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.
This case is vital I think this would prevent Canadian Banks from closing accounts. Brokerage may be different.
http://uniset.ca/other/cs6/68OR2d379.html
tdott re: us estate taxes We’ve dealt with this before. The answer is maybe.
NRAs are subject to estate tax on “US situs’ assets > 60K.
This includes stocks in a US company. However, there is a $5.25million exemption. This is based on your world wide assets.
Let’s say you own a condo in Florida valued at 500K and a house in Toronto valued at $ 2million plus enough other stuff to get you to 6 million . Your net world wide assets after the deducation are 750K. Your estate would be liable for taxes on 500k divided by 6million times 750K. Ie on $62,500. Your estate would have to file and pay a tax on the 62.5 K before the estate could receive the proceeds of the condo. About $25,000in taxes and $10,000 in accounting fees.
Let’s say you own 100K in apple shares in a Canadian brokerage. There would be no taxes owing but the estate tax return is intrusive as hell (copy of the will and so on). Best to sell the apple shares just before you finish the back nine.
http://www.pwc.com/en_CA/ca/estate-tax-update/publications/pwc-2009-04-13-us-tax-exposure-canadians-2013-02-19-en.pdf
@Duke of Devon: However, there is a $5.25million exemption.
Worth noting for possible future readers that this larger exemption applies only if stipulated in an estate and gift tax treaty (distinct from the usual income tax treaty) with the US. Anyone else gets just the $60k exemption. Only a select handful of countries have an estate tax treaty with the US. Canada and UK treaties both give this larger exemption. I have not looked at the others.
Watcher, I didn’t make myself clear.
Very few NRAs with US stocks or other assets held outside the US or net worth less than 5million would bother filing an estate or gift tax return. Problems arise if an executor has US ties. ( a large bank controlled trust company or international accounting firm for example or if the assets are held within the US.
Leaving this from Lea Turkington on a couple threads
@Kyla4u
Anyone feel like participating in Project Xpat? I’ve just given them a piece of my mind. It would be good for them to hear from as many people as possible.
http://www.npr.org/blogs/theprotojournalist/2013/11/22/246639969/project-xpat-exploring-the-expatriate-life?utm_content=socialflow&utm_campaign=nprfacebook&utm_source=npr&utm_medium=facebook
My answers were:
My name, email address, etc.
Where I live now – United Kingdom
What place do I consider home in America – I don’t.
Why did you move abroad – I married my British husband 18 years ago. We have lived in both the UK and the US since them.
What does it mean to be an expat (10 words or less): US homelanders hate expats – FATCA and citizenship-based taxation prove it.
So, please, everyone feel free to join in!
I joined the survey. What does being an ex-pat mean to me? TAXATION WITHOUT REPRESENTATION
To me it means “being stalked by the IRS and FATCA and soon to be a pariah”
What does being an expat mean?
I wrote: FATCA, FBAR and citizenship based taxation.
I’m NOT an expat. I never “patted” the USA. I just got trapped by a touchdown there and an uninformed exit strategy.
Thanks for the clarification, Duke of Devon and Watcher.
I did not realize the $5.25M exemption applied.
Interesting that the exemption only applies to a small number of countries.
@Just me. NPR appears to be moderating. Calgary’s comment appeared and disappeared quick.
I had trouble getting that form to work. I copied the shortcut and pasted in to another tab to get it up.
There is the form and the comment section.
@Mark Twain
I see Calgary’s (and mine and yours)
I saw Calgary’s return.
It took me a few minutes to understand that there are comments at the bottom like any NPR site, but there is also a link to the form. The form’s intent is to give your info over to the young writer profiled in the story. The last field is a field related to photos. You can type as much as you want there. The 10 words are to be used for the sound bites that she will clip in to her feature story. The explanation could help for her to make another story or to clarify your 10 words. If NPR profiled her now, it ought to mean that they intend to publish her finished story.
It’s an opportunity to break into the NPR media world.
Here is a phone conversation I had last night.
Her: I’m phoning to ask you to participate in an important survey.
Me: I’m sorry, I don’t do surveys.
Her: We are only collecting important information on a matter which affects your area.
Me: I don’t give information on the phone to people I don’t know.
Her: We’re not looking for information, we only want your opinion on a few important questions.
Me: My opinion IS information and I don’t give information on the phone to people I don’t know.
End of Conversation.
And yet, I will at the drop of a hat, splatter my opinions all over the Brock landscape. I just can’t figure me out.
I’m the same, Em.
Maybe we could Robocall opposition to FATCA.
@Em
You have to prioritize your opinions or you’ll get opinion fatigue. Besides that, you’re appreciated here and to them you’re just a number. This matters.
IRS revises FBAR penalty appeals procedures.
http://www.forbes.com/sites/irswatch/2013/11/25/fbar-revised-irs-penalty-appeals-procedures/
Don’t have much time to go through it now, but it might be an interesting read.
Chris, I am reading through it. Generally, whatever it says, if it is just a clarification or if it is a change, it is a scary document.
I am not sure if the text is the writer’s interpretation and if that interpretation is correct.
Tidbits
section 2 “Post-assessed FBAR penalties in excess of $100,000 cannot be compromised by Appeals without approval of the Department of Justice (DOJ). …). Once assessed, the FBAR penalty becomes a claim of the U.S. Government.” (sounds like there is no appeal if they give the maximum sentence)
sect 3 “Fast Track Mediation (FTM) is also available for pre-assessed FBAR penalties” (sounds like plea bargaining)
section 5 “Married couples under FBAR examination are treated as individual cases.” (Your spouses half will be used against you?)
(8). No Chapter 11 Relief. Title 11 of the U.S. Bankruptcy Code does not provide relief from an assessed FBAR penalty. (no surprise, I assumed they would always chase you until you are dead, and then chase the executor)
9 “A referral to IRS International Operations is required prior to holding the first Appeals conference regarding the FBAR penalty. Such coordination might make it difficult for certain taxpayers to obtain relief in Appeals from an FBAR penalty being considered by an otherwise understanding Appeals Officer.” (sounds like a federal mandated minimum sentence—this sticks out as potentially being the most dangerous)
“Summary””In the FBAR situation, the person need know is that they have a reporting requirement. If a person has that knowledge, the only intent needed to constitute a willful violation of the requirement is a conscious choice not to file the FBAR.
The failure to learn of the filing requirements coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved may lead to a conclusion that the violation was due to willful blindness. ”
As a layman, I would see that article as quite a dangerous development, contrasting the softness of the case officers that I have previously seen in some of the opt-out experiences shared here.
sect 7 “If the Appeals Officer and the taxpayer can not agree upon a resolution the assessment is to occur immediately without issuance of a Notice of Deficiency.” duh, the government’s opinion is the winner?
I just found out about something huge. The subject of “phantom gains” has been discussed here many times, where the US taxes capital gains based on the cost and sale values in US dollars. As we know, that’s a big problem for people who sell their home if the currency of the country of residence has appreciated with respect to the US dollar. In practice, the US taxes the appreciation in exchange rates, in addition to the actual capital gains.
However, I found out that the problem is not just expensive assets like homes. Apparently, US tax law considers foreign currency as a capital asset. That means any currency that is not the US dollar, either in physical form or in bank accounts. So every time a US citizen spends foreign currency to buy anything, or converts it to US dollars, technically the person should find out the “cost” of that money in US dollars, considering the exchange rate when the person earned it. For example, let’s say a person earned 1,000 CAD as a salary, when it was equivalent to 1,000 USD, and a month later used it to pay rent, bills or buy food, when 1,000 CAD was equivalent to 1,010 USD. Those 10 USD are considered capital gains.
There is one exception. US law states that capital gains of foreign currency of less than 200 USD, per transaction, are not taxable (or reportable). So in the example above, the person could completely ignore the 10 USD in gain. However, it’s not hard to imagine situations where there is a gain of more than 200 USD, for example when buying an expensive item such as a car or home, when converting a large amount of money to US dollars, or if the exchange rate has changed significantly over a long period of time. I wonder what immigrants should do when they transfer their money to the US after getting a green card, or a similar case for Americans returning to the US after living abroad for years. Should they find out the “cost” of their entire money in US dollars, considering the exchange rate at every time they ever earned anything, to compute possible capital gains? What about the money they spent during that whole time? That sounds like an endless accounting nightmare. Not to mention the gross unfairness of taxing “capital gains” that don’t actually exist.
This whole thing sounds insane, and I’m not sure if I understood it correctly. It’s conceivable that the US would tax appreciation of foreign currency of investors, for example, if they originally bought the foreign currency with US dollars and convert it back to US dollars later. But what if the person earned the money in foreign currency already, for example as a salary, and just bought something with it, not using the US dollar at all at any time? I tried searching online and it seems that this subject is largely unknown, even among tax professionals, and the IRS hasn’t written anything about it. I don’t think they enforce this rule, or even think it should be enforced for amounts originally earned in foreign currency, as opposed to converted from US dollars. But we know that the IRS is capable of suddenly enforcing unknown rules, as happened with the FBAR penalties.
Has anyone ever heard of this issue? If my conclusion is correct, it’s yet another big problem of CBT.
@Shadow Raider
My guess is that you are technically correct. Some other countries also have similar tax laws. New Zealand has something like that, but it is subject to a “de minimis” exemption of sum large sum that means it is effectively a non issue for any normal person. And, of course, the number of local residents that are transacting in “foreign” currencies is relatively few anyway.
The problem with the US situation, as we all know, is that the vast majority of transactions performed by a USP (under CBT) are done in the local currency, which means almost every transaction would be technically subject to a FX gain, or loss in USD terms. I’m not sure if anyone (even the IRS) would be able to figure out how to keep track of it.
Having said that, due to the general depreciation of the USD over the previous decade or so, it is likely that almost every USP overseas would have an unreported FX gain of some magnitude due to this issue. You could probably have bought and sold an expensive vehicle at a loss in local currency and still end up with a taxable USD gain.
It is certainly an issue for the larger value transactions (particularly real estate) but I think there are probably larger problems to worry about than this. That said, anything that highlights the ludicrous nature of CBT is worth highlighting.
@Shadow Raider
Although I imagine *everybody* ignores this ludicrousness, I have to ask, can one claim a capital loss against currency fluctuations?
@tdott, I also think that everyone, including the IRS, ignores this insanity. But I suppose that one can indeed claim a capital loss on currency depreciation, just like any other asset. The only limitation is that the US only allows a maximum net capital loss (balance of gains and losses from all assets) of $3,000 per year. If the net loss is larger, the remainder can be claimed in future years.
I’ve posted here once before, but then got so afraid of thinking about all of this that I stopped. I have a question in the hope that someone might help me get some grasp of reality (I feel I’m floating in a bubble without any grasp on reality now): I’m an “accidental dual”, who relatively recently discovered my American-ness. Never filed anything with the IRS. Never had anything to do with the US except as a tourist briefly a couple of times (no money earned or invested there). Now I’m stuck: I have a nice opportunity to go to the US for some months with my (entirely non-US) job. But I can’t get a visa (from what I’ve read on here) since I’m a citizen. Do I contact the embassy, get a passport, file with the IRS (everything I’ve ever earned is FEIE material), go to the US and cross my fingers, or do I reject the work opportunity, stay at home, and keep my head down?
I just don’t know. I don’t want to do anything wrong. I am not an American in any reasonable sense of the word, but I feel like I’m being forced to either stay out of the US entirely and keep living life as I have, or raise my hand an say “well actually, I’m an American” when I am not in meaningful interpretation of the word (at least in the sense that citizenship is more than being born in a way that the law describes as giving citizenship).
I wanna emphasize again that I haven’t actively been trying to do anything wrong. Had I know of my citizenship when I was 18, I would have renounced. I didn’t – so I didn’t file with the IRS – so I can’t renounce until I’m good for 5 years. Now I’m trapped in an impossible situation. Does anybody want to comment and help ground me in this? Am I in trouble? What can I do? I just want to do the right thing.
@Iwannacry, how did you come by your American citizenship? Were you born there or is it passed down from a parent/s? It could make a difference.
The right thing, Iwannacry, is that the US change to resident-based taxation. This should NOT affect you, but it WILL affect you in a very unfair way. It sounds as if you had no choice in any so-called US citizenship in being an ‘accidental American’ either born in the US but never actually lived there or born in Canada to US parent(s). Trying to do the right thing will, I think, start an expensive absurd process. Does your passport show that you were born in the US?