found a math error that the firm who highly promotes itself created and charged me an unconscionable sum to prepare. So much for having your US tax problems solved well by ‘experts’. Instead of solving my US tax problem well, by insisting on the 3520/A they created an unnecessary mess for me to solve down the line.
This is just my own opinion and experience. Reporting the TFSA as a ‘foreign taxable trust’ on the 3520 and 3520A cost me much much more than it could ever have saved for me, and caused me extra anxiety and stress. Also note that at one point, the IRS said that it was looking out for ‘foreign trusts’ and the 3520/A as flags that they considered meant a less simple return from abroad.
Not a professional opinion or advice at all. No-one can rely on it.