US expat tax and FBAR: Discussion thread (Ask your questions) Part Two
Please ask your questions here about US Expat tax and FBAR.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
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.
maz57: I’m a dual from birth, but live in a third country where I could obtain citizenship, thus providing a reason to relinquish. Any advantages, though?
I decided to just start filing again (for FATCA reasons, and perhaps to clear the way for renunciation; was in a FATCA paranoid state back then). I filed 2012, 2013, and 2014 with a tax preparer (he just did the returns) I found online. I did 3 years FBARs online myself, with fuzzy account numbers because of data security risks; all truthful and identifiable though. As I had claimed my child tax credit but made a mistake on one of my son’s SSNs the IRS claimed I owed money. Sent me about 27 letters (9 x 3 years filed), and in the end finally accepted the correction of SSN and sent me 2 checks for the tax credit. It covered what I paid the preparer.
Anyway, long story short, just went in quietly, 3 years of returns and FBARs, not a word (other than the mistake I made) from the IRS. I never included an explanation for my 11 years of non filing. And then I filed 2015 and 2016 uneventfully (was above threshold for tax credit by then).
I strongly suspect that quiet disclosure is the way to go for simple situations, no tax owed. I would also probably invest the $400 (per year) or so to get a preparer to do the forms, at least to see how they do it (as Portland says, it may be hard to get it right, but it also may not matter). DIY always possible, but I was stressed by the Obamacare thing and wanted to save time and get some security. Note that when using a preparer you must decide what data to feed them!! Needless to say that I sanitized my data for easy processing by preparer and IRS. Just gave them lump salary sums, and told them what my foreign tax was (although it was not known at the time — gave an estimate, since my country of residence’s taxes dwarf US taxes anyway).
Going back to Verity’s friend, if the friend didn’t know about US CBT then obviously she couldn’t be in the US tax system. If she isn’t in the US system, it makes no sense to enter the system only to immediately turn around and exit. (Particularly true if she doesn’t have a SSN; they are not easy to get from outside the US.)
She should simply renounce, get her CLN, and call it done and dusted. Many have skipped all the tax returns, FBARs, and Form 8854 (myself included) with no negative consequences. All filing does is give the IRS ammunition should they decide to take issue with something.
Non-compliance breaks the law.
Compliance brings punishment.
Thanks for the advice everyone. My friend was born in the US to British parents who were only there for work for a few years. They moved back to the UK a couple of years after my friend was born. I’m not sure if she has a SSN or not. She is keen to make as clean an exit as possible, which is why she is looking at back filing. I will make sure she has a look at this discussion though so she can see the other options she might wish to consider.
Form 8854 is nothing but a convenient list which exactly identifies, locates, and values a person’s assets (i.e. potential targets) should the IRS decide to take action. I refused to file it because I saw no upside in making it easy for them.
Hi again!
2 questions on Form 8854:
At the top of the form it says:
For calendar year 2017 or other tax year beginning —-, 2017, and ending —, 2017.
If I expatriated on August 9, 2017, am I filling out 8854 for the calendar year or for Jan. 1 to Aug. 9?
Then….
Part V, Schedule B, Income Statement, Line 9 asks for “Gross income from all other sources”. Is this the same as my income for the 1040 partial year or for the entire year 2017?
The answer is probably obvious, but my brain is fried from reading too much IRS stuff.
Petlover, can’t help with the second question, but for the first you only do it up to the day before your renunciation appointment date. So 1st Januaryto 8th August.
@Medea Fleecestealer
Thanks for your input!
Anyone else have a suggestion about my second question?
Part V, Schedule B, Income Statement, Line 9 asks for “Gross income from all other sources”. Is this the same as my income for the 1040 partial year or for the entire year 2017? In other words do I import the amount of income I put on my 1040 (which is all foreign earnings/non-US) to that line of the 8854?
Petlover. Every IRS form is difficult. 8854 is particularly so. It is poorly thought out because it tries to cover 2 distinct groups- those who expatriated under the old 10 year rules and those who expatriated recently- thus the confusion.
At the top, leave it blank. Youexpatriated in 2017. The day you expatriated is clear. in Part I line 4 -Check the last box and line 5-check the first box and give date.
Question 2 Even more confusing. the answer is-only up to Aug 8.
BUT WAIT– it gets better.
According to expert’s Richard Pound and Stephen Katz book A tax Guide for American Citizens in Canada,pg. 332, the income statement only includes US source income.. Therefore a big fat zero or a tiny little blank for each line will do just fine.
Sorry……The authors are Richard Pound and Max Reed. Reed is the lawyer at SKL tax. Stephen Katz was the founder of SKL.
@Portland
Thanks, but I’m still not clear. Everything listed on the 8854 Income Statement specifically says US source EXCEPT Line 9 where it simply asks for “Gross income from all other sources”. The instructions for the line don’t answer my question either.
Also, I can’t tell whether the 8854 is reporting on the part of the year I was a citizen or for the whole year. Is it my gross income up until my expatriation or for the calendar year 2017?
This is so frustrating….
Up to the day before you renounced for everything on 8854.
Thanks, Medea.
So, I think it goes like this:
Form 8854 for those who expatriated fill it out for the part of the year they were still a citizen.
Form 8854 for folks under the 10-year rule fill it out for the calendar year.
Correct?
Not sure, never heard of anyone falling under the 10 year rule here.
Pelover. You are overthinking this.
Read the income statement. Every line refers to US source income. If you put line 9 in context, it refers to US source income as well. but don’t take my word for it. I would attach the section from Pound and Reed’s book if I could. They are recognized experts. Pound was deputy head of the IOC and Reed is a peer reviewed tax lawyer with international expertise.
To repeat what they say– “the income statement only includes US source income”. The 10 year rule is ancient history but that is why the form is called Initial and Annual Statement.
YOU only fill it in once.
The balance sheet is as of Aug. 8.
Nothing else matters. The correct way to fill in the very top is to leave it blank. Your tax year is 2017. Period. First part of the year, 1040 applies, second part 1040NR applies.
Assuming you are not a covered expat, you will never hear from them again.
On rereading this I realize I’m being condescending. My apologies.
Okay. I’m going to fill 8854 out for Jan 1 to Aug 8.
@ Portland: Based on the 8854 instructions, I take issue with the “only US source income” argument put forth by Pound and Reed. All the previous lines are US source and get summed up on Line 8. Then the now infamous Line 9 asks about all other income without limiting it to US source, which I take to mean as world-wide income.
The IRS instructions say:
“Line 8 Add lines 1f through 7 to report your total income from U.S. sources.
Line 9 List the total amount of all other income or gain for the tax year. ”
The instructions are always talking about the TAX YEAR, but I’m only filling it out for Jan thru Aug, right? The way I understand Line 9, I should enter the amount of income I had from Jan-Aug, the same amount as on the 1040 partial year return for Jan-Aug, which is all my foreign-earned income.
I would really appreciate someone checking my logic since I’m doing this all on my own (can’t afford a pro). My final filing has been in the works for a couple weeks already; mostly I’ve been reading IRS publications, instructions and tax blogs to gain some insight. The amount of time it takes to sort through all of the material – to be in a place where one can attempt to fill out a form – is insane! I’ve certainly put in at least a couple hundred man-hours!
Petlover
The 10 year rule was in operation before the ‘heart act’ was brought in in 2008 which operates now, the 10 yr rule took a whole different set of regulations to expatriate taxwise, so forget all about that.
The 8854 is to assess your net worth as it stood on the day BEFORE you renounced to see if you can be considered to be a covered expatriate by having over $2,000,000.or by not confirming that you have complied with your tax filing obligations for the past 5 years. It is suggested that you keep things simple as possible .
Richard Pound and Max Reed know what they are talking about. If you won’t believe what they have written , I can’t be any help to you.
@Heidi
Yes, I want to keep it simple! Portland brought up the whole 10-year-rule topic to explain the multi-purpose nature of the 8854 form to cover two distinct groups. I was just wrapping my head around how that worked. My 8854 is basically all zeros until confronted with Line 9 of the Income Statement asking me to list the total amount of all other income or gain for the tax year. What does ALL OTHER INCOME mean? The IRS instructions don’t clarify what qualifies. I hoped another DIY filer on Brock knew what this was all about.
Petlover
Nothing the IRS does or says is simple or straightforward, you could also end up paying for varying opinions.
I agree with Portland, he knows what he is taking about.
If in doubt, the rule seems to be, keep it simple.
@Portland
I appreciate your assistance, truly.
I found the Pound/Reed book A Tax Guide for American Citizens in Canada on Amazon.ca. The problem might be that it’s from 2013 and the 8854 could’ve changed since the book was published, which is now causing my confusion about what “all other income” is. Maybe Line 9 didn’t exist in 2013.
@ Petlover
Why don’t you write to Phil Hodgen, he does answer questions from renunciants.
https://hodgen.com/contact-us/
@Petlover
I reported my non-US income for the period before renunciation on that line – it was the same number as line 22 of my 1040 as I had no US-source income in my renunciation year.
Was that right? probably. Does it really matter? no. I haven’t heard back from them (which is exactly how I like it).
@Karen
Yes, thank you! That is exactly what my second question was about! I believe my issue has now been resolved! Yay!
@Medea Fleecestealer: “… never heard of anyone falling under the 10 year rule here.”
Hello. Me, for what it’s worth. Divorced the US in 2008. The ankle bracelet comes off this year. (And belatedly, for Petlover: yes, ten-year rule folk fill it out for the full calendar/tax year.)