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.
Interesting post by Phil Hodgen, and also the subsequent comments – addressing UK ISAs (which sound similar to Canadian TFSAs) and the US obsession with defining everything as a foreign trust, and/or a PFIC.
http://hodgen.com/is-an-isa-a-foreign-trust/#comments
Serious, but also funny as only Phil can be on the topic of US tax. Which is hard to say about this topic as the US has used the ‘foreign trust’ and PFIC designations to screw so many of us. Via inordinately expensive accounting, incomprehensible instructions and forms, and double taxation.
@badger, what he doesn’t address is the fact that ISA’s are the UK main way of saving for your retirement these days. You have the basic State pension scheme, but if you want to add to that ISA’s are the way most people will do it. So how is the IRS going to view them in that respect?
I have been having a discussion with some people interested in renouncing / relinquishment. The question has come up a few times, “What can the IRS do to persons who have given up US citizenship and have not filed for many years, have no US assets or connections and never intend to travel to the US aside from declaring them in non payment of taxes?”
None of these persons have any significant amount of money and really have nothing to hide except that they don’t feel they owe any paperwork to the United States once they left the country and never returned. They have had a paycheck to paycheck existence outside the US and don’t feel they need to pay back taxes in that they have no money to pay with in any case.
@ExUSA, nothing.
@Medea Fleecestealer
Thats what we are thinking. It seems there is nothing to gain for them, and what legal power do they have outside of the country and with people who do not have US citizenship.
The main risks are the usual ones of course. If Canada signs up to FATCA then if they’re still Americans the banks will want to know so they can pass on their details. Failure to agree could lead to accounts being closed. They could end up with some sort of order against them which, if they cross the border again, could have serious consequences.
Relinquishing if possible due to gaining Canadian citizenship would be the best way forward, especially if this happened many years ago. If they’ve still to give up citizenship then it’s a risk if they don’t do the necessary filing. But if they never plan to go back to the US, have no assets/income from there they may be willing to take that risk.
I don’t know if this is the best place to post this comment, so please feel free to move it if appropriate.
As many of you know, I renounced this year and have my letter in hand. I had filed my taxes regularly, and nary a peep from the IRS. Until today. I got a letter telling me they had made the adjustments on my account as a result of my correcting my 2010 1040. According to the letter, if they owe me money (they don’t: I have no withholding to get back), I will receive it in 4-6 weeks. If I owe them money (I shouldn’t, but I did the return myself and so I can’t be sure I didn’t make mistakes), they will send me a letter with the amount under separate cover. What a way to ruin a perfectly good day! I thought I was free, but no, they suddenly decided to have a closer look. Has anybody else had this experience? I amended 2009 and 2010, filed 2011 without amendment, and had 2012 done by a tax person. In no case have I owed money, and at any rate, if I miscalculated the tax credit, I would still not be liable for tax due to tax treaty provisions. So we’ll see what they say. No news is good news, so I won’t be looking forward to any mail from the IRS in the near future. I will warn my tax person that I may need help with this. But if anyone has weathered this storm, I’d like to know. I get US Social Security and Civil Service Retirement, both only taxable in my State of residence (UK) by treaty, so they shouldn’t go after me for that. At any rate, it’s taxable here. Any words of wisdom or reassurance gladly accepted!
@ Rev Susi
I had a similar situation last year when I first heard the terms “FBAR” and “CBT”. Last year a filed 6 years of returns and fbar’s with the help of a tax preparer. The IRS sent me a similar letter stating that I was entitled to a $72 refund for 2009 based on a stimulus something or other. I’ve never had any assets or income from the US, so the refund was not related to withholding. I received the cheque a few weeks later in the summer of 2012 and have not heard from them since.
@Rev
The IRS is doing more and more correspondence audits which are done by computer with no human intervention. The algorithm probably determined that you didn’t take some stimulus credit you were due, and according to their divine interpretation, you are due a “refund” which really means some extra money for nothing. Put it in the collection plate on Sunday and forget about it. I doubt you hear from them again.
Immigrants don’t really get much said about them here and they can’t use the standard technique of relinquishing. Maybe though immigrants have a small lever that might benefit ex-pats:
Article 25 of the UK US tax treaty starts like this:
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected.
You find similar articles in other tax treaties.
Let’s rewrite that:
1. Nationals of a UK shall not be subjected in the USA to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of the USA in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected.
The technical explanation makes note that the discrimination may be direct or indirect and that the two sets of people (UK national vs. US national) must be similarly situated.
Let us say that you wanted to discriminate against a UK (or just foreign) national by providing higher taxation or more burdensome filling requirements. You could pick accounts that most UK citizens have and most US citizens do not have and make the regulations and tax more costly for those accounts. On the whole that would raise the costs to those nationals and put them at a disadvantage.
Our two citizens would then be:
American with:
A bank account
A Roth IRA
A pension account
Vs
UK American resident with:
A bank account
An ISA
A pension account
Now would these guys be considered similar? In some sense they clearly are. Of course an American with exactly the same accounts as the UK citizen would face the same burden but few Americans would be in that position.
Now I seem to remember statements that qualified dividends were added to foreign stocks due to tax treaty issues. Qualified dividends only apply to countries with tax treaties.
There is a whole process for submitting a violation of the treaty.
If people think this can hold water (and lets face it, it all hinges on similar) maybe we could try to act or stir up some class action guy (we don’t want money just and end to the madness). Obviously ex-pats probably couldn’t be part of this but would benefit if it worked.
@Rev Susi
I’ve heard that alarm bells go off whenever anyone amends a previous return for whatever reason. I wouldn’t worry about it too much if your return is +/- 0. In general, however, I think people should seriously consider whether it’s really necessary to amend a return or just let sleeping dogs lie. IMHO it’s better to make a best effort first time around and leave it at that.
@Rev Susi, @notamused
Amended returns exponentially increase the risk of audit.
Those of us resident in the UK are at a perpetual disadvantage because of the oddity of the UK tax year (Apr 6 – Apr 5). Interest and dividend income in the UK is withheld at 20% and 0%. For interest and dividend income received from Apr 6 2012 – Dec 31 2012, I don’t have to pay the remaining UK tax until Jan 31 2014. Which means I end up paying the US taxes, claiming a credit on UK taxes and would need to file at least one amended return per US tax year to get back the higher tax rate in the UK.
I was advised by my US accountant that although I was due $500 by the IRS for 2011 (and it would have cost me $200 for her to amend the return) I shouldn’t file an amended return. I thus left $300 (net of filing cost) on the table because it wasn’t worth it to me of increasing the audit risk from 1% to 20% (or whatever the actual numbers might be).
Only one more (partial) year to go and I can reclaim 100 hours of my life and 6 months of worry per year!
@Neill, forget it. HEART and FATCA are violations that remain unchallenged after years. From this paper:
“Since there is no effective remedy (either legal or diplomatic) under international law for breach of a tax treaty obligation, it falls to adversely affected taxpayers to force Congress to abide by these obligations as a matter of domestic law.”
US citizens have a vote, giving them a vanishingly small chance of forcing congress to do anything. Immigrants have no chance at all. Sauve qui peut, as they like to say around here.
If this is true, then all those minnows and krill stuck in the lineups to be processed in the OVD and Streamlined programs can look forward to an even longer wait.
What about all those US services and benefits which we supposedly ‘enjoy’ with our unwanted and malignant US citizenship taxable status?
Here is the link to the site I commented on above:
http://taxconnections.com/taxblog/prepare-for-indefinite-irs-closure-starting-october-1-2013/#.UjcnTbw6kqs
Written by John Dundon | Posted in IRS • TaxBlogosphere • United States
Prepare For Indefinite IRS Closure Starting October 1, 2013
@Badger
Good grief! 🙁
Hello All,
I recently became aware of my obligation to file FBARS on top of the tax returns that I filed from before. I don’t owe any taxes to IRS as my income was never above the threshold provided. I know of the streamline program offered by the IRS but I do not believe I qualify for that as I had filed taxes before.
Given my situation, I was wondering what my options are and should be. Any help would be appreciated.
Thanks
File going forward.
To put a bit more into perspective, I believe there were instances in the past two years where my account was above the 10k threshold. Should I file those delinquent FBARS?
No
Just wondering if you folks have any thoughts or advice about my situation:
I am pretty much an accidental citizen, having been born in the US to foreign parents. We left the US shortly after my birth. I have never been back, so I have zero records there apart from my birth certificate and passport. I didn’t know until recently that I was even supposed to file tax declarations to the US every year, and have never done so.
Now I’m reading all this stuff about what is going in the US and what they are doing in other countries and it’s giving me sleepless nights. Up until now I have only been working part-time so my income has always been very low. However, I do hope that I will be working full-time in the future. I’m afraid the US will somehow find me out and come after me.
I’m wondering:
1. What are the chances of them finding me out if I just lie low and doing nothing? The only thing is I might have to go the US for work next year. Will my entry trigger some kind of internal alarm? (I’m only half kidding).
2. I’ve read about renouncing on this site and realize I’d have to file 5 years worth of tax declarations in order to be completely “free”. If I were to renounce, could I just offer up these 5 years of declarations (not that it’s that simple!)? What will the IRS think when I have never filed in the past?
3. The other option is that start filing from now (again, would that be problem coming in from the cold??) and keeping on top of things, so that if I eventually want to/need to renounce I can.
4. I read in some other comments that you can potentially renounce without ever clearing up your tax issues, but that you can never re-enter the US again. Is this right?!
@Jet, Do you have an American passport and have you ever used it? I assume you have a Canadian one, does it have your country of birth on it? If the only US passport you had was from when you were a baby and the Canadian one doesn’t specify a birth country, then I would just lie low. You’re Canadian in every sense of the word and how would anyone know you have American citizenship unless you tell them. There is even a debate here about whether someone who was born in the States, but moved away as a child is even still American as there is mention in the regs that it needs to be claimed by the time they’re 18, which it doesn’t sound as if you did.
If you want to do it properly and renounce, then it is just as simple as doing the back filing. Providing your finances aren’t complicated, i.e. simple bank account, maybe a mortgage, it shouldn’t be difficult. I wouldn’t bother with filing first and then waiting to renounce. That makes renunciation several years down the line and who knows what changes to the law the US may make. Renounce now and do the back filing instead.
Yes, you can renounce without dealing with the tax. The embassy won’t ask about your tax situation, only possibly point out that by law you should clear your tax obligations. If you were on the US tax radar and renounced without clearing things up, there is a possibility that you could be held at the border, made to pay up, fined or even jailed if you’re talking millions owed. So in that case the advice obviously is never enter the US again. But, even though a note of CLN’s issued is passed to the IRS, it’s unlikely you’re ever going to need it. With a Canadian passport less birthplace, it’s very unlikely they’d match your data to an outstanding tax issue is my guess.
@Medea, unfortunately, I do have a valid US passport, and kept renewing it every time it expired. I did have to use it for a while, as it took a long time to get the passport of the country we moved to (unfortunately again, not Canada). The new passport contains city of birth, which is obviously an American city, so I can’t dodge that bullet 🙁
I would try to renounce right now if it weren’t for the fact that I do hang on to some hope that they will change this ridiculous legislation sometime in the future. Then I will probably feel very regretful and stupid for renouncing. I guess I need to strike a fine balance between renouncing and the start of accumulating any kind of real wealth.
You said your income is very low. If you wish to keep your American passport, you should file. Probably best to file 3 years worth going back with a letter stating you were unaware, never owed any money blah blah and file going forward. There are no fines for late filing if there were no taxes owed. They won’t bother you. They are laid off for the moment because of congress and will have better things to do when they go back to work, Most of your dealings will be with a computer. Expect bizarre results. Don’t expect a change in the legislation.
@KalC, sorry for a potentially dumb question, but when you file, do you need to attach any original documents or copies, e.g. payslips, bank account statements? Or do they just take your word for it? What do you mean by “bizarre results”?
And is it written anywhere that you only need to file 3 years? I saw on a renunciation page somewhere that you need to have 5 years in order to be officially “clear”. So I guess theoretically I could file 3 years’ worth from the past and then in two years (after filing of course) I could renounce and be “clear” if need be.