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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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.

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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. @bubblebustin
    thanks, I read that link fra January. Democrats abroad must be confused, but there were never any corrections posted later. BTW good latest articles in WSJ and Toronto newspaper.

  4. @notamused
    Absolutely ridiculous! Self-employed ex-pats will be hit hardest by CBT. The article did not state whether you are exempt if you pay the local equivalent taxes. In Canada self-employed pay CPP which is the equivalent of social security. Does that mean the self-employed pay both? I just shake my head.

  5. @marie
    No, you do not have to pay into both systems if you’re already paying in your country of residence.

  7. Thanks for this link, notamused.

    I don’t think the oil & gas company was (but does have a US presence now) considered a US company when they (as AEC, Alberta Energy Company) hired me in 1985? How many other non-US employers in Canada inadvertently hire persons who would be considered US Persons, i.e. how many “Accidental Americans” born in Canada? Of course I’m just a small fish, but did the company that hired me report to the US for my many years of employment? I doubt it. They certainly knew that I was a US Person as my experience at Boeing in Seattle was part of my resume. How many, how many?

    Full disclosure of requirements (and no wonder the ones that know do NOT want to hire US Persons) is absolutely necessary for every other-country than the US employer, as well as for every US Person taking employment in other countries. Is it to the US best interests to batten down that US border and keep the homelanders in?

  8. @Calgary411

    The broader issue is that these companies will be faced with the potential if having to discriminate against US citizens in their hiring practices.

  9. Absolutely, bubblebustin. Very good point. Discrimination by these companies, as well as discrimination by our Canadian (and other country) banks and the countries we are citizens and residents in.

  10. Just throwing out some questions for all of us to ponder.

    TD, RBC, BNS, CIBC, etc. I guess by virtue of their US branches, would be designated US companies(?), but do they have a requirement to search out US Persons and do they report all their US Person employees’ information to the IRS? Do they (yet?) “discriminate” and ask if a perspective employee is a US Person?

    How would Canadian banks or Canadian oil & gas companies or any other Canadian or other-country company determine perspective employees who are “Accidental Americans”? It appears Canadian and other-country companies, by US law, must have (and should have all along) the same processes as the Canadian or other-country banks that will search for US Persons.

    Why would any Canadian allow this to happen, over and above the Canadians that are designated by indicia ‘US Persons’? Not many, including the media and including the Canadian government leaders, are paying attention. This affects everyone.

  11. Calgary just posted this at Sandbox and asked me for my opinion as a retired Human Resources Manager. I’m not going to answer it in detail tonight, but it is nothing to be concerned about. This does NOT require employers outside US to identify American employees and report to IRS.

    Here is what I said at Sandbox. More to come tomorrow.

    @Calgary411: Take a very, very deep breath!!!

    That information from IRS has NOTHING to do with employers outside IRS being required to report to IRS.

    There is a simple explanation for it, although it may seem complicated to non-HR professionals.

    I will try to post something tomorrow. For now, I will say this is very similar to CRA standards for determining if someone is an employee or if someone is self-employed.

    As much as we love to hate the IRS, this is not one of the reasons.

    I’m FATCAed out for today (I have been working on a couple of other FATCA projects out of the Sandbox today), so I don’t have the energy right now to give this the attention I think it needs to explain it in ways people can easily understand.

    I will cross-post my answer tomorrow at Brock.

    In the meantime, no one should lose sleep over this tonight.

  12. Thanks, Blaze. Not losing sleep over it. I (and others) will welcome a better explanation from someone with expertise on this.

    Is the author’s “There is also an exception for amounts on which the employer is required to withhold income tax by the laws of any foreign country / United States possession.” (i.e., Canada’s withholding on the earnings of the employee) what makes the difference? The author, Virginia La Torre Jeker J.D., gives the example of UAE countries not collecting income tax so the exception would not apply there. Is the exception similar to terms of the US Social Security / Canada Social Insurance agreement?

  13. This is what I just posted at Maple Sandbox about the article which Calgary asked me to comment on as a retired Human Resources Manager.

    @Calgary: I first need to do a huge mea culpa. When I went to Brock, I linked to the wrong article–the one on determining if someone is an employee or if one is self-employed.

    This morning while my energy and concentration is better, I discovered the article you were referring to is different than the one I read.

    For others, this is the article Calgary was referring to. It was posted by notamused at Brock

    http://blogs.angloinfo.com/us-tax/2013/08/26/tax-shock-for-foreign-employer-with-us-employees-learn-your-withholding-duties/

    This is going to take a bit more research on my part. I want to try to gather some more information and consult some others before I say anything further publicly. I will see what I can find out and post something later today or tomorrow.

    In the meantime, I apologize for saying that this has nothing to do with employers outside US being required to report to IRS and saying there was a simple explanation.

  14. Thanks, Blaze, for taking on the additional task to try to help us understand the link provided by ‘notamused’. I thought you might have some insight into this, having been a Canadian HR Manager.

    In my reading, it just harkened to me that it might be more of what was previously ‘overlooked by the US,’ now coming back to bite us. That the banks that will be looking for US Persons in countries outside the US also need to look for US Persons in their employ (and should have been doing so all along?) seemed ironic.

    Is it that Canada and other countries with US Tax Treaties are exempt from reporting / withholding, but such countries as in the UAE are not and they will be the ones affected?

  15. I am just beginning some of my research into this. I’m am going out in a few minutes, but I wanted to post this information directly from the IRS that I located:

    http://www.irs.gov/publications/p54/ch02.html

    This deals with U.S. employers with employees outside U.S. and says:

    U.S. employers generally must withhold U.S. income tax from the pay of U.S. citizens working abroad unless the employer is required by foreign law to withhold foreign income tax.

    The important point in that information is that Canada and most other countries of the world is that employers are required by law to withhold income tax by those governments. Therefore, they would not e required to identify U.S. citizens among their employees and withhold tax for IRS. Just as important is the fact they also could not do that legally under provincial and federal human rights laws.

    I agree there may be implications for countries where income tax is not withheld or where there is no income tax. That doesn’t apply to Canada or to the countries where most Sandboxers and Brockers live and work (At least I don’t think it does.)

  16. Perhaps the only way it might??? affect here is if (covered by the US/Canada Tax Treaty??) an employee exceeds the US FEIE and housing allowance or if, indeed, the US is successful one day in repealing the FEIE. Thanks for providing the IRS link, Blaze.

    From the author, for me to ponder:

    …In the Ruling the IRS makes clear that a foreign employer of a US citizen or resident must withhold US income taxes, even though the foreign employer has no US trade or business or other US connection, such as a US payroll system.

    In my view, this Revenue Ruling oversteps jurisdictional boundaries as any US nexus is lacking. How can the IRS mandate that a foreign employer without US connections withhold on wages it pays to a US employee who is working in a foreign country?

    And, would the ruling apply to all US Citizens working Abroad, even those who are now citizens of other countries, including supposed “Accidental Americans”?

  17. This is what I just posted at Maple Sandbox.

    @Calgary and Others: The more I look at this and at the information from IRS, the more convinced I am this does not apply to countries which are required by law to withhold income tax and submit it to the country’s tax authority.

    I will use Canada as an example. In Canada, by law, Canadian employers must withhold income tax from every employee’s pay. Then, they must issue a T4 every year to CRA and to each employee to confirm income paid and tax, CPP and EI deducted.

    For this reason, no companies in Canada are required to withhold for IRS because the employer is “required by foreign law to withhold foreign income tax.”

    I believe FEIE is irrelevant in this situation because there is a total exclusion from the IRS requirement even for US companies in Canada. “Accidental Americans” are also irrelevant in this situation for the same reason.

    The author is an experienced American tax lawyer who has lived in Dubai since 2001 and who also worked in Hong Kong for 15 years.

    It is important to remember she was writing for AngloINFO Dubai in United Arab Emirates. I checked and did not find similar information on AngloINFO Worldwide, Argentina, Australia, Indonesia, France, Switzerland, etc.

    Her comments that you posted followed her last sentence in the previous paragraph, which was:

    This latter exception would not apply in many (if not all) cases in the Middle East since generally most Middle Eastern countries (such as the UAE) have no income tax.

    Therefore, I think her assessment and comments relate to Middle East countries.

    I do share her opinion and question that:

    In my view, this Revenue Ruling oversteps jurisdictional boundaries as any US nexus is lacking. How can the IRS mandate that a foreign employer without US connections withhold on wages it pays to a US employee who is working in a foreign country?

    Although I support her position and question, I see no reason for it to apply to Canada or to any other country where employers by law must withhold and submit tax.

    Some (or is it all?) Middle East countries don’t have income tax, so there is no need to withhold and report. I suspect (but don’t know for sure) that many U.S. companies in Middle East are already withholding and reporting to IRS on their US citizen employees.

    I spoke with two friends today who worked for several years in Middle East–one in Dubai and one in Saudi Arabia. I asked them what they thought non-US companies would do if they were required to do this in the Middle East.

    The friend who worked in Dubai said: “Send them home and hire someone from India.”

    The friend who worked in Saudi Arabia said: “Ignore it.”

    In any case, my conclusion after several reviews of the article and the information I posted above from the IRS is that the issue that the author raised does not apply to any country which is withholding tax under the laws of that country-i.e. Canada, France, Switzerland, Germany, New Zealand, UK, Australia, etc.

    It would be great if anyone who knows how to contact Virginia La Torre Jeker could ask her if she would be interested in sharing information here and at Brock about what this ruling actually said and what countries it might affect. I would also welcome feedback from her (or any other tax lawyers who may read this) on whether my conclusion is correct or not.

  18. Blaze, thanks many times over for the time you have taken to research and give us your conclusions, partly based on your Canadian HR expertise, partly based on your US Citizenship matters expertise, as well as conversations with colleagues.

    I have found a reference to Virginia La Torre Jeker and her email address (vjeker@eim.ae) at Steven Mopsick’s site, where he refers to one of her blog entries: Renewing Your US Passport? BEWARE — – State Department Turns Over Your Social Security Number & Location to the IRS (yet another subject). I will send her an email and ask if she would like to share with Isaac Brock Society and Maple Sandbox information on what countries might be affected by the ruling she refers to might be affected.

  19. Dear Reader:

    I’m a bit ‘confused’ as to your ‘confusion’. My US tax blog post very clearly states:

    There are two possible exceptions to income tax withholding that may apply to US citizen employees. Generally, these are for amounts paid to US citizens (note, not to green card holders) when the amounts are covered by the foreign earned income / housing exclusions of Code section 911. There is also an exception for amounts on which the employer is required to withhold income tax by the laws of any foreign country / United States possession.

    The relevant law is in Section 3401(a)(8)(A)(ii) of the Internal Revenue Code which basically excepts from the definition of ‘wages’ subject to income tax withholding, remuneration paid for services performed in a foreign country or in a possession of the United States by a United States citizen if, at the time of the payment of such remuneration, the employer (other than the United States or an agency thereof) is required by the laws of any foreign country or of a United States possession to withhold income tax upon such remuneration.

    Thus if a foreign country requires the employer to withhold income tax, the employer should be covered by the exception set out above.

    For your further information the Revenue Ruling referred to is Rev. Rul. 92-106 1992-2 C.B. 258 http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl49a2/1/doc

    Virginia La Torre Jeker, J.D.

    Please note, this is not US tax or legal advice; but is for your general information only. Furthermore this information it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.

  20. Ms La Torre Jeker,

    Thank you for your prompt reply and for reassuring me that for most ‘US Persons,’ many citizens of and making their lives in other countries than the US with their own countries’ withholding income tax, will not be affected by the ruling you refer to. Thanks also for giving a link to that ruling, “The Issue” and “Law and Analysis.”

    It is indeed often difficult for me and I think many other lay persons and we want to be absolutely sure of the intent, especially with the ‘warning’ titles that lead us to read the continuing articles that may affect us. With the coming of FATCA and reading of the trend of employers of other countries turning away ‘US Persons’ as perspective employees, as well as some foreign banks declining financial services to US Persons, I am glad to see your exception highlighted and further explained. I will put your reply into a comment and we can put this one to rest. Better to be sure we are not affected than to be sorry to have misinterpreted another US law.

    Thank you very much for your time in replying to, especially, my concern.

    Regards,
    calgary411

  21. It would appear that Anglo info (Dubai) got it wrong and caused panic at IBS

    http://blogs.angloinfo.com/us-tax/2013/08/26/tax-shock-for-foreign-employer-with-us-employees-learn-your-withholding-duties/

    According to revenue ruling 92-106

    a foreign person is not an “American employer” as defined in sections 3121(h) and 3306(j)(3) of the Code. Therefore, because the individual is performing services outside the United States, and the individual’s employer is not an “American employer”, services performed by an employee are not included within the definition of “employment” for FICA and FUTA purposes. Therefore, remuneration paid the employee is not wages for FICA and FUTA purposes.

  22. Further:

    From: Virginia La Torre Jeker, FEMC
    Sent: Wednesday, August 28, 2013 8:25 AM

    Subject: RE: “Tax Shock for Employers with US Employees — Learn Your Withholding Duties”

    You are welcome. If you need help on US tax matters, we are happy to be of service.

    The real concern is what will IRS find next in the international area as a ripe field on which to assess penalties? One never knows! In the not too distant past, not many people were concerned about FBARs! Look at the situation today….. Trust you get the point.

  23. @ Sad in the UK,

    I just filed some FBARs online using my Linux machine and it worked just fine. Huge surprise. You have to have the latest version of Acrobat Reader installed, not the Document Reader that comes with the distro. Strangely enough, it did NOT work on my husbands Windows PC.

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