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.
HKGS, Edelweiss You are kidding right? Forget about it.
@annie
Did you do the streamlined yourself or via a tax advisor/accountant?
@edelweiss, medeafleecestealer and others
I am stumped as to how to list my foreign employer paid pension plan which is exempt from US tax via a tax treaty (have checked that) – does it have to be listed on the Fbars? I am not retired, so I don’t get anything from it yet.
I am almost finished with the forms (2555EZ, 1040,Schedule B, TDF90.22.1) but still (very) anxious I might have overseen something. Encouragement needed – thanks in advance!
@allou
I did them myself. After months of my own personal drudgery, I felt confident that I could complete the forms myself, thanks mostly to this site and a few others. We had 2 TFSA and an RESP which caused us to complete three 3520/3520A (dont forget your EIN for these accounts) and fourteen 8621’s (PFIC) for each year. We have 4 RRSP’s so we needed four 8891’s per year. We filled out two 2555EZ’s per year. We attached numerous spreadsheets showing our calculations and we attached our Letter of Reasonable Cause to each of the three years. We also attached a statement to each of the 8891’s asking for an extension of time to defer income tax. Also, don’t forget the Questionnaire. Each year was in its own envelope and all envelopes were mailed in one box. The FBAR’s were in the same box, in an envelope by itself.
@ allou
My understanding is that you don’t list your pension plan on an FBAR. You have no control over it yet.
FWIW I filed four years of returns and FBARs, followed in due course by a fifth, and I haven’t heard a peep from the IRS except:
– A stimulus cheque for $300
– The FBAR people in Detroit wanting a reasonable-cause letter, which I sent them, and never heard from them again (They also pleaded with me to file electronically, which I had no intention of doing.)
We didn’t worry about PFICs because they’re dumb. Jane Jacobs (like me, an ex-US citizen) said something about how it was stupid to organize your life around the demands of a stupid government.
I think the IRS is 1) overwhelmed and 2) oriented around the collection of actual revenue. In my experience they have no interest in the Byzantine complications which exist in theory, if no taxes are actually due.
@A broken man on a Halifax pier
Thank you – I can only do my best and not use way too many LCUs in the doing…
@Allou
I was told that a foreign, employer sponsored defined contribution plan is not an “account” but is a specified foreign financial asset. As such, it was omitted from my FBAR but included in 8938.
In theory, FBAR should be dead easy. I am very financially literate. But, given the guilty of a willful violation unless proven innocent beyond any possible doubt standard, I, rather bizarrely, paid my US tax advisor to count the number of “accounts” I had to confirm I had 25 or more and could file the “short-form” FBAR (ie name address but not all of the bank details). How stupid is it that an “account” is so ill-defined and the penalties so vastly disproportionate (5,000x my 2011 US tax liability) that I don’t feel confident counting them? I just hope that a term deposit and a current account with different account numbers but linked under the same customer number are indeed two separate “accounts”.
@Edelweiss
Thank you – I have done the same with the Fbars listing all separate account numbers even though they are linked under the same account holder. My pension plan is covered by a tax treaty as I am employed by the local government and the pension is only taxed in country of residence under a treaty article “government service” I can see that foreign pension plans are listed on 8938 instructions, however all my other accounts are below the 200,000 dollar reporting threshold and the value of the pension plan is unknown. What to do? I feel I there is a new reporting form popping up as soon as I get done with the last one! One friend suggested I send everything both via streamlined and the regular IRS system – I really am in a quandry.
@Edwards and @allou, I didn’t quite know to count up all my accounts for F-bar either. I had sub-account numbers within the account, itself; I also had the same mutual fund’s account number change even under the same share administrator, plus have had share administrators change through no choice of my own..
I didn’t know if I was expected to list travel cards or gift certificate amounts held in my local Amazon account; or pre-paid telephone accounts, or PayPal, or store cards, etc.
I agree that the lack of clarity is worrying because if my F-bars were ever audited, there could be disagreement on how I numbered the accounts, which were over 40!!! I could thus be looking at separate $10,000 fines for each individual sub-account. My f-bare fines could then run into the millions. I am not a rich lady.
All I can think is that, in a way, I’m glad I had to submit an 8938 for 2011 because they will then be able to see what my accounts consist of. It makes my situation more clear to them, thus reducing the likelihood of a nasty audit.
My accountant says that at least up to now, they’re not hitting expat minnows filing quiet f-bar disclosures with fines and aggressive audits, though imagine that this could change from April 2015 if they start receiving all the FATCA reporting from foreign governments. I also understand that it will be much easier for them to start assessing automatic penalties for late filing once electronic filing for f-bar becomes mandatory in July 2013.
@Monalisa1776,
You wondered:
“I didn’t know if I was expected to list travel cards or gift certificate amounts held in my local Amazon account; or pre-paid telephone accounts, or PayPal, or store cards, etc.”
I happened to speak recently to a very pleasant person at the FBARS call center (in large part because I was just curious as to how this call center responds to questions) who advised that pre-paid credit/store cards, lines of credit etc. do not have to be reported on FBARS as long as the amount in each “account” is not more than $10,000.
@A broken man on a Halifax pier,
Thanks for sharing your info. I am struggling with what to do, so appreciate all info from others on this site. I am assuming that you: a) did a disclosure outside of the streamlined or OVDP, b) had not previously filed U.S. tax forms and FBARs and c) prepared them yourself. Are these correct assumptions?
I am also a bit puzzled by a few of the comments you made concerning the PFICs and US citizenship.
“We didn’t worry about PFICs because they’re dumb. Jane Jacobs (like me, an ex-US citizen) said something about how it was stupid to organize your life around the demands of a stupid government. ”
Can you please clarify what you meant by this comment? Did you have PFICs but didn’t bother to file any 8861s related to them? Did you file form 8939 for 2011? If so, how did you deal with the assets on that form that the U.S. considers to be PFICs? Have you renounced or relinquished your U.S. citizenship already ?
From your final comment I am guessing that you did not have any tax due in any of the years you sent in. Is that correct?
@ Annie,
“I did them myself. After months of my own personal drudgery, I felt confident that I could complete the forms myself, thanks mostly to this site and a few others. We had 2 TFSA and an RESP which caused us to complete three 3520/3520A (dont forget your EIN for these accounts) and fourteen 8621′s (PFIC) for each year.”
Wow, I am impressed that you were able to fill out forms 3520/3520a and 8861 without the help of a tax preparer! I find these forms very confusing. Can you please point me to some specific comments or links that you found helpful in completing forms 3520 and 8861?
@IRScompliantforever, I am pleased to hear that the fbar helpline don’t think it’s necessary to include minuscule or miscellaneous types of accounts; but as I’ve already listed these out on my f-bars and 8938 for previous years as well as 2012, I will also include them on my final fbar next year for 2013 –especially as my tax preparer believes it’s safer to over-report when in doubt.
I am reasonably optimistic that things will continue to go smoothly but will be relieved when all my f-bar statutes of limitations have finally closed in, I think, July 2020!!!
In the meantime, will get on with my life! 🙂
@albatross
a), b) and an accountant (a wise woman who has now gotten out of the US tax business, and only does Canadian taxes).
I just started filing. The whole thing was aimed at getting five pretty basic returns in so I could file an 8854 as an uncovered expatriate. (I qualify in any case under the dual-citizen exemption.)
I don’t owe any taxes, being doubly protected by the FEIE and the Canadian-US tax treaty, and also have no US income.
If I were to inquire more closely, I might find that my RRSP and so on were PFICs – it’s always possible.
(The whole point of the PFIC system is to deter USCs from investing in foreign mutual funds through onerous paperwork – applying this outside the country is just abusive. I have a busy life and two small children, and refuse to spend more than a minimum amount of time on this crap.)
FWIW (now responding to a comment uptread) “quiet disclosure” is the wrong term – it refers to people who actually owe taxes trying to enter or reenter the system. What this kind of return is aimed at is showing that no taxes are owed.
The bottom line is that I’m a Canadian-born Canadian resident and now (unhyphenated) Canadian citizen with no US assets or income.
@albatros
I tried to follow the IRS instructions, but, they didn’t make sense (most of the time). I found good information on the discussion threads at Serbinski Accounting Firms forum (I also found alot of misinformation). Search 3520 on that forum (and 8621). Phil Hodgen’s blog was also helful (search for Foreign Trusts and also PFIC)
By chance I came across a reference on the Internet this week to FATCA and FBAR being potentially catastrophic to US expats and dual nationals. That definitely caught my attention and when I googled those acronymns and discovered what they were about (as I had never heard of them), I felt an immediate sense of shock and panic at seeing the penalties associated with them. I’m still trying to figure out if, and to what extent, those penalties might affect me.
I’m a dual national of the US and an EU country, which I will refer to as ‘EU1’. I’m currently resident in EU1 and at the moment have the equivalent of about $2,000 (never had more than the equivalent of $3,000 since 2010 – way below the $10,000 threshold) in my local (EU1) bank account. I also have the equivalent of a couple hundred dollars in another bank account in a neighbouring EU country (I’ll call it ‘EU2’). I studied and worked in EU2 in the late 90s and never had more than the equivalent of a couple thousand dollars (maybe about 3,000 max) in my EU2 account at any time. I never had as much as the equivalent of $10,000 in the two accounts combined.
What I’m worried about, however, is my bank account in an EU country I’ll refer to as ‘EU3’. I worked in EU3 in the last decade, and for 4 years between 2005 and 2009, had the equivalent of over $10,000 in my EU3 bank account (maxing out in the high $30,000s one year). I left EU3 in 2009 to return to EU1 and transferred all of the money in my account (except for the equivalent of about 10 dollars) to a relative in EU1 to pay debts. I was informed later that year that my EU3 bank had closed my account saying it wasn’t worth their while to keep it open, now that I was no longer resident in EU3, and that the yearly charges had exceeded the amount in the account, anyway. I was unemployed between early 2009 and late 2011 and from early 2009 to the present, the combined amount in my EU1 and EU2 accounts has never exceeded the $10,000 threshold (or even got anywhere near it). I’m nearly certain that none of the banks in EU1, EU2, or EU3 is or was aware of my US nationality; I opened accounts in all 3 countries as an EU1 national. The only doubt I have is that in my applications to open the accounts there may have been a question about my birthplace or whether I had any other nationality (I don’t remember any questions of that sort but I could be wrong). I think that’s enough info for a first post. I would be willing to comply if I could be guaranteed that I wouldn’t be penalised for FBAR violations (out of complete ignorance) as being penalised would wipe me (and my wife, an EU national and non-USP) out financially.
This shakedown of law-abiding US expats/dual nationals is an injustice but it would be an extreme injustice to apply it to a small-fry like me as I’m a minnow even among minnows (BTW, I’ve never got anywhere near the yearly income thresholds). Would the IRS or Treasury Dept. even bother with a mini-minnow like me? Would it be worth their trouble?
@Albatross,
Like @Annie, I fill out 3520 and 3520A each year for my tiny Canada TFSA as best I can. I also obtain some selected advice through reading Serbinski forum.
The first year IRS challenged me on filing 3520 “beyond the due date established by law” (I explained that I live in Canada [a foreign country] and have until June 15 to file).
The second year IRS complained that I did not attach part of 3520A (Foreign Grantor Trust Beneficiary Statement) to form 3520 (true). I apologized and sent in an amended 3520.
Increasingly, I have become worried that I will make another mistake on these complicated forms that will result in penalties and non-compliance. Therefore, this year I terminated my little TFSA and have decided never to own another (as a US person).
My practical problem now is that even after death of my TFSA, when you would think that all should be peaceful, there is the risk that I will make the most significant error possible by not filling out correctly the dreaded “distribution” portion of the final trust forms.
Like many others who renounced/relinquished their US citizenship in 2012, I am now in the process of preparing my final tax return and have a few questions that perhaps someone can help me with. I had assumed that I had to file a dual status 1040 return where I only included income up until the date of my CLN. I also might need to file a 1040NR for the remainder of the year when I was no longer a US citizen.
Recently I came across the exchange of information on the serbinski board/blog seen at the end of this post. It implies or even states that I have the option of filing a normal 1040 for the whole year and the 8854 instructions allow this. Also,, there may be special provisions in the US/Canada tax treaty that permit this. Although in my reading of the instructions I can’t find the specific reference, several posters there seem sure this is possible.
Since I renounced late in 2012, this would be the easiest approach for me as I have lots of foreign tax credits from previous years that will go unused after this final filing. It would save me the pain of trying to allocate various payments between the parts of the year where I was and was not a US citizen. Also I would be able to claim the standard deduction and get credit for a full year of Canadian taxes, since it would not be a dual status or partial year return.
Any thoughts?
http://forums.serbinski.com/viewtopic.php?p=27188&sid=7c321b733ba04af476815a4fdd9693a9
Here is another link to the issue of only filing a 1040 for the full year rather than a dual status or partial year return(s). This thread is a year later and provides information related to the use of form 8833 to report a treaty based position. In this case article XXV(1). But It is very general and could apply to many other things.
http://forums.serbinski.com/viewtopic.php?t=7442&start=0&postdays=0&postorder=asc&highlight=
@all
Situation: Have not filed in decades, had no idea I was supposed to.
Aim: To renounce as I am dual – born in EU, naturalized in US as child.
I have current year plus 6 back years of IRS and Fbars ready – owe no US taxes. so…
Can anyone explain the difference – pluses and minuses – between sending the 6 back years in , or entering the Streamlined programme requiring only 3 years of irs filing + 6 years Fbars?
Thanks
@IRSCompliantForever, re ….”Increasingly, I have become worried that I will make another mistake on these complicated forms that will result in penalties and non-compliance. ……. I terminated my little TFSA and have decided never to own another (as a US person).
“……even after death of my TFSA, when you would think that all should be peaceful, there is the risk that I will make the most significant error possible by not filling out correctly the dreaded “distribution” portion of the final trust forms.”..
Exactly.
Because all this is so complex and comes complete with pitfalls and penalty jeopardy, I tried to find help with filing the extension form for the 3520 A, and even then, the accounting firm wanted me to sign an unlimited letter of engagement before they’d even complete just the extension form itself. The extension form is used for so many other forms that it is more complicated because it is intended for so many purposes and situations. And the official IRS instructions were of very little help. Add to that the difficulty of finding out the correct address to use for sending it via courier – from outside the US – in order to get acceptable proof that it was filed timely and received. Most of those forms list a P.O. box in the US, which the couriers won’t deliver to, and I found inconsistency on the IRS site itself in terms of the courier acceptable addresses for each particular form. If it doesn’t go to the right IRS processing center, then it isn’t timely filed and can be lost forever in the gaping maw of the IRS.
And what is the difference between using Form 2758, “Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns http://www.irs.gov/Individuals/International-Taxpayers/Reminder-to-U.S.-Owners-of-a-Foreign-Trust used for extension application to file 3520-A, and using Form 7004? It is very confusing, and as you note, fraught with potential peril even for inadvertent errors.
The preparation fees and the peril far outweighs any small gain achieved by having a TFSA.
Makes me very angry. Why the hell is this necessary. And why hasn’t our federal government done something about the IRS treatment of TFSAs, RESPs, RDSPs, and now PRPPs? Why continue to market them to us via Ministry of Finance press releases, without any warning to duals and other ‘US taxable persons’? Those press releases just continue to be churned out by Minister Flaherty, even though he knows about the toxic IRS treatment of them.
ex. …”The Whitby-Ajax MP and one-time provincial deputy premier is now in his seventh year as the Federal Minister of Finance. This month he celebrates the birthday of his biggest gift to taxpayers: The Tax-Free Savings Account. The TFSA was introduced with little fanfare in the 2008 budget and, alongside the Registered Retirement Savings Plan (RRSP), is one of the best ways Canadians can shelter savings and investments from tax.
In that 2008 budget speech Flaherty called the TFSA the “single most important personal savings vehicle since the introduction of the RRSP….” http://www.thestar.com/business/personal_finance/spending_saving/2013/01/06/tax_free_savings_account_turns_5.html
http://www.fin.gc.ca/n12/12-179-eng.asp
” Key features of the TFSA to keep in mind:
A TFSA is available to all Canadians, 18 years and older; “
Don’t know if this Canadian op-ed was posted before, so here it is:
http://www.guelphmercury.com/opinion/columns/article/920524–why-some-american-citizens-living-in-canada-should-be-concerned
Kevin Cahill, Guest column
Thu Apr 18 2013 08:17:00
‘Why some American citizens living in Canada should be concerned’
“I think living as a U.S. citizen outside of the United States is at best difficult and at worst impossible from a taxation perspective.”……..
………….”Many will see the difficulties as being too great, too time consuming and too expensive and will renounce their U.S. citizenship. Canada only taxes by residency. The U.S. taxes by birth. Once a citizen always a citizen. You pay tax no matter where you reside. If you want to give up your citizenship you have to pay all taxes you are deemed to owe. This means if you own a business or a home, you have to pay the taxes on unrealized capital gains on them to be free.
Who could have known all this? U.S. citizens and those married or in a common law relationship with a U.S. citizen might want to avoid Canadian investment plans.
The news does get worse if we were to look at Canadian mutual funds and home ownership.
Oh and by the way, beginning Jan. 1, 2014, the Foreign Account Tax Compliance Act will require banks, insurance companies, investment firms and credit unions to collect and report certain information on accounts held by U.S. persons to the IRS.”
Comments may be possible on this op-ed.
Sound familiar…. FATCA will be no different…
IRS Data Web Snares Mostly Low- and Middle-Income Taxpayers
The Internal Revenue Service relies on technology more than ever to sniff out tax cheats using robo-audits and data mining–but so far it has caught lot of minnows, and big fish are still eluding detection.
Quite true, Just Me. FATCA and other tax measures/steps by the IRS aren’t going to catch the major tax cheats. They’ll have already moved their assets to places that still refuse to implement FATCA or have simply converted their wealth into gold bars, etc. Meanwhile the American domestic taxpayer has no idea how intrusive the IRS is becoming in searching out tax evasion.
From 2011…
U.S. Business Leaders Request FBAR Relief for Employees of SEC-Reporting Worldwide American Companies
Didn’t they know that FIN-Cen had already delegated FBARs to the IRS, so no way were they going to give up their revenue penalty hammer. So much for this plea.
thanks for posting that @ Just Me,
I noted with interest that many of the objections raised are ones we make to no avail – re employer accounts, charitable organization accounts, and other accounts where there isn’t even current access, but only a contingent theoretical future one.
Continues to be so ironic that large US connected banks are continually in trouble for assisting in money laundering and aiding drug lords, and tax evasion, but it is those living outside the US with ordinary household accounts, and those expected to report on non-personal accounts that continue to be burdened. See this http://www.bloomberg.com/news/2013-03-31/money-laundering-banks-still-get-a-pass-from-u-s-.html
‘Money-Laundering Banks Still Get a Pass From U.S.’
By Simon Johnson Mar 31, 2013 6:30 PM ET
…..”There may be fines, but the largest financial companies are unlikely to face criminal actions or meaningful sanctions. The Department of Justice has decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility, legitimacy and stability of the financial system.
To see this perverse incentive program in action, consider the recent case of a big money-laundering bank that violated a deferred prosecution agreement with the Justice Department, openly broke U.S. securities law and stuck its finger in the eye of the Fed. This is what John Peace, the chairman of Standard Chartered Plc (STAN), and his colleagues managed to get away with March 5. The meaningful consequences for him or his company are precisely zero. “……