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.
@tdott and @anincog84
The IRS person (actually 2 of them) told me to file for 2012 and then catch up with other years as I could. I asked specifically if 6 years was good and they said yes, but they said I could also do the streamlined which means file 2012 plus 3 years back + 6 years Fbars.
Since I am (so far) doing this myself it is going slowly. The major reason to get it done now is to get in compliance and take it from there.
Here in the EU there are agreements and proposals for agreements to disclose bank accounts. The main objective seems to be to catch persons who live in one country but have undisclosed accounts in another country. Which is ok with me – all my accounts are disclosed to my country of residence and I already pay tax on any interest earned. However the prospect of having to file yearly to 2 countries is not pleasant, and I will probably end up saying byebye to dual nationality.
When you apply for a US passport you have to give a SS number. I have heard that there may be cross checks in the future, so that if you have not filed US returns, you cannot get a US passport. I don’t know how these different information systems communicate, but I suspect that the reporting will get more intense.
Basically it is a wake-up call – do you really need to be a US person?
Middelaged/older – do you plan to return to live/retire in the US?
Younger person – are you planning a well paid international career (then you are better off not being a US person because of the tax issues) are you thinking of living/working in the US – then the best idea is to get into compliance=file tax returns, and hope that the US changes to the RBT. Good luck to all!
Exactly allou. The SSN is already required for passport renewals so it would be an easy matter to cross check this against the IRS’s tax records to see if you’re up to date or not.
That was my feelings too. Did I really need to be an American? No. Did I plan to live/retire back to the US? No. I then added do I need to pay/continue to pay tax to a country I will have nothing to do with in the future? No.
I must say the whole situation does make you sit down and think about citizenship. When I sat down and thought I realised that I wasn’t as American as I had always thought I was. Over the course of my life I’ve changed and my attitude/views/beliefs of America have changed too.
@allou, if it is any comfort/explanation re US parents not informing their children of US citizenship status or US tax and reporting obligations, I know several families in this situation. In some cases, because the parent left the US decades or a lifetime ago, the rules for filing were different, and even less known – by US residents, and by non-residents.
For example, see this from the ACA “In 1962 Congress enacted and President John F. Kennedy signed the Tax Act of 1962 which for the very first time subjected U.S. citizens residing outside of the U.S. to U.S. income tax, even though citizenship-based taxation had been rec-
ognized by the U.S. many years before.” from pg 460 ‘American Citizens Abroad’s Recommendation for U.S.
Tax Law Reform’ Jackie Buignon and ACA working paper published in Tax Notes International • APRIL 30, 2012012 http://genevalunch.com/files/2012/06/taxnotesinternational.pdf
The rules for citizenship changed several times as well, some retroactively. http://en.wikipedia.org/wiki/Citizenship_in_the_United_States#History_of_citizenship_in_the_United_States http://en.wikipedia.org/wiki/United_States_nationality_law
Families didn’t have conversations about US taxes because they thought it was not relevant. This goes for our relatives inside the US as well as outside. And also for ‘tax professionals’ inside the US as well as outside. Not one of my family members inside or outside the US ever spoke to me of US extraterritorial taxation or ‘foreign’ financial reporting requirements . Even now, the ones inside the US do not understand how it works, or about FBARs and the like. So much of it is arcane, and basically wasn’t publicized or enforced. Information was and still is difficult to obtain and understand. Witness the IRS illogical and irrational cancellation of any US tax assistance at our consulates and embassies – ‘due to budget cuts’. Ironically, at the one and the same time while they threaten us and penalize us. Even with the rise of internet use, and IRS information on the web, you have to know exactly what you’re looking for, and understand the terms. And then apply it to your home country tax system – which is usually in conflict. Most of the information is written from the UScentric context and terms of reference. Eg. To be safe, we must now assume that anything we do outside the US is ‘foreign’ and taxable or penalizable, and complex. Most of it is written as if one is a US resident – even if the topic is ‘international’.
In the media – there is very little coverage, often oversimplified or inaccurate, and written from a US resident perspective. For example, I didn’t know, and would never have rationally guessed that the term ‘foreign’ account referred to my everyday savings account located in the town where I live. I didn’t know that the US considered my Canadian RRSP or TFSA to be a taxable ‘foreign’ ‘trust’, or any of the rest of the US BS. Vaguely hearing of the US crusade against Swiss accounts, or those ‘offshore’ in the Caymans didn’t mean anything to me – as it is not in any way logical or rational to consider my CRA (Canadian Revenue agency) registered and taxed accounts to be ‘foreign’, or ‘hidden’.
I’m simplifying here, but even now, inheriting US taxable status via parentage depends on when the birth took place, the marital and US citizenship status of one or both parents, length of residence in the US by the parent, and now, add – for in vitro fertilization – ex. proof the sperm or egg donor was a US citizen http://travel.state.gov/law/citizenship/citizenship_5177.html . Add in the ex and current greencard holders, and some of the snowbirds, and it is just a big hairy mess. None of it is logical or rational – and as we know, the US and Eritrea are the only countries which practice extraterritorial citizenship-based taxation – so the majority of the world would just assume that what holds for them is true for the US as well.
To the IRS and the rest of America, as far as they are concerned, the sun and the moon and the universe turns around the axis of the US, and everything else is only important as far as they can tax it or profit from it.
@allou: I am asking myself the same questions now.
@badger: These many families you know of – do you know if the IRS has exercised some form of understanding towards the “accidental American” children, or are they/we simply considered prey that should be sucked dry in their eyes? Surely even the hardiest tax agency must understand the ridiculousness of going after people who don’t even know they’re American? Am I naive, thinking like this?
@all regarding renouncing: Is this generally a “close-ended” process? By that I mean, can one expect that, after a possibly lengthy back and forth of paperwork, one is actually told “everything’s straight now – we swear that you are no longer a USC and the IRS will never bother you again”, or is the whole thing a never-ending nightmare that in real terms bars you from entering the US?
@medea
You probably don’t feel less American than many expats of any other country feels about their own, it’s just that we are forced to seriously assess that value, when neglecting to do so can result in our own ruin. America, the beacon of personal liberty has embarked on a historic campaign to be one of the very few countries set on eliminating its diaspora. Ironic.
@badger
An end to citizenship based taxation wouldn’t prevent the hapless snowbird from being ensnare by the IRS, would it?
@anincog84,
You ask whether the IRS has exercised some sort of ‘understanding’ toward the ‘accidental Americans’ – no they have not nor do I believe they will. As I was born in the USA, I have filed for my CLN. My advice to my children, all born in Canada, is to be ostriches. Their passports give Canada as a place of birth.
You also asked if renouncing was ‘close-ended’. Yes, after filing of paper work, you do eventually receive the Certificate of Loss of Nationality which acknowledges either the day you swore the oath of renunciation at the consulate or as in the case of people like myself, the date you performed the expatriating act. in my case it will be dated from the 70,s.
@ Anincog,
The only thing left after renouncing is that you are supposed to file the exit tax form (in which, amongst other things you state that you have complied with your tax obligations for the 5 years preceding the renunciation). This has to be done by June 15 of the year following the renunciation (I think you can get an extension to Oct 15, but not sure – somebody else would know).
At this time, there is no bar to an ex entering as a visitor (just the never-been-enforced Reed Amendment, where they could bar a person if they determine he did it for tax reasons – not the easiest thing to prove, esp if a person has no or very few connections to the place, so they’ve never tried, so I wouldn’t worry about it). They do seem to be getting pretty kooky, though, so as for the future, I sure don’t have a clue.
One thing about accidentals, if a person was born a dual citizen they are exempt from exit tax, even if their net worth is over 2 million. Criteria are: if born a dual, are taxed in your home country, were a resident of the US for not more than 10 years during the 15 years preceding renunciation. Page 3, form 8854 instructions. http://www.irs.gov/pub/irs-pdf/i8854.pdf
But I agree with Tiger. If your children weren’t born in the US and have no connection to the US, ostrich (eg no action) is generally the wisest course of action.
@Bubblebustin, too true. Americans, and other citizens of course, take their citizenship for granted most of the time, not really thinking about it until life throws a curve ball at them. The fact that it was our own government that did so is what has shocked most Americans abroad.
@anincog84, nothing so neat and tidy I’m afraid. Yes, once you have your CLN approved by the State Department you are effectively no longer American, but as I said, if your tax obligations aren’t put in order and the IRS did come after you (wild chance, but possible), you could be arrested for tax evasion when you next enter the States depending on how serious your “crime” is. If you do the filing and either pay what you owe or find you don’t owe anything (you can contact the IRS and check on this) then you are free and clear and visiting the States again on your non-US passport shouldn’t cause you any problems. You’ll have to get the necessary visas, whatever, that might be needed by citizens of your country, but that’s all. Some people have had trouble at the border crossings where they’re travelling on say a Canadian passport that has a US birthplace shown on it, but as you were born abroad that shouldn’t cause you any problems. But always carry a copy of your CLN with you when you travel to America so if there is any query you can prove that you have renounced.
Another tact would be to file just three years, because at the pace streamlined is going, you will have to file another two more after entering your submission, netting you the 5 you need upon renunciation! We entered OVDI, which required 8, and are soon to have filed 10 years in total, and we’re still not through. Waiting another year or two before this mess is straightened out doesn’t seem unimaginable, so we could feasibly have 12 years of compliance before we renounce, as we don’t want to do so prior to getting square with the IRS.
I just thought of this and am wondering. What if a person was born dual outside the US, has no connection to the US, but their parent registered them with a US consulate when they were born? They’d be safe as far as FATCA with their foreign birthplace and passport. But do you think that having been registered would pop up in a database and trigger something if they travelled to the US?
@pacifica,
One of those unanswerable, fear-inducing, questions.
@pacifica777: I’m precisely such a person. I do have an SSN (I just didn’t know until last year). I have travelled to the US several times on my non-US passport. I’ve never had any problems, but I’m afraid I’ll have them soon the way things are looking.
I refuse to be held hostage like this. I know I’m thinking irrationally like this, but the only thing I want to do now is go straight to my nearest embassy, hand them my passport and say I had no idea I had this – I don’t want it, I am not a US citizen. How would something like that go over?
I wouldn’t put it past the IRS spewing out form letters requiring non-resident citizens to file their taxes, but they’d have yo find you. Considering they don’t have the resources to ‘catch’ even those within their own borders, how likely is it that they’ll pursue those whom they have no means to collect outstanding taxes from? They still seem happy to pluck the low hanging fruit through OVDI, Streamlined. I would love to know how many of those coming forward now are doing so just to renounce.
I’m just so afraid that they’ll surprise me way into the future on some random trip to the US: “hey, you renounced your citizenship five years ago, but we see that you were late with your FBARs prior to that… we’ll hold you here until you cough up the fine, foreigner!”
@anincog84,
If only that easy — so many would be out (and they should be!!!!!!). You would be given the information you need to renounce US citizenship and then to complete that process have to file IRS Form 8854 to certify that you have complied with all tax requirements.
It could happen. Some Congress people are muttering about making us “tax cheats” continue to pay for the rest of our lives, even though we’ve renounced, but it’s gotten no farther than talk as yet. Doesn’t mean it won’t change in the future, but if you have no assets/income, etc, from the US and never travel there again there isn’t much they can do to you for the foreseeable future at least.
The embassy wouldn’t accept your passport if you tried to hand it in. They’d simply tell you you have to go through the formal renunciation process. Simply handing over a passport doesn’t mean you lose citizenship.
@anincog84
One of the reasons why my husband and I don’t wish to renounce now is our concern that we will lose the protections given to USC’s.
Somehow this has to end up in the courts at some point, surely? How can it possibly be legal to hold hold people hostage like this?? (Again, these words probably sound like the naive guy who just showed up at the disaster scene… but still, I can’t believe a country can hold me hostage because one of my parents was a citizen of that country when I was born!)
@anincog84,
Sorry, I can’t be of much use, it is hard to say whether there is a pattern re those born ‘accidentals. Re; “Surely even the hardiest tax agency must understand the ridiculousness of going after people who don’t even know they’re American?”: If the IRS had wanted to be reasonable, they could have exempted those born abroad entirely, or offered a real and complete amnesty. I can’t be of much use, it is hard to say with the ‘accidentals’. I don’t have enough details and the IRS processes and timelines are drawnout and mysterious. One individual that I met briefly a year ago, who was a born accidental – a young born abroad dual, who had chose to come forward noisily – against the advice of US citizen expat parents (at that time ostrichs) was angry because she was trying to do what the IRS said was the right thing, but said that they were ‘not nice at all’. But that was more than a year ago, and I don’t know how it turned out. It does seem that OVDI is plucking at least some cases (Canadians? and/or minnows?) out and steering them into Streamlined (recent comment by bubblebustin or Not that Lisa?) – perhaps they have come to their senses somewhat, or perhaps they are acknowledging that they just can’t practically process the numbers they already have given their resources, and have had to adjust their filters. Particularly with the advent of FATCA calling as well.
Some individuals are still deciding what and how to respond to this situation. Some have a good resolution within easy reach, some will have to wait longer, but with positive indications for a resolution. Some have paid a range of professional fees (from reasonable to ruinous), even though no US tax was ever owed. Renunciations and relinquishments are inevitable – some firmly decided and imminent, some on hold – not shelved entirely, just postponed.
There are a range of approaches; some waited to see how things developed, some minnows were scared into joining OVD (with the intent to optout) – by the CBC coverage of the September 2011 deadline and the publicity given to IRS threats, some filing going forward, or backfiling with explanatory letters and some via Streamlined process. I’m don’t know all the fine or current details – each has/had unique facts and circumstances. Happy are those born dual outside the US, without much income yet, no mutual funds or ‘foreign trusts’, and a simple personal bank account – none joint or belonging to an employer or business partner.
Ironically of course, it seems that according to reports here re the IRS instructions and advice given on the phone, and information coming directly from OVDI recently, the treatment of those who filed quietly forward, or backfiled with a letter of explanation, and now via the Streamlined option seem to be treated better than those who obeyed the IRS back in September 2011 and tried to take the OVD path they were sold by some professional advisors and the IRS threats and rhetoric. The TAS noted that the wait for those who opt out face more extended timelines for a resolution http://www.taxpayeradvocate.irs.gov/2012-Annual-Report/offshore/ . I believe that the efforts of the Taxpayer advocate agents working individual cases ( http://www.taxpayeradvocate.irs.gov/Individuals/Get-Tax-Help http://www.taxpayeradvocate.irs.gov/About-TAS ) , the effect of complaints via the SAMS (Systemic Advocacy Management System http://www.taxpayeradvocate.irs.gov/About-TAS/Systemic-Advocacy ), the reports of TAS Nina Olson http://www.taxpayeradvocate.irs.gov/About-TAS/TAS-Leadership http://www.taxpayeradvocate.irs.gov/2012-Annual-Report/FY-2012-Annual-Report-To-Congress-Full-Report , Isaac Brock Society, some Canadian media coverage http://www.bcbusiness.ca/finance/us-tax-laws-the-long-arm-of-uncle-sam http://www.theglobeandmail.com/commentary/irs-wants-canada-to-nab-us-tax-cheats-why-we-should-care/article6994760/ , efforts of the ACA http://americansabroad.org/ , AARO http://aaro.org/ , and FAWCO http://www.fawco.org/ , plus exponential increases in renunciations, relinquishments and CLN applications have made a big difference.
Though the bluster of the London office re the statement reported here
seems a reversion to the threatening and deliberately obstructive stance of the recent past …as reported by Edelweiss http://isaacbrocksociety.ca/consulate2/comment-page-5/#comment-273634 “… Amongst the questions on the “informal renunciation acknowledgement” is this gem: Do you understand that if the Attorney General determines that your renunciation was motivated by tax avoidance purposes you may be found excludable from the United States?…”
That for now seems to be just egregious bluster. How will they determine the underlying motivation and prove it? What is ‘tax avoidance’ in this instance? Is it ‘tax avoidance’ to not want to be a ‘taxable person’ to two countries, one of which (the US) we get no services from, have no real connection with, and no economic ties to?
Is it ‘tax avoidance’ to want to be able to use the legal savings paths available to all our other fellow citizens – inside the US, or inside Canada and not to face punitive double taxation?
@anicog84
I am in the same boat. Born in Canada, never lived in US but have a US passport and SSN because of parents’ US citizenship. I am not sure what to do. I wish there was a streamlined renunciation process we could do en masse for duals.
@anincog84,
In case you haven’t read this post and related comments, both here at Maple Sandbox (to which there is a link in the comments): http://isaacbrocksociety.ca/2012/03/04/class-action-suits/.
Many of us don’t believe it. Another post you might be interested in is: http://isaacbrocksociety.ca/2013/03/22/when-law-becomes-a-substitute-for-morality/
@badger
My lawyer told me that the IRS is moving certain OVDI cases over to Streamlined on their own.
Lets not forget that this is the benevolent organization that allowed those who didn’t know they were USP’s a reduced penalty rate of 5%. Insane.
@bubblebustin, I read your recent comments about your uphill efforts to educate some Canadians who were intent on buying US property to vacation and or retire to. I don’t know what will happen to some of the non-US snowbirds and retirees. The US wants them to visit, spend money, and buy property, but also wants more ‘taxable persons’. It may be ignoring snowbirds for now, I don’t know. Problem is that if they’ve got US sited assets that can be seized.
@badger
It would appear that any tax exposure a snowbird has would be based on residency not citizenship based taxation, so yes, the future depends on enforcement.