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.
We may be talking at cross purposes. I was just thinking about this treaty:
https://www.irs.gov/pub/irs-trty/swiss.pdf
Which of course may not be the relevant or current tax treaty, for all I know.
Anyway, as I say, it was only a thought and may not be worth pursuing.
Heidi, because that would be too easy.
Medea –
Too easy? How do you mean?
Oh I see – I had overlooked a couple of posts! Please ignore my last post.
The US certainly does have a serious amount of bilateral treaties.
Plaxy and Medea
I think “too easy” refers to RBT?
Whatever is the latest treaty, ‘at present’ The Swiss have the right to tax my US ‘private’ University pension at the moment, which is absolutely fine with me. The US also have the treaty right to tax my US SS 15%, I then get a tax credit from the Swiss.
UK residents have a 0% withold on their US SS, will that change if TTFI is passed, so SS will be taxed soley in the US? Will the UK give a tax credit in lieu, or will it be no treaty, no credit?
@BirdPerson
“Because they are special”
“Because we are exceptional” I believe Hilary |Clinton stated.
‘The Master Race’, now who else quoted those sentiments?
Someone correct me if I’m wrong but I don’t think the Swiss would have primary right to tax a US—source pension. Through the treaty, the governments can reciprocally agree to concede source-based taxing right to the country of residence in specific cases. Government pensions are a case in point.
“Will the UK give a tax credit in lieu, or will it be no treaty, no credit?”
At present, the UK always credits tax paid on foreign income. If the UK has treaty taxing rights on the foreign income (as it does with US government pensions where the recipient is both a UK citizen and a UK resident), the UK would tax, not give credit.
If the treaty were to be renegotiated, and the UK no longer had treaty taxing rights on US-government pensions, the UK would then give a credit for the tax paid to the US.
I said:
“If the UK has treaty taxing rights on the foreign income (as it does with US government pensions where the recipient is both a UK citizen and a UK resident), the UK would tax, not give credit.”
Sorry, that could have been clearer. I’ll rephrase:
If the UK has treaty taxing rights on the foreign income (as it does with US government pensions where the recipient is both a UK citizen and a UK resident), UK tax would be payable. There would be no US tax, so there would be no need for a credit.
So a change to the treaty should not result in double taxation — except for US citizens who file US tax returns and are therefore subject to CBT top-up taxation.
@Plaxy
“If the treaty were to be renegotiated, and the UK no longer had treaty taxing rights on US-government pensions, the UK would then give a credit for the tax paid to the US.”
You would hope that it would be the case.
The Swiss /US tax treaty on SS gives the US the right to tax my SS at 15%. This is below my tax rate in Switzerland, so the Swiss give me a credit for 15% and then tax me at the going Swiss rate for my income and wealth (there is a wealth tax in CH which alters your tax rate) depending on the Canton, but that is another story.
I had to fight the local tax office for this 15% tax credit, as they wanted to tax my whole SS pension at the Swiss rate. I had to find the Swiss Treaty for SS and point it out that it was a legally binding contract to give me a tax credit.
What if TTFI renders all these Tax treaties obsolete? Most tax depts are out for all they can get , no treaty, no protection.
@ plaxy
“You can’t file a part-year 1040 so they resort to this little gimmick to get round the technicalities.”
Yes I believe this is true but my husband did split his final filing between the 1040 and the 1040NR (as did others at that time) and he’s never heard a peep from the IRS in 4 years, except to acknowledge the receipt of his forms (first time ever so acknowledged). Now maybe sometime down the road they’ll get around to issuing his comeuppance but his guaranteed reaction will be “Meh!”
Heidi – I think it’s up to the person who is receiving foreign income to read the treaty to find out how the income is treated under the treaty, and take it up with the tax agency if there’s any problem. Sorry to hear you had a struggle over the SS.
The US doesn’t tax my US SS; under the treaty, the US concedes its taxing rights to the UK, so it’s a different situation from what you describe in Switzerland.
If the US were to change its tax policy, no doubt that could result in new protocols or agreements which could affect the taxation of my SS, but it just isn’t the kind of what-if scenario that hits my worry button. Not borrow trouble, as my grandmother used to say.
Embee:
My apologies for any lack of clarity. I was not intending to imply that filing a part-year 1040 would be likely to result in IRS queries.
“What if that former USC inherits US assets at some future date when, for example, a US family member dies? Would there be a lien placed on any inheritance?”
Legally the lien would already exist, whether or not the IRS files the lien, before the family member dies. The IRS could have already chosen to file a lien in the District of Columbia, upon which the former USC would have a very short time period to petition US Tax Court (and maybe wouldn’t have any time at all of the IRS does it the same way the IRS did in Atuke’s case). The IRS could choose to file a lien in DC after the family member’s death as well.
If the former USC held (for example) Canadian citizenship at the time that the alleged US tax became alleged to be owing, then CRA won’t help the US collect. But if not, then CRA might help, regardless of the person’s present citizenship.
If the inherited assets are in the US, the person will want to act quickly to move them to a country where the person holds citizenship.
“I don’t believe for a minute that the IRS wastes any time poring over past returns from former citizens unless they have evidence of crime.”
They do when it was IRS employees committing the crimes. They also do it to people who never had US citizenship and never resided in the US. If they can penalize a victim, they do it for penalties.
“However, speaking hypothetically, I think the citizenship status of the non-resident heir would be irrelevant. US tax will be due on any income from the US assets”
That’s separate from earlier tax that the IRS alleged was owing earlier due to some kind of income the person had earlier.
“Your SSN continues on even after you have expatriated until you eventually go to the happy hunting gound.”
Longer than that, because survivors can receive survivors’ benefits based on the SSN holder’s benefits.
@ Plaxy
No apology necessary. I just thought some might like to know that mistakes can be made and might be overlooked by the IRS which is not the omnipotent entity compliance condors would have you believe.
ND:
Yes.
Thanks for all the input on my hypothetical question. I apologise for not responding in time, but my internet went down for 15 hours after a severe thunderstorm.
Thanks to everyone, although my head is spinning and my heart pounding. I have lived in the EU (and paid taxes here) for 48 years. I have absolutely no connection to the US, except my passport. I am a dual citizen, UK-US. Married to a Dane. I am a very small fish indeed, but that doesn’t stop the fear and trembling with this crazy FACTA situation. Many posts say “just don’t tell the bank you are a US person.” (I live in Europe, I use my UK passport here.) However, my Danish bank, seeing on a house deed that I was born in the USA, demanded either a SSN or a Certificate of renunciation. So I had to give my SSN. I have no idea what happens next, and I have no idea if I should start FBAR reporting for this account (and any other accounts? – but I am British on all the others), or risk fear of the bankruptcy-inducing penalties. My question is, with the data sharing undoubtedly happening now (EU banks, EU tax authorities, US ditto), can an innocent, locally tax-compliant person simply NOT start the FBAR reporting, or is it smartest to report for this one account (not for the others?) and hope for the best? An existential cry: why is this nightmare happening to us? When will it stop? Any chance of RBT in the foreseeable future? Thanks to this great community.
@Tobeornottobe
The IRS are understaffed and overworked and as far as we know, no one as yet has received a letter from the IRS concerning a non reported bank account but that is to say we don’t know if that won’t eventually happen.
Can they collect on an FBAR penalty?
The only countries with Tax collection agreements are listed in this link
https://isaacbrocksociety.ca/2016/11/01/dual-citizens-of-sweden-france-netherlands-denmark-canada-take-note-your-country-will-not-collect-for-the-u-s/
Note, Your country will not collect as long as you were a citizen of said Country when the debt happened. If you are not a citizen of Denmark then theoretically a tax debt could be collected.
BUT FBAR is NOT a tax debt, it a form ‘crime’ and I doubt it would be worth the time and effort to try collection…as long as you don’t have funds in the USA.
So I would do nothing, certainly don’t enter their system if you are not already in it.
Why not renounce and do nothing more?
“My question is, with the data sharing undoubtedly happening now (EU banks, EU tax authorities, US ditto), can an innocent, locally tax-compliant person simply NOT start the FBAR reporting, or is it smartest to report for this one account (not for the others?) and hope for the best? ”
You don’t need to start filing FBARs unless you want to keep your US citizenship and make use of it.
It’s expensive to buy a CLN but it’s nothing compared to what current immigrants from the US are paying for UK settlement visas every day.
US tax law is not enforced in Europe. The IGAs are local law. They don’t oblige people born in America to do anything whatsoever. The damned IGAs can result in banks treating you like something off their shoe but they don’t mean you have to file US tax forms.
Unless, that is, you want to continue and make use of your US citizenship.
“as far as we know, no one as yet has received a letter from the IRS concerning a non reported bank account”
As far as we know, no one WHO LIVES OUTSIDE OF THE US as yet has received such a letter. Although US law doesn’t let its diaspora off the hook, as far as we know the IRS hasn’t yet enforced FBAR law against its diaspora.
“The only countries with Tax collection agreements […]”
… have Tax collection agreements not FBAR penalty collection agreements, so the IRS probably can’t collect, probably.
A person who was born dual US-UK and resides in the UK at the time of renouncing US citizenship can probably avoid the exit tax. As far as I can tell, a house owned in Denmark also escapes the exit tax, as long as the person’s residence is in the UK. However, if the person wasn’t born with Danish citizenship and resides in Denmark at the time of renouncing, the US maximizes its exit tax. Then tax collection agreements might be dangerous. If the house is jointly owned and the renunciant’s half is worth less than 2 million yanks, that will be a relief. Or naturalize in Denmark before renouncing US citizenship, so Denmark will not collect for the IRS from a Danish citizen.
@norman and tbontb
“LIVES OUTSIDE THE US”
That’s what we are talking about here, one cannot clarify every single senario!
Good point about duals from birth being exempt exit tax, but he doesn’t live in his dual country.
PS .
You need 5 full yrs of compliance for duals from birth to claim exemption from the exit tax as well as 5yrs living in their dual country.
Thanks to everyone for your insights. I guess my particular situation falls between (or into) the cracks. I am a dual, but not living in either country. I became a UK citizen by descent in 2014. My Danish husband and I live in France, and the house we are buying (joint ownership) is in France (and is well under 2 million yanks!). We pay income tax both in Denmark and France (there is no double taxation treaty). We live simply on our “normal people” pensions, so I couldn’t owe tax in yet another country, in the best of all possible worlds…??!!
If I understand Heidi correctly, a US citizen can renounce citizenship without filing (and w/o penalty, beyond the huge exit tax?); and therefore only duals actually living in their dual country have any reason to go for 5 yrs of compliance, with what that entails of compliance professionals’s costs?
Does anyone know the best, most up to date link for a step-by-step guide to renunciation, without going through the compliance mill? Is the process the same, wherever you live in the EU?? plaxy writes: “It’s expensive to buy a CLN” – is it really that simple, just a question of asking and paying for it? No dangers or downsides?
As Edgar Morin put it: Si vous avez le sens de la complexité, vous avez le sens de la solidarité. If you have a sense of complexity, you have a sense of solidarity… Thanks.