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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.

3,618 thoughts on “US expat tax and FBAR: Discussion thread (Ask your questions) Part Two”

  1. If someone was under the reporting threshold (which I think is around 11K), and wanted to become compliant, (with eventual goal being renunciation) say under the streamlined program, would that person still have to submit 3 years of tax returns or just send a letter explaining they were under the reporting threshold for each of those 3 years?

    For such an individual, would another approach to divorcing USA, be simply to renounce, then send a letter explaining they were under the threshhold for the past 5 years and thus tax compliant even though they had never filed?

  2. Another question re: my previous post, does the 5 year tax compliance certification include FBARs?

  3. @WhiteKat

    This is my understanding re FBARs. I can not guarantee it’s correctness.

    For renunciation you must certify that all tax obligations have been met for the previous 5 tax years. Since FBARs are a tax obligation, I can’t see how they wouldn’t be required if the the magical aggregate threshold is reached. The instructions for form 8854 go into tax obligations a *bit* more, and again I can’t see how FBARs would not be considered a tax obligation (assuming above threshold)

    Note that Streamlined will require 6 years of FBARs. I do not know if that changes if your assets don’t reach the magical aggregate threshold ($10K ?). I also don’t have an inkling of an answer to your first question re sending an explanatory letter vs 3 years of tax returns for Streamlined if your income is sufficiently low.

    Having said that, *if* your income has been below the income tax reporting threshold for the last number of years, and *if* your “foreign” accounts aggregate to below the FBAR reporting threshold as well, then it would appear you are indeed compliant. I imagine not fulfilling either of these would make you non-compliant.

    I invite others to correct where wrong.

    Hope this is accurate and helps at least a bit.

  4. tdott, WhiteKat,

    That is how I understand it as well. Good explanation for a complicated concept.

  6. @WhiteKat, the question you ask is if FBARs are necessary in order to complete the tax expatriation process. FBARs are not a tax requirement but a requirement under the criminal code related to the Bank Secrecy Act. It is not therefore necessary to file FBARs or to be up-to-date or in compliance with FBARs in order to certify an 8854. So far those who say 6 years are talking only about the actual FBAR requirement, and that is not related to expatriation for tax purposes.

    I will have you know that I’ve never filed an FBAR, though I certified that I am tax compliant on my Form 8854–which is true. FBAR is a circumvention of the 4th and 5th amendments with draconian penalties that violate the 8th amendment. It seems to me highly doubtful that they will ever come after me either.

  8. Assume someone has 5 years of being below the filing threshold, but has never filed before. She renounces and certifies tax compliancy (due to being under the threshold), then files form 8854.

    If that person never had a SSN, could she still file form 8854.

  9. My mother, if she renounces, is in the situation of having been under the tax reporting threshold for over 35 years. I’ve been trying to get a definitive answer to this question as well.

    Of course, she’s never heard of FBARs. It seems reasonable that since the instructions for the 1040 clearly lay out the income thresholds for filing taxes, that being under the threshold and not filing is complying with her tax obligations.

    The 8854 instructions for line 6 state:

    NOTE: I believe the threshold amounts refered to above are 8854 thresholds, not 1040 thresholds.

    I’m not convinced that FBARs are a tax obligation. They are an 8854 obligation, but tax? They go to the Treasury, not the IRS. But, isn’t there a new IRS form that is almost identical to the FBAR that is part of the tax filing for non-residents?

    Roy Berg told me that you (my mother, in fact) can’t file FBARs without filing 1040s because FBARs are mentioned as a requirement in the tax return. I can’t (yet) believe what Roy said. Sorry. I searched and found the FBAR mention. It’s in some obscure Schedule B that is not even part of the 1040 “package”. On that schedule, you answer YES to some question and it just tells you to submit FBARs to the Treasury. Nothing is even included with the tax return except for the YES answer to whatever the question is. How could one possiblly know about that if the 1040 instructions clearly provide a low income threshold for filing in the first place?

    It would be nice to get these details sorted out.

  10. The other question I have regarding this mythical person who is renouncing and has 5 years of income under the filing threshold is regarding foreign trusts.

    If she has foreign trusts (say RESPs or TFSAs) does she not have to file forms 3520 even though she doesn’t have to file 1040 or does being under the income threshold exempt her from reporting foreign trusts?

  11. It was this section in the 8854 instructions I was thinking of above:

    Check the “Yes” box if you have
    complied with your tax obligations for
    the 5 tax years ending before the date
    on which you expatriated, including but
    not limited to, your obligations to file
    income tax, employment tax, gift tax,
    and information returns, if applicable,
    and your obligation to pay all relevant
    tax liabilities, interest, and penalties.

    My assumption was that FBARs fell into the “information returns” category.
    However, Petros’ argument seems quite plausible.

    OTOH, the IRS is the one *now* enforcing FBAR compliance in general, no? If so, the IRS may well see FBAR compliance as part of being tax compliant, regardless of the origins of the requirement (I’m not saying they’re right to think this, just that they might think this [given their past behaviour]).

  12. Well, I totally screwed up my post above. I meant to hightlight the 8854 instructions but somehow missed including them at all. tdott got them. Thanks!

    There is actually one more sentense in the instructions. This is the bit that says you will be deemed a covered expat if you have not complied with tax obligations for the past 5 years. I’ll post it here to practice quoting:

  14. See right below the text box here. notice where it says blockquote cite= ” ” Insert your quotes between the ” ” You will need to add the in the appropriate places, and then

  15. Actually, I tried the example below, and it didn’t work. I usually just type blockquote surrounded by the at the beginning of the text I want to quote, and then at the end, go /blockquote again surrounded by

  16. @WhatAmI

    Re: quoting – what I do is use the ‘blockquote’ tag and ditch the ‘cite’ attribute. E.g.:

    this is something to quote - blah, blah, blah

    [Hopefully this comes properly :-)]

  17. Well, even on a stand alone basis the ‘lessor than’ and ‘greater than’ don’t show in the example I was trying to give you… but if you see the example below you get the idea.

  18. Dang – that didn’t work at all. 🙁 Tried to use the code tag to allow me to show angle brackets.

    Basically what Just Me says to do.

  19. WhitKat

    Re your mythical person. It is not possible to be compliant with TFSAs and RESPs. There is only one thing to do. Forget they exist.

  20. That’s not what I wanted to highlight at all. How does one use a HTML tag???? I wanted to highlight the part in the 8854 instructions that says ‘if you were never issued a SSN, attach a letter explaining why’

    Someone under the filing threshold for 5 years ain’t going to be bothered by them.

  21. @Duke of Devon…

    The problem with telling you how, is I have to use the tags that then disappear in any example I give…

    So, let me try again by writing it out…

    ‘Less than’ symbol followed by the words ‘blockquote’ followed by the ‘Greater than’ symbol.

    Now type out your text

    At the end of the text same process. Use the ‘Less than’ followed by ‘/blockquote’ followed by the ‘Greater than’ symbol.

    In any of those examples above DO NOT USE the ‘ ‘ that I used to highlight the terms.

    If you do that, than you get this result…

    if you were never issued a SSN, attach a letter explaining why’

    Hope that is clear…

  22. Thanks everyone for the help with quoting. I had tried cite alone, and blockquote with cite (both as shown below the edit box), but not blockquote alone.

    If you do that, than you get this result…

    Now, if only dumping US citizenship were so easy…

  23. ok JustMe, it works!! Have never known how to do this.
    Just see how valuable you are! 😉

    now type out your text

  24. @WhiteKat
    I could have sworn I read on the 3520 instructions that it wasn’t necessary to file 3520 if no 1040 was filed. The instructions don’t seem to say that. Am checking the actual form.

    @tdott,

    That’s what’s so frustrating- the IRS can pass it along erroneously, as if FBAR was an IRS issue.

  25. Just Me you’re a star

    White Kat this is from the instructions for 8854

    Identifying number. Generally, this number is your U.S. social security number. An incorrect or missing identifying number may result in a continued obligation to file U.S. tax returns as a citizen or resident of the United States for persons expatriating after June 3, 2004, and before June 17, 2008, and/or a penalty of $10,000. If you were never issued a social security number, please attach a statement explaining the reason.

    Your mythical friend was under the filing threshold for 5 yrs. The IRS is overworked and understaffed. . They won’t bother him or her.

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