Liberty and justice for all United States persons abroad

The Isaac Brock Society

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. I just found a notice in my mailbox that the postman tried to deliver a registered letter in my absence. Today is Saturday, so I have no chance of getting it before Monday. It was addressed to ‘Mr.’ …, which leaves me to believe it came from the USA. My question is this: has anyone ever received registered mail from the IRS or Treasury? I never received anything registered from them before, but I’m concerned about it and would be interested to hear if anyone else has. Thanks in advance for your help.

  2. @notamused

    After being in OVDI for 19 months now, I welcome anything from the IRS, but to answer your question, no. The only correspondence I’ve received were two unregistered letters from Treasury telling us our private letter ruling for our RRSP’s was rejected and being sent over to OVDI and another containing the refund cheque for it.

  3. @bubblebustin

    I’ve read a *bit* about private letter rulings. They cost $$ to file, right? Did you get a lawyer to do yours, or did you do it yourself? And, is the $$ refunded if it’s rejected (the refund cheque you mention)?

    I’m trying to get some certainty on how to go from non-compliance to 5 years compliance, so thought a PLR may be the way. Probably isn’t, but won’t know till I find out.

    TIA

  5. @tdott

    We applied for a PLR through our lawyer, and yes it was a refund on the fee we paid for it, however we lost money because of what we paid our lawyer, and at the time the exchange rates worked against us on the refund! Our rejection is entirely due to the fact that we are in OVDI. We are now sitting in limbo. What should you do? Phil Hodgen offers advice:
    http://hodgen.com/how-the-irs-can-make-rrsp-cleanups-painless/

    And more recent and specific to Canadian RRSP’s on taxblawg:
    http://taxblawg.files.wordpress.com/2013/02/sheppard_intertaxjrnl_2-4-13.pdf

  6. Worth reading re expatriation, FBAR, certification of 5 years ‘compliance’ and FBAR, CRA and FBAR, 8854, Covered expatriate status, etc.

    Good to pass on to Members of Parliament who don’t have a clue what is at stake and how hard it is to expatriate.

  7. sorry,
    forgot the link:
    http://ca.linkedin.com/pub/kevyn-nightingale/0/b32/510

    Expatriation: The American’s Tax Experience in Canada

    Canadian Tax Foundation (Canadian Tax Journal vol 61 #1)
    May 1, 2013

    Authors: Kevyn Nightingale, Dave Turchen

    “This article catalogues the tax challenges faced by US citizens living in Canada – the onerous filing requirements and the limitations on their ability to utilize normal Canadian tax planning techniques.

    As a result, many Americans are choosing to renounce US citizenship. The article then discusses the tax implications of that decision. This is a peer-reviewed article.

    The Article is posted under “experience”, above. While usage is free, any publication of the article must cite the Canadian Tax Foundation as publisher (see the CTF website or contact me for details). “

  8. @badger

    I can’t see the article on LinkedIn. Do I need a premium account? Do I need to connect to him first? There is no “experience” section visible to me.

  9. @WhatamI

    I got it by clicking on the headline “Expatriation: The American’s Tax Experience in Canada”.

  11. @bubblebustin

    There is no such headline visible to me on the LinkedIn page, even if I click the “more” button at the bottom of the Activity section. There is no Experience section. Do you have a premium account? Are you connected to him?

  13. More mention of Marie Sapirie’s July 16, 2013 taxanalysts article ‘News Analysis: The Personal Impact of Offshore Enforcement’ http://www.taxanalysts.com/www/features.nsf/Articles/8E6965DFA3441ADF85257BAA0048E526?OpenDocument in July 17th, 2013 piece by Joe Kristan on the Roth & Co. site. http://rothcpa.com/2013/07/tax-roundup-7172013-stories-of-wounded-jaywalkers-and-checking-in-on-rashia/

    “Marie Sapirie of Tax Analysts has an excellent piece about how the IRS offshore account enforcement program treats the thousands of ordinary Americans abroad — and many green card holders living in the U.S. — as presumptive tax criminals when they try to remedy foot-fault paperwork violations in reporting offshore accounts….”

    He particularly notes;
    “…The taxpayer, like many others, sought help from a congressional representative in reaching a satisfactory resolution with the IRS. The response that the lawmaker received from the IRS — that the taxpayer could renounce U.S. citizenship — was disappointing….”

    “When the IRS is telling people to expatriate themselves, something is very wrong.”……….

  15. Has the consitutionality of Canada’s allowing the IRS to collect taxes in Canada ever been challenged? I know that there is protection for Canadian citizens who might also be considered US persons. However, what I find questionable is any cooperation at all by CRA even in helping IRS with collecting from people who are US citizens only and residing legally in Canada.

    My reasoning is this : any collection of taxes in Canada on transactions ( including payment of salaries, interest and dividends) taking place in Canada is the same thing as levying taxes in Canada. The Canadian Constitution and Canada’s laws specify who can levy taxes in Canada ( e.g. the federal government, the provinces, municipalities ). How can it be legal to allow a foreign power to levy taxes on our economy? Does the government of Canada even have the right to allow this in treaties? Isn’t that a relinquishment of sovereignty?

    What next? Would we allow a foreign government to require its expats living in Canada to save all cash register receipts and pay them a sales tax?

    Sorry if my terminology is imprecise… but it would be interesting to know whether there would be grounds for a challenge under the Canadian constitution.

  16. What “globe trotting’ Americans living in Canada need to know about filing taxes

    Q: I just heard about an upcoming U.S. law that will penalize Americans who are residents of Canada for not having filed U.S. tax forms. I am an 80-year-old American citizen and Canadian resident for 50 years and I have always been told it was not necessary to file due to low income. I am quite concerned and would appreciate some clarification on this matter.

    A: The short answer is yes; you must file a U.S. federal tax return, and maybe even a state tax return, in spite of having been in Canada the last 50 years. This has technically always been the case for U.S. citizens abroad but in recent years the IRS has become much tougher in enforcing filing rules for its expats, including those who mistakenly thought they were exempt because of low income. And unfortunately, depending on the rules of your home state, you may not be absolved from filing a state return.

    Read more here… http://www.montrealgazette.com/business/Talk+Money+What+Americans+living+Canada+need+know+about/8692506/story.html

  17. @Just Me,

    Huh? This article says that the low-income filing threshold doesn’t apply to US expats? Is this true? Is there a reference to a US government site saying so?

  20. From: http://www.irs.gov/publications/p54/ch01.html#en_US_2012_publink100047318

    Does this mean that the amount earned in a foreign country can be excluded from the gross income amount, thus leaving only earnings from the US?

    Gross income. This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax.

    For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing amount.

    …thus leaving many / most? (except for passive income in investments, pensions, etc.) with being able to be under the low-income threshold. It says that

    “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad.”

  21. @calgary411

    I’m no expert, but I looked into this for my mother a couple of years ago. I sent her this in an email but don’t know where I quoted it from:

    Are the Canada Pension Plan and Canadian Old Age Security Benefits taxable?

    Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in the United States. According to the U.S. – Canada income tax treaty, taxation of these benefits is based on residence. U.S. citizens or green card holders who reside in Canada are not subject to U.S. tax on this income.

    So, your quote about “income exempt from tax” for calculating the filing threshold does not include OAS or CPP, but it does include your earned income. That earned income is then excluded on your tax return under the FEIE such that you probably pay no tax in the end.

  22. Calgary. Because they don’t write I English, you are unfortunately incorrect.

    “Gross income includes any income that you can exclude as foreign earned income…..”

    Let’s say your foreign income Is 50K salary and 5kdividends. Your gross income is 55k. You then can deduct 50 under the foreign earned income exclusion.

    CPP and OAS are not taxable by the US for duals living in Canada. It is debatable whether they should be included in income and then an equal deduction taken or if you can just ignore them. Ignoring them is simpler.

  23. I’ve done a search but I can’t find anything on this. Does anyone know what to do about rental property expenses that are considered current in your home country but are considered a capital expense in the US (ie: replacing a roof)? This difference means that I have to deduct the expense from my rental income in Canada the year it is replaced but have to deduct it from my income in the US the year I sell the property. Obviously this results in double taxation since I’ll pay higher taxes to the US this year and higher taxes to Canada the year I sell. Since a new roof on an average house is around $5,000 – $7,000, it really is a big deal.

  24. A link to an article that says it is regarding some kind of update on a recent ‘clarification’ by the IRS on its ‘first time abatement’ policy.
    See;
    http://the-tax-wars.net/2013/06/01/irs-first-time-abate-policy-provides-penalty-relief-in-certain-situations/
    “IRS FIRST TIME ABATE POLICY PROVIDES PENALTY RELIEF IN CERTAIN SITUATIONS
    Posted on June 1, 2013 by steinbergtaxlaw

    The IRS today clarified its policy with regard to abatement of certain penalties for first time offenders. The policy was modified to clarify that relief applies only where the taxpayer is current with all tax filings and tax payments. See IRM 20.1.1.3.6.1…….”

    I can’t vouch for the accuracy of this articles’ comments, but just adding it here for consideration, as FTA has come up on IBS before. Perhaps this might be a useful avenue to explore for some readers – at least to read the portion of the IRM cited.

  25. @badger

    Thanks for posting that article. Having been born and living in a foreign country and not knowing one has the obligation to file US taxes isn’t on the “reasonable cause” list, although it should.

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