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.
@tdott – oh I don’t know. They seem pretty similar to me.
Oh, and anincog84, did you shock your American parent/s when you told them they should be filing/possibly paying US taxes? Or did they already know.
@Medea: I’ll shock you instead: My US parent knew this but thought that it “couldn’t possibly apply” to me since I’d never lived in the US, and actually refused to believe me for a while.
I must say http://www.youtube.com/watch?v=CfWk6yRdwMo severely tilted my default attitude towards my US citizenship of “why not?” to “why the hell would anyone go through that?”
Not shocked anincog84, but surprised that they thought it wouldn’t apply to you just because you never lived there. If he/she has been filing in US tax forms all these years they must realise that it’s citizenship based and whether you’ve ever lived in the US or not has no bearing on the matter. Especially as they lumbered you with an SSN too.
It’s something for you to remember too, if/when you think of having children of your own. They too could “inherit” US tax obligations if you decide to keep your US citizenship.
@anincog84
I think the risk of finding yourself in trouble in the US is extremely low. If they knew about you, you probably would have received correspondence from them asking why you had never filed.
I wanted to pick up on Banany’s comment about investments. That comment may have been tongue in cheek but is actually spot on. It is impossible to do financial planning as a US citizen living outside the US. Anything (other than a pension if you’re lucky enough that the US recognises your country’s pension system) that is tax-free in your country of residence is considered untaxed income by the US and subject to US taxation. Collective investment schemes (mutual funds) in your home country are horrible investments if you are a US citizen because of the US Passive Foreign Investment Company (PFIC) rules which result in potentially hideous double taxation rates and about $150-250 per year per holding for someone else to do the 8621 paperwork.
I’ve been meaning to move my defined contribution plan from a former employer to a Self Invested Pension Plan (SIPP) but I haven’t because I think it might be considered by the IRS to be a foreign grantor trust and I just don’t want to deal with the extra IRS paperwork and 1040 return costs even though I could save a chunky amount per year on plan administration fees.
You will find that if you decide to retain US citizenship that all of your financial decisions will be made with US tax considerations at the forefront. If you don’t, you could find yourself in a world of hurt due to some obscure US law. Unfortunately, the ramifications of US citizenship are inescapable. This is especially true outside the US.
It sounds as if you would possibly qualify for the dual citizen exemption which means you wouldn’t have to pay the exit tax even if your net assets exceeded the $2m threshold. This regime has been in place for a few years but they also have a tendency to completely change things at regular intervals and generally make it more difficult. If the dual citizen exemption disappears, there are a host of things that could make it more difficult or more expensive or both to lose US citizenship in the future. Things like appreciation of the value of your residence, a significant fall in the value of the dollar, a successful business, an inheritance, winning the lottery. As you make your decision, give very careful consideration to the bird in the hand.
@Medea: I won’t be “passing on” my citizenship (if I keep it) due to the residency requirements of section 301 of the INA.
How long does abandoning the citizenship usually take? If this is what I decide to do, I’m probably better off not filing at all, just “getting out” without having ever had anything to do with the IRS?
@Edelweiss: I appreciate your comments a lot. I’m certainly leaning more and more towards giving this whole thing up. It’s been a strange year this way:
“Hey, I’m a US citizen! That’s awesome! Oh shit, my home country might have a problem with that… nervousness ensues…. oh, no, turns out I’m fine. Awesome! Hmm, what’s this stuff I’m hearing about filing with the IRS? Nervousness… Ah, ok, the FEIE seems fine, and surely even without that they wouldn’t double-tax me! Oh and look, cool, I can vote in the federal elections! Oh, no… turns out I can’t. Oops, no I can, but the election came and went. Ah, well, better luck next time. Sooo… what’s this FBAR I’m hearing about? Hmm, better get rid of this citizenship perhaps.”
Easy comes, easy goes, I guess. (Sorry to Medea and the others who have had a lot more trouble than I have – I don’t mean to diminish that by my flippant attitude – but this entire system would be a great joke if it weren’t so serious)
Some more worries from me. I’ve been reading over this list of ways that the IRS discovers “long lost” citizens. I’m worried about one thing on that list before my trip, and that is that I last year did submit some forms with my US SSN to a US university for purposes of visiting a professor there. That trip had to be cancelled, and I told the university they could stop processing my documents. Am I paraonoid in thinking these things are collected by the IRS?
@Myst and all,
Sure, it’s okay to recommend an accountant/lawyer that you’ve used. As you wrote,
“They have done mine and I rate them highly,” feel free to say “John Smith has done mine and I rate him highly” or whatever.
We don’t allow advertising and the Brock community as a whole doesn’t endorse anybody. But a recommendation from an individual is definitely useful to other Brockers in their area.
Thanks for doing so.
@anincog84,
Probably!!! It was interesting to review that list once again. Although, “just because you’re not paranoid, doesn’t mean they aren’t after you.”
I think your aborted application to visit a US university professor would unlikely result in having your SSN passed on to the IRS. It will do us all good to think more clearly and not succumb to the more unrealistic fears thrown our way. Damn that fear-mongering the US is so good at.
@calgary411,
Fear – one of the best motivators. That and greed.
Renunciation time varies, it really depends on what country and even which US embassy in that country you use. Here in Switzerland, probably due to the increased numbers of people renouncing over the last couple of years, it’s pretty quick. I called the Bern embassy for an appointment at the end of January, took the Oath of Renunciation at the beginning of March and picked up my CLN yesterday so about 4 and a half months altogether. At the other extreme you have Vancouver which requires you make two appointments, the idea being that the gap between the two gives you time to reflect on the serious consequences of dumping the US and whether you really want to do this. That gap at times has been as high as a year, with CLNs being delivered a few months after that. However, Vancouver does seem to be getting on top of things as recent reports here show:
http://isaacbrocksociety.ca/wp-content/uploads/2013/03/Consulate-Report-Directory-2013.03.20.1doc.pdf
So depending on your country/embassy you may need one or two appointments which could be several months apart with a CLN usually following about 2-3 months later. Have a read of the reports for your country/embassy as this will give you an idea of what the procedure is like, any snags that others have come across that you can avoid, etc.
Please note that just because you’ve renounced, it doesn’t exempt you from your US tax obligations. SSN numbers are on the renunciation questonnaire forms and renunciation info is passed on to the IRS. So you should do the necessary 6 years back filing to make sure your tax compliant. This can be done either before or after you renounce. It may cost you if you need the help of a tax preparer, but it’s also a one off payment to get everything up to date weighed against a possibly smaller annual payment if you keep your US citizenship and file each year. Yes, it may cost me CHF3,000 to do the back filing, but it would probably cost me nearly as much to do it every year if I’d kept my citizenship. So that’s another factor for you to consider. This is another thing that is pushing a lot of Americans to renounce, every year they are having to pay thousands to file a nil return and either cannot afford or simply don’t want to keep shelling out money to keep the IRS and Uncle Sam happy.
Ooops, forgot to say that you wouldn’t be liable for exit tax as you are a dual national from birth and have never lived in the States so you don’t have to worry about that.
Please can we have the edit button back!
Again, I know I’m preaching to the choir, but this is all so absurd. Now, in my situation, it was simply a case of my parent not telling I was a US citizen for many years. But imagine a child born to a US parent abroad who then leaves or even dies – the child can go all his life accruing “wrongdoings” in the eyes of the US without even knowing what’s going.
@anincog84
Yes, it is absurd, to put it mildly. People who aren’t directly affected by this typically either cannot believe or have a hard time understanding the scope of the persecution “US persons” are subject to by the USG. Some of us (including myself) feel that there are only 2 real options in order to have peace of mind and get back to living a normal life: 1) repatriation (i.e. moving back to the USA, which is for most, however, not feasible or desirable) or 2) renunciation. There just isn’t much in between.
@notamused: And even option 2 seems mired in potential trouble, from what I’m reading here! To me, who has never lived in the US and consider it a very foreign place, this truly feels like a foreign entity reaching after me. I actually feel that my home country’s sovereignty is being violated here. For all my life I’ve unknowingly been a US citizen. Now I add unwillfully to that.
Are you yourself a dual, if you don’t mind me asking?
Why did your parent keep it a secret anincog84?
@anincog84
I was born in the USA, but have lived abroad for almost 2 decades and my wife is a non-USP. I had been faithfully filing US tax returns (and later FBARS) for almost 30 years. Due to being self-employed, I was also forced into paying into Social Security and Medicare all these years (with quarterly advance payments required). I will receive S.S. benefits when I retire, but no benefits from Medicare at all. Since the situation is continually getting worse for USPs abroad (e.g. FATCA and other USG policy changes), I felt I had no option but to renounce my US citizenship and become an EU national here in my real home country, which I did last year.
@medea: My non-US parent actually didn’t think it was possible to be a dual citizen, and actively told me that I wasn’t a USC even though my other parent is. This approach of “this makes the most sense to me, so it must be true” is not unheard of for this parent ;-). Having been told this from a young age, I never questioned it. Only when I last year said something akin to “since I’m not a citizen…” to my US parent was that abrubtly cleared up for me. That was also the first time I was shown my SSN and certificate of birth abroad. Apparently my US parent didn’t think it was that important to press onto me if I didn’t inquire.
@notamused: Sheesh! In addition to the obvious trouble you’ve had, you must feel hurt having your (original) country behave that way towards you. It’s so disrespectful! I, on the other hand, have never felt entitled to any particular “respect” from the US – I just feel like they’re some gangster I’ve barely heard of and never interacted with trying to intimidate me. They’re succeeding, too.
If there is any way IBS could give Myst my e-mail address I would be very grateful.
Thank you Isaac Brock Society.
@ Banany,
Yes, as long as we have permission, we’re happy to do that. So, I sent yours to Myst.
@allou Seems you can claim your spouse as dependent when filing “married filing separately” under some circumstances
http://www.irs.gov/publications/p501/ar02.html#en_US_2012_publink1000220762
I neglected to mention that if you have investments with capital gains, you need to use schedule D. Capitlal gain losses can be carried forward to offset gains. Not sure about carrying back. Turbotax did the calculations for me.
You don’t need to worry about any government social security type pension account reporting on the 1040 of FBAR. I don’t know if you can defer income in privately held retirement accounts. Canadians can do it on their RRSPs but I don’t know if there are any treaty provisions to allow such a thing with other countries. Private retirement accounts have to be reported on FBAR and 8893. I don’t know anything about company pension plans since I don’t have one.
You might want to try to ask some tax related questions at Expat Forum. They can be pretty helpful for filing out the forms from a European perspective. They just get bent out of shape if you talk about renouncing! http://www.expatforum.com/expats/expat-tax/
Sorry I couldn’t be of more help. My situation really was pretty simple.
Here we have to leading supplier of compliance software
http://dealbook.nytimes.com/2013/04/11/former-kpmg-partner-is-charged-with-insider-trading/?nl=todaysheadlines&emc=edit_th_20130412
Bryan Shaw, a jeweler in the Los Angeles area, bestowed these gifts upon Scott I. London, a senior executive at the accounting giant KPMG. It was the least that he could do for Mr. London, who routinely gave him secret information about KPMG’s clients. Mr. Shaw traded on the tips, earning more than $1 million in illegal profits.