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.
@Mary
For you I would definitely start the process of getting German nationality, which would probably mean also renouncing US citizenship. You do not need to be tax compliant to do this.
Stall the bank as long as possible but if you do eventually need to fill out a W9 (without SSN) at least ensure that your name is only on the bare minimum, one small account, until such time as you can go back to them with your CLN (the document you receive after renouncing) and prove to them that you are no longer American. Then return to normal life.
Mary:
“I will go for the recommendations to renounce my US passport. ”
If you initiate the process of acquiring German citizenship, the German authorities will no doubt be able to tell you at which point you should contact the US Embassy or Consulate to request an appointment to renounce. (So that you lose US citizenship as you gain German citizenship.)
If your banks press you for a reply you can simply explain that you’re in the process of changing your citizenship, and will get back to them with a copy of your CLN.
Mary It is my understanding that exceptions are made to the requirement that you renounce in the case where it is ‘too difficult or too expensive.’. ( wikipedia-German notionality law). The USA is one country that is mentioned as too expensive or too difficult.
I believe the hardship exemption that allows you to keep US citizenship kicks in when the $2350 fee is around one month’s income. But I’m not sure if that is individual or family income. There are reports out there, more info should be findable.
Very good point about telling the bank to back off and wait, a CLN is in the works. Even if it takes a few years.
If Germany exempts Mary from renouncing US citizenship, she will still have to figure out whether to tell a bank that she is or isn’t a US citizen.
Does anyone know if German law punishes a person who, due to necessity, commits perjury on a foreign country’s form that doesn’t even get submitted to the German government?
German law has bigger things to worry about.
For Germany there is another workaround: the law allows for exception for economic “hardship” which is what you seem to be relying on. But also that covers the greatly reduced estate tax exemption if a spouse is not an American citizen.
“Germany, like all the EU Member States, signed a “Model 1””.
Not true – Austria is in the EU and has a Model 2.
@Mary
I’m in Austria and the dual citizen status rules are very similar to Germany’s. (FYI: I am a former US citizen who reliquished last year and became an Austrian after 23 years of being a long-term permanent resident. I am married to an Austrian and our daughter is a dual since birth.)
After having read through the guidance on citizenship, it is my opinion that you should be able to claim German citizenship without giving up the american one because you are technically entitled to both since birth. I believe what matters are how the rules are laid out now and not how they were years ago, but I could be wrong. Having been born, raised, schooled, employed and married in Germany will make applying for German citizenship a breeze since all of your required documentation will be local and in the German language. You probably only need to get one US document for you application – a criminal record, or CORI (Criminal Offender Record Information). If you have never lived in the US, I believe the criminal record comes from the FBI (which sounds horrible, I know). On a positive note, it will not be necessary for you to take any language or civics tests as part of the application process if you attended German schools up through and beyond the 8th grade.
If you choose to give up your american citizenship and become only German, I can tell you what happens. You remain a USC for as long as your application takes to be approved. Upon approval, you will be issued a Zusicherungsbescheid, which is official assurance that you are entitled to German citizenship. Only AFTER receiving that Zusicherungsbescheid can you go to the US consulate to relinquish US citizenship because the officials won’t let you become temporarily stateless without proof that you will be getting another citizenship. At that appointment, the US consulate will send you away with a “Zur Kenntnisnahme”, a letter stating that you appeared before the consul to formally relinquish your american citizenship. That letter is your proof for all purposes until your CLN (Certificate of Loss of Nationality) arrives. I, for example, didn’t have to wait for the CLN to complete my Austrian citizenship application because the Kenntnisnahme was accepted (I was never even asked to produce a CLN later.) As I mentioned above, you will be rendered temporarily quasi-stateless in the interim, between relinquishing and becoming a fully naturalised German, but I think this will only be the case IF you are not able to become a dual citizen. The stateless situation is short, in my case 10 weeks. If you can become a dual, then Germany won’t care about what you are doing with your US citizenship and you won’t ever be quasi-stateless.
In the case that you wish to give up your USC status, I will repeat here what others have said before me. It is NOT necessary to become tax compliant in order to reliquish. And if you have never been in the IRS system, don’t bother now.
Petlover:
My mistake. Thanks for the correction.
@Petlover,
There are a couple of points that slightly affect your analysis (but which are in footnotes in my PhD dissertation of 20 years ago): Allied Control Council Law No. 1 http://www.uniset.ca/nold/all_kom.pdf which voided the Nuremberg Laws, and Basic Law Art. 116. And as a practical matter, Jewish persons with ancestral links to Germany are often, perhaps mostly, free of the dual nationality rule: hundreds of Israelis have filed for German nationality, and not a few Americans as well under this practice. Austria has similar practice.
CLNs take from 4 to 8 weeks to be issued and are retroactive to the date of expatriation, for whatever that is worth (which might be substantial in the case of taxation). And tomorrow 30 June the statute of limitations runs out on 2011 FBARs.
On compliance: that is mostly an issue where there are US family income, assets or heirs. Without Form 8854 and being a covered expatriate, you have to do the math and see if foreign estate or inheritance taxes will amount to the 40% otherwise charged by the IRS on legacies to a US Person. It would take a huge tax debt for the IRS to register a noncompliant renunciant in TECS and to think about a very expensive (to them) writ ne exeat republica in case you visited the USA anytime.
@andy05
I was working under assumptions made from reading Mary’s comments on her situation. She made no mention of any kind of Jewish ancestral links, or other special circumstances, that I saw which would affect her eligibility or the process of application. I also only described the citizenship-side of the process and not the IRS aspect because I wanted to let her know what the standard hoops she would have to jump through are; of course, those are subject to change if any special circumstances arise.
As for CLNs taking 4-8 weeks, well, I had mine in only 3. Some people wait months and months. In lieu of a CLN, the Kenntnisnahme is a great thing to have to show banks or other authorities as needs must. While it is true the CLN is retroactive to the date of expatriation and necessary for the 8854, it IS NOT needed to complete the citizenship aspect which I described. As I said before, I was only describing the standard procedure for aquiring citizenship and not the taxation stuff, which is why I explicitly state that it is not necessary to be tax compliant in order to reliquish or get a new citizenship. The tax side, if it needs to be explored, can be addressed AFTER the citizenship issue has been resolved (and most USPs who have never been in the american tax system are best off avoiding it altogether).
One last word on obtaining citizenship through ancestry, especially when an ancestor lost citizen-status as a consequence of war: I went down this route in Austria because my father and grandfather (paternal side is what counts) were born here, but, even though I had proof in the form of marriage and birth certificates and my arguments were solid, it was still easier to apply as a third country national from scratch. The officials not only wind up making the applicant’s life very complicated, but also that of any living ancestor’s (my father) in order to validate the citizenship claim. In the end it is simpler to apply in the standard way, especially if, like Mary and myself, you are definitely going to meet the requirements to obtain citizenship for yourself on your own.
@Petlover
I didn’t mean to imply that there was anything lacking in your posting such as it was but I know (because a family member used this site constantly in the months and weeks before renunciation) that lurkers are reading these postings and if one answers too precisely what the OP asks it might leave others out in the cold.
I knew a law school classmate who obtained Austrian citizenship as I described. Otherwise I know only the Swiss system (my mother pressed me to seek expedited naturalisation as soon as that became possible, and I did in the 1990s). It’s all over, since Dec. 31, for the Swiss redress offered to victims of their centuries-long misogyny in these matters.
For Germany I can think of competitive sportsmen and musicians from the East whose applications were expedited and whom I have met, and all those Israelis mentioned in the Jerusalem Post.
@ND
I’m sure that in every country there is some rule somewhere that is broken if you untruthfully claim to not have US citizenship, either verbally or online, or on a W8 or a bank’s own form. Even if those forms are kept by the bank, not submitted to any government.
Civil or criminal rules, I have no idea. Not particularly worried about it myself. Moodys will tell you that it’s “tax fraud and perjury” (scary stuff!) but I’ll tell you that nobody cares. Everyone needs to make their own decision.
If Mary does not renounce her options are basically to (1) lie to the bank and stay under the radar, (2) allow herself to be reported under FATCA but otherwise ignore US tax compliance, or (3) start filing US tax returns.
“Civil or criminal rules, I have no idea. Not particularly worried about it myself. Moodys will tell you that it’s “tax fraud and perjury” (scary stuff!) but I’ll tell you that nobody cares. ”
Nobody probably (knows or) cares if it’s for FATCA/CRS compliance. (Though it might not be an available option for the US-born.)
The IRS may care (if they find out) if a USC signs a W8-BEN in the context of withholding on US-source payments.
Is it perjury? Yes.
Is it tax fraud? Maybe, if by falsely signing the W8 the USC gets a lower withholding rate.
Is the IRS likely to find out? Maybe. It might be quite easy for them to start requiring payers of US-source income to require CLNs from the US-born and detailed information about parental nationality from the non-US-born.
Is my guess. IANAL, IMO, ICBW etc
Honestly I’m not even sure about it being perjury unless you’re signing a W8 where it actually states “under penalty of…” The Canadian definition is “with intent to mislead, makes before a person who is authorized by law to permit it to be made before him a false statement under oath or solemn affirmation, by affidavit, solemn declaration or deposition or orally, knowing that the statement is false”. The strict interpretation of that is a sworn statement, written or verbal – not simply a checkbox on an application form. Even the piece of paper I signed for TD had no “solemn affirmation” as far as I could tell.
Okay, I wouldn’t stand up on a soapbox and yell “come and get me”, but it’s not obvious that just a plain ol’ lie to a bank employee is actually criminal perjury, at least in Canada. I’m sure it’s something else, though not necessarily intent to defraud the bank – there’s no monetary gain, you’re just dodging some reporting requirements put in place at the wishes of a foreign government.
The rules for witholding on US-source income are beyond my understanding. Sign a W8 and you lose 30 percent of book royalties or your honorarium, potentially, but do work as a remote contractor for a US client and you are paid the entire invoice, with nothing held back.
“I’m not even sure about it being perjury unless you’re signing a W8”
I agree; I was responding to your comment about falsely signing a W8. In any event, as I said, in the FATCA context, if you get the chance to sign a W8 or other form of certification, without having to prove non-USness, nobody’s likely to know or care.
“The rules for witholding on US-source income are beyond my understanding.”
There’s different treaty withholding rates for different types of income. I expect in many cases if the payee is a USC (and signs the W9), the 30% is withheld and then the USC has to file to claim a refund, if applicable. (As Barbara mentioned recently).
Whereas, if the payee is not a USC, or successfully claims they’re not a USC, they get paid with the correct rate of withholding (often, zero).
The rules for withholding on stock dividends are simple. W9- they withhold 30% because they assume you will be filing a tax return where the amounts will be reconciled.
W8Ben- 15% witholding They assume you won’t bother filing a 1040. You get a foreign tax credit on your domestic return. there is no withholding on stock sales. ( Oops, don’t want to give them ideas.
Withholding of varying amounts applies to real estate sales etc.
“Only AFTER receiving that Zusicherungsbescheid can you go to the US consulate to relinquish US citizenship because the officials won’t let you become temporarily stateless without proof that you will be getting another citizenship.”
I think you mean US officials. US officials discourage a person from becoming temprarily stateless but they can’t legally prevent a person from becoming stateless (temporarily or permanently). Mary can make her appointment at any time.
“I will repeat here what others have said before me. It is NOT necessary to become tax compliant in order to reliquish.”
True, but she still has to decide whether or not she wants to become a covered expatriate at that time. She will have to avoid investing in 5 countries besides the US. For example if she buys a house in Canada, CRA might seize her house because (like Dewees) Mary wasn’t a Canadian citizen at the time of failing to file US zero-tax forms.
“The IRS may care (if they find out) if a USC signs a W8-BEN in the context of withholding on US-source payments.”
Hmm. A US stockbroker, when it was not yet a subsidiary of a Canadian stockbroker, persuaded me to sign a W8-BEN when I was a USC. The broker proceeded to withhold 30% of US sourced income. This was similar but not identical to what a Canadian stockbroker did, when it was not yet an owner of a US stockbroker, when it withheld 30% US withholding from Canadian sourced income (plus 10% Canadian withholding which it performed properly). When the broker reported all withholding on Form 1042-S, which was the wrong form to use for a USC, the IRS credited withholding and did not complain. The IRS only complained when either broker reported withholding on Form 1099.
“Is it perjury? Yes.”
Yes but the IRS absolutely requires perjury. IRB 2005-14 imposes penalties if you write an honest declaration when the IRS requires perjury. Furthermore, an IRS settlement officer wrote and signed declarations under penalty of perjury, an IRS lawyer filed the declarations in Tax Court, I proved that the declarations were perjured, and the court allowed the IRS to remove the perjured declarations from a subsequent filing after calendar call in Tax Court. Furthermore, an IRS lawyer coerced me to commit known perjuries in filing refiled tax returns for three years and I described the known perjuries and coercion but the court did not care. Furthermore, a DOJ lawyer and other DOJ employees several times signed declarations under penalty of perjury and filed them in other courts, I proved that they were perjured, and courts did not care. Furthermore in one US District Court I filed a motion for leave to tell the truth because honest testimony would be in contempt of court, and the court denied my motion, further coercing me to commit perjury (unless I want to risk punishment for contempt of court). So is it perjury? Yes, it complies with US case law.
That’s why you only have to worry if your country of residence or physical presence makes it illegal to commit perjury on a foreign country’s tax form when the foreign country compels you to commit perjury.
“Is the IRS likely to find out? Maybe. It might be quite easy for them to start requiring payers of US-source income to require CLNs from the US-born”
Aren’t they doing that already?
“and detailed information about parental nationality from the non-US-born.”
Aren’t they doing that already too, in some countries?
“The rules for withholding on stock dividends are simple. W9- they withhold 30% because they assume you will be filing a tax return where the amounts will be reconciled.
W8Ben- 15% witholding They assume you won’t bother filing a 1040.”
Yes, I think that’s the reason why the IRS’s embezzlers persecute people who have 1099 (normally related to W-9) but not people who have 1042-S (normally related to W-8). They expect that users of W-8 and 1042-S will not file returns so the embezzlers don’t have to worry about getting caught.
The 15% varies by country and sometimes varies by type of income (interest vs. dividends etc.). It’s still 30% for residents of a country that doesn’t have a tax treaty with the US.
I applied for and got German citizenship based on residency.
It took about 1.5 months and cost me €200. They gave me citizenship immediately based on the the hardship option, but required that I make a best effort attempt to obtain a CLN within one year. If I could not (or did not) do so they would either let me keep both of revoke my German citizenship, based on the facts of the case.
Both decisions are made entirely at the discretion of the case officer.
However, due to the fact the relinquishment nw costs the same as renounciation, the chances of getting the hardship are slim and have no real advantage.
All they want to know on the paperwork is are you dangerous and can you support yourself. In my case, the case officer told me NOT to put down the value of my house, because my occupation and my wife’s income were
more than enough to qualify (I did anyway).
They do want you to sign a release so they can do a background check (they can’t get access to your records without it, unlike other countries). This is mostly a standard police record check, a check with the employment agency (to see if you are receiving benefits), and the retirement agency (to see if you are paying in and eligible for benefits based on you’re own payments). If you ask they will let you look at all the data they collected.
The worst is the German test, which you have to take now, regardless of how long you have lived there. The test itself is supposedly not too hard, but it can take a while an appointment. Fortunately, a passing grade in a qualifying school is enough for a waiver. In my case, it was occupation school (in the 90s, even).
The IRS (and tax advisers) use the term “penalty of perjury” as a fright-word to try to worry people into obedience. For a USC who is resident in another country, what matters first is whether the IRS would be likely to seek extradition (surely not, assuming the individual is not targeted for other reasons).
‘The IRS (and tax advisers) use the term “penalty of perjury” as a fright-word to try to worry people into obedience.’
It’s a fright word, but the effects are the opposite of what they need. The IRS requires you to commit perjury and penalizes you if you don’t.
‘For a USC who is resident in another country, what matters first is whether the IRS would be likely to seek extradition (surely not, assuming the individual is not targeted for other reasons).’
Yeah I don’t think the IRS would seek extradition of someone who illegally tells the truth on a US tax return. They’d just seek collection assistance from the 5 countries where they have collection assistance, and they don’t even have to allege that honesty is illegal in the partner country.
The IRS’s relationship with truth is purely contingent, from what I’ve seen.
There’s a pithy little commentary on the recent evolution of the W8-BEN at https://tax-expatriation.com/tag/penalty-of-perjury/
Query: Does anyone know of any cases other than Dewees where the IRS has asked one of the five countries for collection assistance?
Dewees is the only example I’ve seen mentioned, and the facts in the Dewees case are somewhat obscure.