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.
Hi!
Looking for advice on what “right to use” or “interest in property” means when it comes to defining net worth on Form 8854.
IRS instructions are incomprehensible and references Chapter 11 Section B (which is even more confusing:
“You are considered to own any
interest in property that would be
included in your gross estate for federal
estate tax purposes under Chapter 11 of
Subtitle B of the Code if you died on the
day before the expatriation date as a
citizen or resident of the United States”
Let’s say a NRA spouse is sole owner of a home. Would the USC spouse have to claim any interest in the property?
Petlover – for purposes of estimating net worth you use the gift tax rules, not the estate tax rules. (Use estate tax rules for deemed sale of your retirement.)
Phil Hodgen has a blog piece about how a couple should calculate net worth.
Though I have to say if it was me I’d just leave it off.
@plaxy
As mentioned above, the IRS instructions say specifically to calculate using “Chapter 11 of
Subtitle B of the Code”.
I found the blogpost you refer to and have also been studying Phil Hodgen’s Exit Tax Book as a guide, in particular Chapter 4 – Section 2, where he writes, “An “interest in property” is a carefully defined term. It does not matter whether the property produces income or not. It includes the right to use property, as well as ownership.” I wish he would’ve explained how it is defined – it’s nowhere to be found! The post you suggest goes into detail on tax liabilty, but that’s not what I mean (I don’t think).
What do I mean? Form 8854 Part V Line 16 Real property located outside the United States. I want to know if I am expected to put down the value of half my NRA spouse’s assets just because we’re married. Does married mean that all assets are shared automatically, even if my name isn’t on a deed? Does marriage constitute “right to use” of any assets?
I owed no taxes the past 5 years. I’m worried they’ll reject my 8854 if I only enter zeros, though, especially since I’m married. Isn’t there an expectation that I have to be worth SOMETHING via my spouse???
I don’t want to raise any flags by looking too poor.
You are overthinking this. A close friend just finished her 8854.
She did not include half of her husband’s house. It was in his name. Full stop.
Entering all zeros for income tax owing is precisely what you want . That is not a fed flag if it agrees with your 5 1040s
Very few of these are audited. They are looking for whales who actually did expatriate to save on taxes not minnows who expatriate to save filling in forms.
@petlover
No, it does not mean all assets are shared unless on a shared account or on a shared deed. We were advised by a US tax lawyer to divide property by gifting between us to avoid covered status.
A property with your spouses name only on the deed belongs to your spouse.
Petlover – I’ve looked for the Hodgen post I was thinking of but I couldn’t find it. It’s a post in which he explains that because net worth is calculated under gift tax rules, you only list assets you could give away. You can’t give away property that doesn’t belong to you, so don’t list it.
@plaxy, @Heidi, @Portland
Thank you for your swift responses!
Yes, I probably am over-thinking it, but I’m terrified of making any mistake that will come back and bite me in the butt.
Hearing the strong agreement among you has given me the reassurance I needed. The assets are my spouse’s – full stop – and if I can’t give it away, then it only belongs to my spouse.
Your support is appreciated!
Easy for me to say, but basically all they want is for the form to be filled in with plausible information. As far as I’m concerned, anything they cannot easily check, or that has not been already given to them, I forget.
plaxy. That was Hodgen’s expatriation blog from Aug 15 2017.
It was directed at green card holders. The rules are almost impossible to decipher. For Petlover, I stand by my earlier post.
Portland – no, not that one.
It’s just a comment to the effect that “net worth is calculated according to gift tax rules, so include everything you could give away.”
Very simple.
Hi everyone!
The whole “right to use” dilemma still plagued me, so I wrote to Phil Hodgen and requested that he update his blogpost with the definition of what constitutes an “interest in property”. I told him why I wanted to know and this was his reply:
Using his explanation, I was able to find out what the property law as it pertains to married couples in Austria is. I found current guidance which states that the Austrian Civil Code applies the system of seperation of property to the statuatory property regime. Then it goes on to explain that seperation of property means that each spouse retains the property brought into the marriage and becomes the sole owner of the property purchased by him or her. Finally, it defines this a “pure seperation of property” as under matrimonial property law a spouse has no rights to the to the property of the other spouse (such as administration or use).
I’ll mention here that it is pure dumb luck that I’m in Austria, since France, Italy, Spain and a handful of Eastern European countries apply community of property to matrimonial property law unless otherwise agreed.
This is a situation I think other US tax filers need to be aware of, so I’m sharing what I’ve learned. Looks like I can go ahead and fill-in a bunch of zeros with a good conscience!
Well done Petlover! And how nice of Phil Hodgen to send a detailed reply.
A+ for perseverance Petlover!
I don’t think the IRS would go to those efforts, unless of course you were a multi millionaire,
Hodgen’s reply to you seems incomplete. He says couples can agree that an asset such as a house is owned by one partner. He also mentions that changing an asset from separate to community might trigger capital gains or gift taxes. I would think most would do it the other way round.
It seems to me, he is looking at this from the perspective of US domiciled couples.
The US has no way of knowing if a Canadian couple ,for example , transfers complete ownership of a house to the non- US spouse. Canadian law applies. It is perfectly legal . I’ve seen it done.
The US has no way of knowing the house exists.
Plaxy: I love your concise summary. My thoughts exactly. I really cannot fathom why I’d list my riches (modest as they are) unless they already know about them.
Fred – indeed.
People have been terrorised into believing that filing is safer than not filing. The exact opposite is the case.
Fred & Plaxy
I did read that the IRS employs wealth finders to scout Facebook and property lists to find wealth.
So you have a big Chateau in France or a house in Belgravia, as your address. There are property land registers which can be consulted as to the ownership and value, not a difficult procedure.
Heidi – That sounds just like the IRS.
Such sleuthing won’t do them any good unless the owner files the form.
I’m back with a couple more final filing questions.
Firstly, is it smart to send my final filing in the next couple of days (season begins on 29. Jan.) with the government shutdown happening?! I’m afraid it might not get processed and I’ll continue to be treated as a USC for tax purposes! Should I be worried?
https://www.forbes.com/sites/kellyphillipserb/2018/01/19/as-feds-prepare-for-shutdown-heres-what-it-means-for-irs-and-taxpayers/#69fefbb6394c
Secondly, what about proof that I’ve filed for 2012-2017? Do I need to get anything? What? How? In the past I have taken a photo of the addressed and postaged envelopes in the hands of the postal clerk with a visible calendar as evidence (like a proof of life picture of a kinapping victim LOL).
Thoughts?
Probably too late to do anything else for the 2012-2017 ones, but in future send everything by recorded delivery and keep the slip they give you. Also track and print off the info from your country’s post tracking service and the USPS one as well. I made copies of both my Swiss Post and USPS tracking info when the packages had been delivered.
I would wait on the filing – you have until April 15th I think it is to file the 8854 form (moved from June a few years back) and I doubt the government will be shut down that long. If it is then you’ll have nothing to worry about because the whole governmental system will have collapsed by then.
Yes, I have the receipts from the Austrian Post with the tracking codes. I have never been able to track the mail once it left the EU, though, so I have no proof the IRS received anything. I would have sent everything registered mail, but the IRS instructions says that’s a no-no because they won’t sign for anything.
For the most recent 3 years (probably 2014 to 2016 at this time) you can file two Forms 4506-T, one for transcripts of accounts and one for transcripts of withholdings. If you didn’t have US withholdings then I guess you don’t need the second 4506-T.
Before I learned about Form 4506-T, the IRS submitted some administrative transcripts as exhibits to court filings. In these cases the IRS can go back more than 3 years, but I don’t know how to force the IRS to go back more than 3 years if they don’t want to.
Different kinds of IRS administrative transcripts contain different kinds of information. For example one kind can show that a return was filed, and then months or years later show that no return was on file. Another kind can delete all mention of the original filing of the return and subsequent allegations that no return was on file. One kind can show that withholding was credited. One kind can show that no withholding was credited. One kind can contain fabricated allegations that an amended return was filed even when the person didn’t file an amended return. One kind can allege that a Notice of Deficiency was mailed (by they way you’d better not ignore a Notice of Deficiency if you ever get one) and another kind can delete the allegation that a Notice of Deficiency was mailed. So the more kinds of transcripts you can get, the better … no wait, the more irrelevant, because at least one circuit court so far has shown that it doesn’t matter how much fabrication the IRS does, the victim always loses.
Anyway, it doesn’t hurt to try to get transcripts.
Here’s how useful tracking on usps.com can be. My wife sent a registered letter to an IRS office at the address that the IRS said she should write to. The Advice of Return card (return receipt) came back showing no delivery, no date, no name of recipient, no signature of recipient. My wife submitted a postal request for investigation. usps.com showed the letter was delivered. A few weeks later, usps.com showed that the letter wasn’t delivered any more, lost in transit. I stupidly sent a request to USPS’s Office of Inspector General to ask for a report, and I stupidly gave the OIG both URLs of usps.com tracking. Naturally usps.com deleted both records from their database. I kept printouts but sadly I didn’t have the foresight to make archives on archive.org before the tracking pages disappeared. Finally USPS reported to Japan Post that the registered letter was not delivered and not returned to sender, so Japan Post compensated my wife for loss of the registered letter.
Now, here’s how useful tracking on usps.com can be. As mentioned, I saved printouts. My wife filed them as exhibits in US Tax Court. If I understand correctly, the IRS denied receiving the registered letter and the court did not care.
By the way for domestic mail within the US, USPS offers certified mail with return receipts. My sister who lives in the US and isn’t a party followed instructions from a pro se clinic, mailed copies of a witness’s notarized declaration to several US government offices and got return receipts; and then: mailed the original of the witness’s notarized declaration together with proof of service (my sister’s own declaration which didn’t need notarizing) and copies of the return receipts from government offices, plus two conformed copies of all of the above, plus self addressed stamped envelope for the court to use in returning one conformed copy stamped “FILED” by the court, to US District Court for the Central District of California again using certified mail with return receipt. That last return receipt came back signed by a court employee. The court did not stamp “FILED” on one conformed copy and send it back in my sister’s self addressed stamped envelope. The court ruled that they had not received my sister’s mailing. In other words, the court destroyed the original of a witness’s notarized declaration together with copies of it because it embarrassed the US government too much.
Might as well send in your 8854. You don’t have to provide proof that you submitted the previous 5 years.
If you file a 1040NR for 2017, you send one copy to Austin TX and another to Philadelphia. If you aren’t filing a 1040NR you send only the copy to Philly. The Philadelphia office does not accept UPS or FEDEX (for some strange bizarre reason) The street address isn’t even listed on the IRS site titled “where to file forms beginning with 8”
What Hodgen recommended and what my friend did was Fedex the 8854 to a trusted friend in the US and have him mail it to Philly with the appropriate tracking and receipt.