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.
Anyone thinking of visiting the land of the free can take a look at the latest ESTA application
https://esta.cbp.dhs.gov/esta/
I’m sure there’s still a fair bit of unwitting or semi-unwitting ESTA non-compliance. Someone who vaguely remembers that they might have had a US passport as a small child, but the document is long gone, what do they do?
That being said, it’s intrusive as hell, and not a good development. Much easier to enter from Canada.
Correction: much easier to enter as a Canadian. It’s nationality, not country entering from, with ESTA. Though having customs pre-clearance in Canada means the airlines aren’t acting as gatekeepers and making their own ad-hoc rulings about passports and citizenship.
There seems to be two distinct citizenship questions on ESTA
That of citizenships past and present and that of travel documents past and present, so you could state you had say US citizenship but had never held a travel document to that effect. Not sure how that would be interpreted.
Also there is the search for the Trump undesirables who have other passports such as Iranian, Syrian etc which would accompany their innocent UK or French or Swiss ones…what a country.
@Nononymous
“Someone who vaguely remembers that they might have had a US passport as a small child, but the document is long gone, what do they do? ”
There is a ‘helpful’ question’ menu next to each question to help you through the process.
“if you no longer have your expired passport you enter all zeros”
@Bob I am a dual UK-US and before 9/11 I used to happily fly in and out on just my UK passport. Right after 9/11 the airlines tightened up security and at Christmas that year I was denied boarding when I tried to fly to New York on my UK passport. I had to have someone retrieve my passport and bring it to the airport for me. It was a horrendous experience, the airline official was highly unpleasant about it and I was stranded in London as they only picked up on it there, not at the point of origin. Since then I always take both passports.
Thanks for all the feedback – it is an interesting issue! I have travelled with both passports in my passport pouch for a long time.
No matter how much I disapprove of what my government is doing on these matters, I will not stoop to lying to them, so for me it’ll be entering on my US passport. Incidentally, I was once asked by an immigration agent at DFW whether I had been filing my tax returns!
Bob said:
Say what? I haven’t seen anybody say this before. Many people insist that this will never happen, but many are afraid eventually it will become common, if not automatic.
When did that happen? Do you think he was just being friendly and mentioning it in case you didn’t know filing was required (as many people did/do not know), or do you think it was an official question that could have landed you in trouble if you replied “No”?
A senior member of C.S.I.S. indicated that there are 17 U.S. agencies joined by computer. Border control are currently attempting to arrange for clearance into the ultimate & most highly classified areas. (Daily Beast). I am only able to count 16 such agencies but the lecturer told us there are in fact 17 CLOSELY interconnected after 9/11
A.O.
It happened about 3 or so years ago. He wasn’t particularly friendly, but not hostile either. It seemed a casual enquiry, that seemed (my impression) to be along the lines of checking to see if I was aware of the requirement, and no note (as far as I could see) was taken of my response.
@Alice
“…..I was denied boarding when I tried to fly to New York on my UK passport. I had to have someone retrieve my passport and bring it to the airport for me. It was a horrendous experience, the airline official was highly unpleasant about it and I was stranded in London as they only picked up on it there, not at the point of origin. Since then I always take both passports.”
Yet another reason to not fly. Its a damn shame because it used to be fun. Now its nothing but a royal PITA. I think the airline people must be scared to death of the US government. I’ll bet the airline people were worried you might be refused entry at the other end and they’d have to fly you back to the UK on their dime.
Hello!
I thought I was finally ready to send in my exit-year tax returns and 8854 until I realized this gem hiding in IRS Pub. 519 while I was quadruple-checking my forms:
The current (2016) IRS Publication 519 (Chapter 6, Dual-Status Tax Year, page 33) says this about taxing your foreign-source income for the period of non-residence:
“All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of nonresidence, after allowable deductions, is added and taxed at the rates that apply to U.S. citizens and residents. INCOME THAT IS NOT CONNECTED WITH A TRADE OR BUSINESS IN THE UNITED STATES FOR YOUR PERIOD OF NONRESIDENCE IS SUBJECT TO THE FLAT 30% RATE OR LOWER TREATY RATE. You cannot take any deductions against this income.”
This appears in the first column of the section headed “How to figure tax” under “Income”. It says “you are subject to different rules for the part of the year you are a resident and the part of the year you are a nonresident.”
Apparently, my foreign-earned wages between my expatriation date and 31 December are subject to US tax! At 30%?! Seriously?!
This has got to be a mistake in the publication, right?! How can the US tax anything I earned outside the US after I expatriated?
They’re talking to PRs.
@ Petlover,
A previous section of Chapter 6 (p. 32, column 3, top of page) says:
@ pacifica777
Yes, I saw that same sentiment expressed in the 1040NR (2017) instructions (page 12 ,first column under Income Subject to Tax for Dual-Status Year). There it says “income you received from sources outside the United States while a nonresident alien is not taxable in most cases even if you became a resident alien after receiving it and before the close of the tax year.”
The 1040NR instructions also specify (p. 13, first column, Kinds of Income, about 3 categories of income):
“2. U.S. income not effectively connected with a U.S. trade or business. This income is taxed at 30% unless a treaty between your country of residence (as defined under the treaty) and the United States has set a lower rate that applies to you. Report this income on Schedule NEC on page 4 of Form.”
In comparison, it would appear that the IRS failed to include the designation “US ” at the beginning of their Pub. 519 statement: INCOME THAT IS NOT CONNECTED WITH A TRADE OR BUSINESS IN THE UNITED STATES FOR YOUR PERIOD OF NONRESIDENCE IS SUBJECT TO THE FLAT 30% RATE OR LOWER TREATY RATE.
So, what’s true? What’s not? What’s simply a typo or omission?
@maz57 That was precisely the reason they gave me- that they would have fly me home and they would be liable for that costs. Unfortunately they had already allowed me to board at the point of origin and the rules about passports for boarding has changed literally three days before the trip. course back them there was no mobile internet and most people didn’t have mobile phones, me included. I remember standing crying at the gate as the plane left without me while trying to call the US consulate in a pay phone from the airport and it cost like £1 a minute.
All that mess was one of the main reasons I unwittingly thought I must ensure my children had US passports to enter America and so passed on my US citizenship- which I am now horrified to learns has now had other disastrous consequences .
Petlover To answer your question, on page 33 they left out the term ‘US source’
This is the correct reading of the 1040NR instructions.
page 12 “Conversely, income you received from sources outside the United States while a nonresident alien is not taxable in most cases even if you became a resident alien after receiving it and before the close of the tax year. Income from U.S.” and page 13 ” 2. U.S. income not effectively connected with a U.S. trade or business. This income is taxed at 30% unless a treaty……….”
So. On Dec 31, you were a non resident alien. Any income from outside sources (your Bell Canada dividends, your salary or pension,.) from the period after you renounced is not included. For get about it.
Any income from the US in that period ( your ATT, or Apple dividends), is taxable but tax would have been withheld at source. That’s it.
Don Rumsfeld, the late unlamented secretary of defence used to attach a letter to his tax return stating that because the code was so complex, he had no idea if his return was accurate
https://www.efile.com/efile-images/donald-rumsfeld-letter-to-IRS.pdf
We are all in that same boat
“Don Rumsfeld, the late unlamented secretary of defence used to attach a letter to his tax return stating that because the code was so complex, he had no idea if his return was accurate
https://www.efile.com/efile-images/donald-rumsfeld-letter-to-IRS.pdf
We are all in that same boat”
No we aren’t. Anyone other than Rumsfeld who tries telling the truth like that gets penalized and gets their refunds confiscated. Rumsfeld has a boat all to himself where he can tell the truth and get away with it.
Government officials have immunity for everything, even when they forget to lie their heads off.
Asking for a new friend who is having multiple OMG moments all at once. I’m afraid she may require hospitalization!
Her situation is: single citizenship (USA), long-term living abroad in South Korea, no plan to ever live in the USA, but no easy way (or desire, to be frank) to obtain Korean citizenship. She was uninformed enough to never have filed US tax forms, so she has been off the radar…until now.
As part of her retirement plan, she has recently begun self-publishing e-books and audio books through Amazon and other online retailers. To claim payments, all such retailers require EITHER a US Social Security number/Taxpayer Identification Number OR a W8-BEN. If you file the former, no taxes withheld. If you file the latter, 30% withheld.
I don’t know how she bases her figures, but she’s expecting to earn US$6000 a year. Though with her kind of sizzling romance titles, she could earn more.
Here’s her bind: If she uses her US SSN, she is in the system and pretty much must file, in which case she won’t earn enough from e-books alone to owe US tax (the question of whether such income qualifies for 2555 deduction isn’t yet being considered). If she doesn’t use a SSN, 30% is deducted from her payments. The only way to claim any of that back is to file, whether as a US citizen or non-citizen.
I helped her check: even if she sold through Amazon UK or Amazon Canada, payments are still issued by the US company, so even Brits and Canadians must submit US tax forms like W8-BEN.
The way I see it, she has three options:
1) Enter the system, file the forms from now on, so that she doesn’t lose a huge chunk of her projected retirement income. Downside: all the enormous complexity and risks of being within the US tax system, since such filings must also include her pension funds, and her current income until she retires. Never mind the risk of being found out for her past years of non-compliance (I think this latter risk is quite low).
2) Use her SSN so no taxes are deducted, but don’t file any US forms. Risk: since Amazon et al file W9 forms to the IRS, her income is reported. Seems to me she is at a fair risk of being eventually caught for non-filing.
3) Enter no SSN and, where compelled, file a W8-BEN, lying about her nationality. She stays outside the system, but forever sacrifices 30% of her income, in return for simplicity.
And option 4: Forget the whole e-book thing. Not in this life. Not as long as she’s American.
She could form a business. But the issues are still the same, as a US-owned business. As a sole proprietorship, she’d have to start paying self-employment tax (social security) on top of that. And starting a LLC means even more complexity in tax filings, including in Korea, where she’d need annual expensive audits by an accounting firm, and more.
Finally, she claims she’s not trying to be a tax dodger. On an ethical level, she has no problem with paying US taxes on purely US-earned income (after deductions). But the US tax system is clearly unethical, and could end up ruining her.
I think she’s screwed.
I’m seeking wiser counsel here. Is there any way she can hang onto her income yet avoid the worst aspects of US tax compliance? And keep her life from becoming inordinately complicated and stressful?
#2 and if she’s caught claim ignorance.
Given another chance, I’d do the same.
Yeah, #2 is probably the least bad option. She’s not perjuring herself by signing a W-8, which is an issue with #3.
Being a long-term expat US citizen, without another citizenship, is definitely the worst scenario.
If she thinks she’s secure in Korea, sign a W-9 to keep all the income, do what she can to reduce any FATCA reporting, and hope for the best. Assuming no collection provision in the tax treaty, the worst thing the US can do to her is pull her passport, but that is extremely far-fetched given the sums involved.
Another option, a dodgy one, is to sign a W-8 under some assumed nationality, then file returns with that identity to claim back the 30 percent withholding. But that’s basically fraud so maybe not ideal.
It seems to me that Korea T is as badly screwed as Japan T and there’s no solution. #2 is probably safest.
However, she should check to see if Korea will let her stay as a stateless person if the US pulls her passport. 5 years of missing FBARs might be 50,000 yanks worth of penalties even when no tax is owing.
@Barbara -If the total income reported to the IRS is below the filing threshold (won’t that be $12k in 2018 given the new standard deduction?), the IRS may never ask her about a return.
Hi,
FACTS:
I was a US Citizen living outside the United States and have had not assets in the United States.
I have been filing my FBARS regularly and am fully updated on them with the IRS.
I received my Certificate of Loss of Nationality from the U.S Embassy in July 3rd 2017.
In Sep 2017 I opened a new bank additional account in my local home country bank.
Questions:
Q1. When I file my tax return for 2017 do I have to file the FBAR “for the new account also” which I opened after my loss of U.S Citizenship?
Q2. When I file my tax return for 2017 do I file my existing bank account FBARS until the date I received my Certificate for Loss of Nationality which is July 3rd 2017 or do I file it till Dec 31st 2017?
Rgds
Brian