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.
I’m not a lawyer or tax accountant. I believe the IRS would have no interest in placing a lien on the inheritance. I believe they would need a court order which means time, trouble and expense.
The estate has already paid estate taxes due before any monies can be distributed.
(unless we are talking about a Warren Buffet or Bill Gates type estate in which case this would all have been worked out in advance)
@Plaxy
Yes you are correct of course , once infected you always have that virus lurking like shingles…
I assume that I have checked out after filing 8854 and the SOL has run its course…unless they find fraud of course 🙂
@Petlover
I am no accountant or lawyer but to answer your hyporthetical question re an IRS lean on any US inheritance one may receive… I am not sure how the executor of a US will would be able to identify that you were once a US person with a SSN. The form asks the executor to name the persons receiving the gift and their identifying number. I would assume this would be their tax ID of their citizenship/resident country, it does not ask specifically if he/she has a SSN.
https://www.irs.gov/pub/irs-pdf/f706.pdf
In addition from the standpoint of a covered EXpat leaving an estate to a US person, the IRS has not yet included the question “Was the owner of the estate a covered expatriate?”
on the Form 3520 which needs to be filed by any US citizen receiving a large gift, bequest or inheritance.
https://www.irs.gov/forms-pubs/about-form-3520
(Receipt of certain large gifts or bequests from certain foreign persons.)
Portland – As I understand it, the hypothesis is that the IRS would be seeking payment of an outstanding assessed tax liability which the former citizen has refused to pay.
My thought was that the IRS could place a levy/lien on payments to the former citizen of income from the newly-inherited assets.
Heidi:
“Yes you are correct of course , once infected you always have that virus lurking like shingles…”
A very suitable analogy 🙂
“I assume that I have checked out after filing 8854 and the SOL has run its course…”
The SOL after the last tax return (1040, not 8854) does, I agree, represent a kind of finish line to the US’s claims to be able to tax the former citizen’s non-US income “by reason of citizenship”)
After that, as long as you don’t acquire US income/assets, it’s definitely over.
@Plaxy
But could they identify the person with the lien from just a name with a foreign address and foreign tax ID on on an estate tax form.
@Plaxy
I guess anyone who receives US SS or a US pension continues to be infected 🙁
Heidi – the payer of the income will ask the heir to fill in a W8-BEN, yes? in order to determine correct withholding rate. The form asks for the SSN.
The payer sends information about the withholding to the IRS, correct? Complete with SSN?
I can’t picture the US letting US money be sent to a foreign address by a withholding agent, without notifying the IRS. Though possibly not until year’s end. I may be wrong.
Heidi:
“I guess anyone who receives US SS or a US pension continues to be infected 🙁 ”
In a way, I suppose, but it’s not CBT so is not (to me) offensive.
Regarding your US pension – if it’s from a university have you checked if it’s classed as a government pension? If so, it should be taxable exclusively in source or residence country, not both, even if treaties are revised.
“…the hypothesis is that the IRS would be seeking payment of an outstanding assessed tax liability which the former citizen has refused to pay.”
Exactly.
“…the IRS could place a levy/lien on payments to the former citizen of income from the newly-inherited assets.”
Which is what I anticipate would happen, especially if a person is continually identified by a SSN, despite having expatriated.
“The estate has already paid estate taxes due before any monies can be distributed.”
Yes, true, but it is the distribution which might cause the problem due to W-8 BEN.
“…the payer of the income will ask the heir to fill in a W8-BEN…”
I think so. Since the ex-USC in question has mutated into a non-resident alien, they have to prove they are exempt from the 30% withholding.
I would just worry that using the old SSN would trigger a connection to any lien and the assets would be frozen.
Now I have a different, related question. What number should be used in the event an expatriated person has any IRS forms to file, like the W-8BEN? As a newly-minted non-resident alien, do you use your foreign tax ID or the old SSN?
@Plaxy
It’s a TIAA cref pension combined with a University teaching hospital pension. Unfortunately it’s not transferable, Ive checked but at present it is taxed solely in my resident country as per a tax treaty. What worries me is that TTFI states that it will treat all US pensions as taxed territorially, ie taxed in the US. I cannot see that the tax treaties will all be renegotiated and I cannot see that my resident country will want to give up their right to tax me.
The W8-BEN form asks you to give your SSN, if you have one.
“…it is the distribution which might cause the problem due to W-8 BEN.”
I wasn’t thinking about the distribution to heirs from the estate; I was thinking about income from the assets. For instance, rent from property, or dividends from stocks and shares.
“I wasn’t thinking about the distribution to heirs from the estate; I was thinking about income from the assets. For instance, rent from property, or dividends from stocks and shares.”
I see. I’ve never inherited anything, so I have no idea what the hurdles are. I’m assuming from what I’ve read in the past several posts that the W-8BEN is used for reporting on any and all US assets/earnings, whether tangible or intangible?
@Petlover
The inheritance is not an income and I don’t think it would require a W8BEN. My understanding is that a W8BEN is for banks and anything from a financial institution. An inheritance would come out of the escrow account of the lawyer or executor. Take a look at the form IRS 706 that is
submitted by the executor, it just asks for name of beneficiary, country and identifying number.
Thinking about loss of citizenship and the consequent ending of CBT: I suggest there is indeed an endpoint, and it comes when you swear the oath of renunciation: at that moment, you’re no longer a citizen and therefore cannot be deemed to be resident in the US.
In an IGA 1 jurisdiction, you can go straight from the embassy to a bank and open an account, showing your receipt as evidence that you are not a reportable person.
All the “tax-citizenship” hooey is just hooey. That’s my opinion.
@Petlover
Sorry our posts get crossed. I guess if you inherit an income it may be a problem if you have a lien. Maybe just tell the executor to sell ALL income generating property?
Heidi –
“The inheritance is not an income and I don’t think it would require a W8BEN. ”
Income from the assets would though. Rent from property, or dividends from shares.
Sorry, I too crossed posts.
@Heidi
“Sorry our posts get crossed.”
No problem 😉
“Take a look at the form IRS 706 that is
submitted by the executor, it just asks for name of beneficiary, country and identifying number.”
Yes, but which number, old SSN or tax number of tax residency? It seems to me, if a person is a NRA with tax residency abroad, they would use their foreign tax ID and ignore any SSN they might be connect to, no?
“at present it is taxed solely in my resident country as per a tax treaty”
Do you know which treaty provision gives Switzerland taxing rights?
The US model tax treaty allocates taxing rights on government pensions to the source country, except when the recipient is both a citizen and a resident of the residence country. That fits your current situation. So the current treatment of your pension could possibly be due to it being classed as a government pension. You might want to have a read of the treaty, or ask your tax authority. If it’s being treated as a government pension, I would think it would be extremely difficult to alter the current allocation of taxing rights. Though you never can tell in these uncertain times.
@petlover
That’s what I would assume. It would be the tax ID of the country where you live.
Thinking this through again , I don’t think it would be within the jurisdiction of the executor to sell any income producing assets, just his job to distribute them. Maybe they could be sold immediately on aquisition?
@Plaxy
Here is the table of all the tax treaties from publication 901.
I have a copy of the actual Swiss one filed somewhere on a flash drive.
https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1.pdf
Heidi – you can find it online pretty easily.
Anyway – it was just a thought. May not be worth pursuing.
@Plaxy
It was in fact pretty diificult to find, in fact Watcher helped me!
The treaties are not dependent on being designated as Gov pensions. That table is very useful for renunciants and gives SS withold rates etc.etc.
@plaxy
When you look at that table it blows the mind to think if the US passess TTFI that all those treaties for pensions, interest, dividends , annunities, SS etc will have to be renegotiated with the rest of the world…..or maybe not. The US wil just reanege on them all and to hell with the status quo . Why the hell can’t they just do RBT like the rest of the world, that would solve all our problems.
@Heidi
Because the USA is ‘special’!