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.
Can someonee help me.
I was born in Canada, never lived in the US, but have a US passport from one American parent. I’ve never filed with the IRS. If I never intend to travel to the US again should I just ignore all this?
@IRSCompliantForever:
According to Form 8854 instructions: “You can use good faith estimates of fair market value and basis. Formal appraisals are not required.” This should also apply to real estate but clearly you will need to be able to support whatever value you use. If a comparable house was sold in your area recently, perhaps that could be used as a reference point. A property tax assessment value might also be a reference point if it approximates FMV. An insurance value might also be useful, in my opinion. You might wish to google on “federal estate tax real estate FMV” or similar to see what you can find.
I can find no mention in the instructions for Form 8854 of any requirement to attach supporting valuations but you might wish to read through the instructions too. I would presume they will contact the taxpayer if they have a question.
@innocente,
Thanks for your most informative post and your answer regarding social security equivalents of foreign governments.
I’m happy to use the “estate tax definition of assets”. Most annuities have no value at all if the beneficiary dies (mine fall in this category) so they have no value for my estate and by this logic do not need to be reported at all! (I still might report them anyway just to give the dog a bone.)
Regarding household goods: We should keep in mind the dual purpose of Part V of the 8854. First, it is used to determine one’s net worth for Part IV, line 2 (if over $2M, one is a covered expat) and second, it is used to determine if one has a gain on assets of (roughly) $640k. The latter is relevant only if one is a covered expatriate. Now I’m not about to expend any great effort on pushing myself over the $2M mark (I’m a long way short anyway) and I certainly have not incurred any gain on my household goods!
@IRSCompliantForever I have read that it is not necessary to get an appraisal.
In general, my own research and my discussion with a certified US tax advisor indicate that the 8854 is a result of poor law and (possibly) poor implementation. Even the “friends” do not really know what to do with it. This year they will receive thousands, due to the considerable increase in renunciations. In the overwhelming majority of cases it will be filed and forgotten. We all know there is no certainty in these matters; it is a matter of probabilities. Reasonable best efforts are good enough.
@IRSCompliantForever
All canadian You can safely ignore all of this BS. You can travel to the US if you wish. Use your Canadian passport. Don’t renew a US passport.
@iamquincy and others
Has anyone experience with filing the 5 years back tax forms and Fbars all at once, and then renouncing and filing the 8854?
I have all the forms for 2008-2012, but have no idea how to submit them? Can I send them by registered post all at once, or is it better to send them individually for each year? As far as I can see, they cannot be efiled if they are from previous years.
I know the Fbars have to be sent to a separate address. I am looking to get professional advice on doing this. I have only seen mention of the “streamlined” program which includes 3 years taxes, I want to get it over with asap..so if it is possible to file 5 years back from now that would be best …thanks for any help
Thank you KalC,
I have no intention of ever renewing my US passport or traveling internationally again. If I want to travel I will just get a new Canadian passport
@allou I relinquished in Dec 2011 and then filed 5 years of back tax returns and FBARs in Jan 2012. (Knowing what I know now from all of the experiences here, I wouldn’t have bothered to file at all since I relinquished in 1990, but nevertheless, I did what I did) I sent it all in by courier so I would have a signature from the other end. Even if you use the same courier envelope, make sure the forms are in there own envelopes within. I included letters with the FBARs and 1040s explaining why I was filing late. I didn’t owe any tax so there was no penalty. So far I’ve never heard back about FBAR either. I sent in the final 1040 and FBAR for 2012 and did the 8854. That was all sent a year ago. I received my CLN after all that in Dec 2012.
If Canadian financial institutions are supposed to start collecting citizenship info, how exactly will they be doing this? Requesting birth certificates?
Hi,
I, too, was born in Canada of one American parent (my birth was never registered with the US). I have lived all of my life (50 + years) in Canada, never worked in the US nor have an SSN and travel on a Canadian passport. I swore an oath of allegiance to the Queen when I began my career in the civil service (document dated 1979) and was planning to use that in approaching the US. consulate in Montreal to relinquish (extinguish any possible) US citizenship. I have never considered myself American.
In 1988, however, I applied for a US passport in order to use it to advise the US gvt that I had committed an expatriating act (the oath in 1979) and did get the passport …. but it was never signed by the US consulate official (as required to “operationalize the document). I never used, renewed or travelled on the passport. In the end, life took over and the passport was placed in my safety deposit box, and never carried out finding out how to adive the US re: my exp. act. I now understand that since I committed the exp. act prior to 1994, I didn’t even have to advise the US that I had relinquished.
My question: given my circumstances — especially the unsigned, expired passport — is my plan to officially relinquish at the US consulate the option that I should pursue?
Thank you for your help.
Metoo
Katherine. Like so many people here you do not have to do anything. If you wish to bother ,you can almost certainly successfully argue that you relinquished. Why enter the system when you don’t have to?
I’m surprised you were given a passport if your birth abroad wasn’t registered.
@Katherine
A lot of these questions have been answered on this thread…
http://isaacbrocksociety.ca/renunciation/
This is part 2, but there is a part 1, with over a year of history of many asking similar questions that might be helpful for you, while waiting for an answer…
@ Innocente & IRSCompliantForever concerning instructions of 8854 p 8 under Schedule A balance sheet, columns (a) and (b), it is written «You can use good faith estimates of fair market value and basis. Formal apparaisals are not required.»
@Hogwarts
“So, I only see a need to file one copy of the form, unless I am missing something ….. do you agree?”
Going strictly by the book, yes, I agree. I’d be a bit uneasy about it, however, due to the fact that simply not submitting the 8854 on time will get you classified as a covered expatriate. Who decides if it was submitted on time and to the right place? IRS? Treasury? Perhaps you should ask a profi like Phil Hodgens about his opinion.
@Not amused, I will plead with my accountant when she files my final tax return and 8854 to not leave it to the last minute, though realize I’m at her mercy. I trust that she’ll do it within probably an extended deadline to 15 October via form 4868.
But what I still don’t understand is whether she’ll be able to claim the foreign earned income exclusion on a dual status return…are personal exemptions and the standard deduction still allowed?
And, if so, are they pro-rated since I will have only been a U.S. citizen for the first ten weeks or so? Are the tax brackets the same or, again, pro-rated? So many questions!!
I also need to have received the CLN to know I’m safely able to file 8854…plus, will have to list exact tax bills for the five years which is also confusing because the IRS made several increased adjustments, etc.
Also, as out flat is jointly owned rather than as tenants in common, I’d guess that I’d have to list my ownership as 100% when valuing my assets…shouldn’t really be an issue because I’d still be well below the two million mark but would imagine that the IRS would treat joint ownership as us both owning the flat at 100%, whereas tenets in common would be normally 50% each.
If she is late with filing 8854, I would have to probably file an extra year in 2015 (2014 instead of 2013). If I were considered covered, as I understand things, I’d face a huge tax bill because they would then treat my pension plan as though its whole value had been paid out to me on the day of my expatriation…it’s entire value (not just it’s gains above basis) would be taxed, as I understand it!!
What a frigging nightmare…still lots of hoops to jump through before I feel finally safe…you really need to have your wits about you which is why I acknowledge I need to rely on my tax preparer. Too dangerous otherwise, unless you have no assets apart from a simple savings account.
@monalisa1776
Good questions. Since I was a (non-resident) US citizen for 2/3 of the year and had 0 US income after my renunciation, I just filed 1040 (and other forms including 8854 for the partial year) as usual and it was approved.
I was neither a resident alien (no US presence), nor a nonresident alien (no US income following renunciation) in my last tax year, so the dual-status tax year didn’t apply to me. From pub. 519 under “Dual-Status Tax Year”:
“You have a dual-status tax year when you have been both a resident alien and a nonresident alien in the same year. Dual status does not refer to your citizenship; it refers only to your resident status in the United States.”
I’d be confident that you’ll have your CLN before you file next year. In any case, you should definitely get your advisor to file 8854 on time, given the gravity of the situation.
And finally, I’ve decided to keep my investments with the U.S.-compliant portfolio, at least till all my remaining statutes of limitations have finally closed, which would be July 2020 for my (hopefully) final F-bar filed next year for 2013…
I also need to be absolutely certain that I’m no longer going to still be considered a U.S. tax citizen. After all, I wouldn’t put it past Congress to pass retroactive laws that would reinstate U.S. tax personhoo d for expatriates as a means of punishment to deter further renunciations.
Of course that would be outrageous but as I still have family ties and a probable future U.S.-sourced inheritance, I’d have to toe the line and continue to be tax compliant.
All I can think is that life is not always fair but that at least I will know I’very done my best. Let’s just hope that Congress listens to A.C.A.’s residential taxation proposal or that the system could at least be simplified for minnow files so that we’re not having to pay thousands each year to prove we’re not tax evaders
@ Not amused, Thanks for replying. I have an American account so will probably have to still file a dual status return, even though my post-renunciation U.S. interest will only be about a dollar…THE way I see it, U.S. tax law is all about technicalities which is why I feel forced to rely on my specialist tax preparer to help protect me from the land mines…
While I’m reasonably optimistic, I wouldn’t put it past the IRS to try to hit people on mere technicalities. It’s why I will probably wind up having to pay over $4000 and possibly up to $5000 for my final accountantcy bill.
@iamquincy and others who can advise
Thank you for the info. I hope you can explain a bit more:
1.My situation is that I/we will have to renounce, not relinquish
2.Don’t I have to file the 5 years back taxes, Fbars etc BEFORE renouncing, so as to qualify for the Foreign Income Exclusion?
3. I understand that AFTER the tax forms etc are filed THEN I should renounce, wait until I receive a CLN and file the tax forms + Fbar and 8854.
4.Would it be possible to do this before 2015 – if I get going now.
5. I appreciate the advice about sending all forms in one big envelope og inside separate envelopes – for each year I assume – and of course by courier. The Fbars have to be sent to another address, same procedure I assume. Does my spouse have to get an ITIN number as we have a couple of jopint accounts?
6.Did you do all the forms yourself or hire a tax professional? I ask because I was considering going into the streamlined program which means 5 yrs Fbars but only 3 years back taxes, but I want to do 5 years back.
I want to do this as fast and efficiently as possible, without tripping up.
Thank you so much
@allou I honestly don’t know if it will effect the FEIE claim if you renounce before filing. It will likely take you a bit of time to get an appointment to renounce, so file in the meantime if you think it could cause a problem to do it afterwards. I claimed it and all I can say is no one has contacted me.
I used turbotax to back file and did the FBARs myself. I found that I was able to purchase old versions of Turbotax on their website for about $70/year. I spent a few days trying to understand what forms I would need for the types of income I had. It took me about a full day to get the first one right and then another day to do the rest. I did all of my FBARs in 1 day. I do keep all of my records in good order, so I didn’t spend time searching for things. I also have a pretty simple situation, so that helped. Took me about 10 days to get it out of the way. I got a lot of help from some people on here as well as on the Expatforum, Serbinski accounting forum and Phil Hodgen’s blog.
My husband is Canadian and joint on most of my accounts. Any time a form asked for information on him, I put NRA. I remember having some trouble getting turbotax to accept it, but somehow I was able to at least leave the line blank and add NRA in pen afterward. So no ITIN for him.
If you renounce this year, you wouldn’t send in your 8854 til june 15 of 2014 and you can get an extension til October if you want. You would easily have your CLN by then if you renounce in the next few months. I didn’t want to send the 8854 in late, so it went before the CLN arrived. I don’t believe you have to have the CLN in hand to file 8854.
allou, I would think (hope!) that your FEIE claim would be effective for the period of the IRS tax return filings. You were a US citizen up to the day you renounced and you aren’t filing tax returns that include the period after that renunciation.
@monalisa1776: And finally, I’ve decided to keep my investments with the U.S.-compliant portfolio, at least till all my remaining statutes of limitations have finally closed, which would be July 2020 …
Yours to do with as you wish, of course, but that seems completely weird to me. The big plus of not being a US citizen is that you are finally free to invest in ISAs, UK mutual funds, NS&I savings certificates (should they ever re-appear), SIPPs, stakeholder pensions, the national lottery (ahem!) and everything else that other UK citizens can have. Why on earth wait seven more years?
I’ll be the first to agree that the US govt has an almost unlimited supply of dumb tax policies, but even I don’t think it could ever be quite as dumb as to try and retroactively nullify CLNs. And if it does, you can tell it to get lost. The US/UK tax treaty allows the US to sidestep the treaty for ex-US citizens for ten years, but only on their US source income. Article 1, paragraph 6.
… seems completely to me..
… seems completely weird to me. (Damn you, missing edit-last-post feature!)
@Watcher, I am just very cautious. I’ll reconsider after everything’s hopefully gone smoothly regarding my CLN and final filings.
I’m not convinced that mutual funds are much better than bluechip stocks anyway, with hindsight.
All this that’s happened has made me cynical about the system. The little man is essentially screwed. If anything positive will have come of this, it’s that I’ve become less focussed on money and more concerned about my spiritual side, my health, and my friendships. It’s a jungle out there and just want to have peace of mind! 😉