Liberty and justice for all United States persons abroad

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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. Thanks for passing that along, bubblebustin. We could all incorporate that in our discussions with others.

    No, we could not in our wildest imaginations make this up — in these folk’s future will be their own OMG moments.

  2. @shunrata

    don’t give up talking to people.

    one person who i have had to have at least 4 if not 5 conversations with about FATCA i finally got through to him and convinced him i was not a tin foil hat type of alarmist.

    he visited this site and looked into it further and now is at least well on his way of understanding exactly what is going on.

    i see this issue as kind of like a sales job where you just can not quit after one person says no.

    the more you talk to people the better chance you have of at least piquing some of these people intrest.

    another lady at the gym who is british and is married to a dual canadian/us had been informed 6 weeks ago by a friend in britian about fatca and she said she did not even look into it but after she heard me talking to someone else about it she looked into it because she said “if you were talking about it over here perhaps there is something to it”

    please don’t give up talking to people!!!!

  3. @shunrata, as others have said sometimes you have to just keep talking and talking. But you can also tell them to investigate for themselves on the IRS website http://www.irs.gov if they don’t believe you. They need only search for “FATCA”, “FBAR” and “US Citizens Abroad” to find out how wrong they are. Here are the relevant pages:

    http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA)

    http://www.irs.gov/Businesses/Corporations/FATCA-Information-for-Individuals

    http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

    http://search.irs.gov/search?q=us+citizens+abroad&output=xml_no_dtd&proxystylesheet=irs_portals_frontend&client=irs_portals_frontend&oe=UTF-8&ie=UTF-8&num=10&ud=1&exclude_apps=1&site=default_collection&numgm=5&requiredfields=-archive%3A1

    Also if they have US passports which have been renewed since 2007 tell them to check the last page and read D: US Taxes
    “All US citizens working and residing abroad are required to file and report on their worldwide income. Consult IRS Publication “Tax Guide for US Citizens and Resident Aliens Abroad”.”

  4. @bubblebustin that’s a good line but they had already decided I’m nuts….basically said they’re not interested, and it was a social situation where further discussion would have been counter-productive.

    I think part of the problem was that this person had been told I relinquished my US citizenship before they heard about why, so they already had put me in the crazy extremist category. If I would have been able to decide the flow of information, it would have been better to go in the other direction (i.e. first establish the IRS position before going on to explore the implications for expats).

    And I suppose at some point they will either find out for themselves or hear from a source they consider more credible.

    It may not have been an education for them but it was an education for me 🙂

    My only question on implementation of the FATCA/FBAR regime is that of ability. I have no doubt they fully intend to find, tax and fine every “US person” in the world, but do they really have the staff and resources to hunt down every little Mr or Ms Nobody on the planet or will the scheme collapse under its own weight? (Or will they content themselves with big fish and whatever little fish happen to get caught up in the meat grinder?)

    Sometimes I wonder if my relinquishment helped me to get out from under, or whether on the contrary I’ve painted a target on my back. I do not look forward to filling out the 8854 although I am laughably far from being a “covered expatriate”. How do I know my accountant didn’t make some little mistake on my 1040 – I certainly don’t understand foreign tax credit, or most of the rest of it – and they won’t pick it apart and whomp me? “Take that, traitor!”

    Presently waiting for my CLN, and feeling more paranoid than before 🙁

  5. @shunrata,
    Great that you tried anyway. I have had similar experiences, as have others here. All we can do is to try our best. Sometimes I’ve been successful, and sometimes not.

    Funny that they don’t get that ordinary people do not usually go to the trouble and expense and stress of renouncing/relinquishing without a very compelling and rational reason.

    Feel relief that you’ve relinquished (and didn’t have to pay the extortionate slave price of 450. to renounce), and are on the last leg of this rather than just at the initial OMG moment. I know what you mean about the last forms. All we can do is to try our best to be informed, careful and thorough and ask the preparer questions and try to review everything as best we can. I have already had the regrettable experience of paying substantial fees to a firm who brag about doing tax right, only to find that they started out from the get go with multiple egregious and sloppy errors on the very first FBAR, and continued on in the same vein for other crucial parts of my returns and other forms. And charged me for the time they took to do the corrections – that I found. I do not even have a complicated return situation or much income, and had no US tax owed, and provided all the figures and documents required months in advance.

    I am looking forward to having the last forms prepared and submitted though I too worry about inadvertent preparer errors. That is what is so crazy about this – I am barely taxable where I actually live and earn – and can’t possibly owe the US any taxes. My returns in Canada are so simple that I can do them with paper and pencil or inexpensive software. But, the fee for having the last forms done in order to placate the US are going to cost me several weeks worth of my minimal part-time income. For what? To pay my way clear of the US forever – under threat of future jeopardy and continued anxiety that even a small accidental error will win me the US penalty lottery – or that erroneous IRS computer matching will result in time consuming efforts requiring hours and hours to prove faulty.

    I felt that the only way for me to get peace of mind and freedom from anxiety was to sacrifice a significant portion of my family savings that would have gone to post-secondary tuition or to retirement – but instead went to professional fees, and to expatriate and to formally and finally sever all relations with the US. Basically I feel that I have been forced to buy out an involuntary indentureship or slave price in order to be free from the US burden and US threat. That is extortion.

  6. @shunrata, the IRS don’t need the staff to do it; they have the banks worldwide who must report on their American clients. All the IRS needs to do is work their way through all the data they’re going to get. It may take them years, but they’ll get there.

    All you can do is keep trying to warn them and then be there when the axe finally appears over their heads. Sooner or later they’ll get a letter from their bank regarding the W-9, whether they’re tax compliant, etc. Try to refrain from saying “I told you so.” Tempting I know, but they will be in their own OMG! moment so best to point them in the direction of the IRS and IBS websites so they can start educating themselves.

    When you get your cancelled US passport back with your CLN, carry it with you and then you can show them the last page with the info on having to file their tax returns. Like it or not, they can’t argue with that piece of evidence. It comes straight from the US government.

  7. @badger, Medea thanks

    I had pretty much come to the conclusion that at some point they will be faced with the W-9, and the proverbial light bulb will start to glow.

    Unfortunately at that point it will be harder to deal with.

  8. I don’t understand a word of this blog posting below, but I know that the PFIC rules have caused heartache for many:
    http://blogs.angloinfo.com/us-tax/2014/01/06/irs-gives-good-news-on-pfic/

    “IRS Gives Good News on PFIC
    January 6, 2014

    Creeping up to the New Year, the Internal Revenue Service (“IRS”) showed an uncharacteristic sign of holiday goodwill. On December 30, 2013 the IRS issued Temporary Treasury Regulations providing guidance with regard to so-called “passive foreign investment companies” (“PFIC”). The areas covered in the Regulations include guidance in determining ownership of a PFIC (specifically, attributing ownership of PFIC stock through partnerships, estates and trusts), the annual filing requirements for shareholders of PFICs and guidance on the exception to the requirement for certain shareholders of foreign corporations to file Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations.’”…….

  9. @badger

    “Newly Introduced – De Minimis Dollar Value Threshold Required for Annual PFIC Reporting and Piggy-Back Filings

    The Temporary Treasury Regulations also establish a brand new de minimis threshold amount. Only if it is met, is the annual PFIC reporting requirement triggered (this assumes the shareholder is not otherwise required to file the Form 8621, for example, because the investor received an “excess distribution” or has made a so-called QEF election). If the threshold is not met on the last day of the shareholder’s taxable year, then reporting is not required for that particular tax year. Generally, reporting is not required if on that last day, the value of all PFIC stock owned directly or indirectly by the shareholder is $25,000 or less; or, if the shareholder holds his PFIC stock only indirectly and the value of the stock indirectly owned is $5,000 or less.”

    I wonder if any consideration would be made to increase the thresholds for non-residents, as in the case of 8938’s?

  10. @bubblebustin,
    re the PFIC de minimis reporting threshold
    Something to urge AARO, ACA, and sympathetic US tax and law professionals who see the problems (ex. AICPA http://www.aicpa.org/ADVOCACY/INTERNATIONAL/Pages/default.aspx ) to propose perhaps. Unless the US just doesn’t care about the eventual extinguishment of the diaspora of US citizens abroad through expatriation and through the avoidance of creating more generations of ‘taxable US persons’ abroad by avoiding marriage to one, etc.

    I am warning those I know about the perils of moving to the US even for short term study, etc. And of the perils of those abroad marrying one who has not renounced.

  11. @badger

    I sent a letter to ACA on this, but with mixed feelings. With continued carve-outs we never stand the chance of doing away with CBT all together.

  12. @bubblebustin, yes, mixed feelings – I used to think that if they just came to their senses and made a few changes, then the harm might be mitigated. But it is impossible. I came to see that not only do they not care, they are intent on deliberately making it exponentially worse. The history of the RRSP treatment is a very good lesson in that respect. Even if the joint treaty says that RRSPs are not taxable, they want to force us to continue to make an annual treaty election and file the 8891s forever. For a Canadian that starts their RRSP savings early on, that could be 40 years worth of 8891 filings, and god knows how many individual RRSP accounts to be reported – aggregated isn’t sufficient. And look at their intransigence on a method to catch up on missed 8891s, – as if the treaty didn’t exist just because we didn’t know that a yearly form was necessary to refer to. They do NOT want to make it easier or more reasonable. And we just barely were exempted from paying directly into the main Obamacare system – but successful lobbying by ACA etc. got a last minute exemption. And that still leaves the Obamacare investment tax.

    US extraterritorial CBT is inherently in conflict with the system of every other country in the world. There is no way to completely mitigate that, and the US sees no reason to try.

    Since obviously there is no US government concern for treating people abroad rationally, ethically, decently or respectfully, I don’t believe there will be any meaningful change.

  13. @badger

    I’ve finally come to the realization of how I feel now. I’m talking both mentally and physically. I feel like there’s a boa constrictor wrapped around me, and with each added regulation, demand and expectation is an ever so slight constriction on my being. Now US tax preparers in Canada are hiking their fees because of an increase in demand? I can hardly breathe anymore!

  14. @ bubblebustin
    The boa constrictor feels like it is being “helpful”. Coiled around its victim’s chest the boa tightens its grasp with every breath out, making it impossible for its victim to get a full breath in. Thus it is “helping” its victim to breathe … out … until the very last breath.

  15. @bubblebustin, I can relate – though I know that your situation is far more complex. The more I found out about all this and what the US was demanding, the more incomprehensible and dire it appeared. Incomprehensibilities and exponential penalties at every turn. None of it made any rational sense, and because it appears so contradictory and absurd, how would anyone ever reasonably anticipate that such rules existed? Like the whole concept of our local = ‘foreign’ and ‘offshore’ because it is being defined not by where we actually live abroad and many of us were born, and where we actually bank, but in relation to the US? Will the world not just stand up and say that is totally absurd? It makes the local legal post-tax accounts and savings of the majority of over 1 million Canadian households ‘foreign’. I still cannot consider that concept without checking to see if I am hallucinating. Unfortunately, every time I check, that is still the case.

    The fact that it is all so senseless and irrational makes it even worse. It makes it akin to torture, because it is torment inflicted for no real purpose.

    Witness the fact that when we try to explain it, people think we are delusional. It doesn’t make any sense to the majority of the world. Yet, all the Canadian banks, the IIAC, and apparently the Harper government FATCA IGA negotiators are willing to pretend that the US emperor isn’t stark ugly and naked. And there are apparently no shortage of apologists and collaborators who are willing to go to any lengths and contortions to promote that delusion as truth.

  17. @badger

    These problems would not exist if the US adopted residency based taxation. The Senate Finance Committee is currently reviewing this method of taxation and welcomes input from the public until January 17, 2014. As posted on its website:

    “Nonresident citizens: U.S. citizens living abroad are generally taxable as residents of the foreign country where they live. They are also required to file U.S. federal income tax returns annually and pay tax to the U.S. on their worldwide income, subject to the foreign tax credit and an exclusion for a limited amount of foreign-earned income. Other countries generally tax their nonresident citizens only on income their citizens earn in their country of citizenship. Some believe certain employers overseas are reluctant to hire U.S. citizens because of the associated tax burden and compliance costs.”…

    Reform options as they relate to non-residents US persons are:

    “1. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions (Schneider, “The End of Taxation Without End: A New Tax Regime for U.S. Expatriates,” 2013; similar to the law in Canada)

    a. Require a minimum period of residence abroad

    b. Impose an exit tax on electing taxpayers where deemed to sell all assets at the time of election

    2. Repeal the foreign-earned income exclusion (H.R.2 (108th Congress), Jobs and Growth Tax Relief and Reconciliation Act of 2003, sponsored by Rep. Thomas)”

    http://www.finance.senate.gov/issue/?id=0587e4b4-9f98-4a70-85b0-0033c4f14883

    “Other countries generally tax their nonresident citizens only on income their citizens earn in their country of citizenship.” It comes as no surprise that Eritrea isn’t mentioned. What a country to be keeping company with.

    “Some believe certain employers overseas are reluctant to hire U.S. citizens because of the associated tax burden and compliance costs.” An interesting choice of words – as though they are acknowledging that there’s a problem but are prepared to dismiss it as a myth if not given enough evidence to support it. I would like to see submissions from “certain” companies stating in no uncertain terms their “reluctance” to hire US persons. At the same time, there should be mention of the fact that US persons are not welcome to participate in “certain” endeavours where that US person is required to make a full disclosure of their financial accounts to the US Treasury and IRS – such as joint bank accounts, signing authority over any entity/person’s financial accounts, or where they have a 10% or greater interest in company – or anything else that might contribute to a US person’s ability to thrive or even survive outside the US for that matter.

    The Senate Finance Committee needs to hear from these “certain” employers, and soon.

  20. The odds are against it George III, but I still don’t see any point in giving up.
    It doesn’t mean that I believe in tooth fairies, it means I believe in liberty.

  21. Re: PFIC reporting. It’s my understanding that the onerous treatment of foreign mutual funds came about as a result of US domestic mutual fund industry lobbying for rules to disadvantage the competition. They were worried a homelander might choose to buy a foreign mutual fund instead of a homegrown one.

    They were so spectacularly successful in this effort that no investor in their right mind would subject themselves to such punitive reporting and taxation. Even a fund which had a very good annual return would become a net loss once all the dust settled. Of course, an expat cannot easily buy a US fund; and all our Canadian funds are “foreign” so we are screwed doubly. The only way a US person in Canada can afford to own a mutual fund is to hold it within an RRSP.

  22. @maz57

    Don’t resident US taxpayers have to pay tax on foreign earnings anyway? All they accomplished is fewer investment options for US taxpayers resulting in a narrower range of investments and therefore less opportunity to increase taxpayers wealth and its resulting tax revenue for the USG – and of course as you’ve pointed out, very limited investment opportunities for their taxpayers abroad. Again, US lawmakers prove that they’d rather have a bigger chunk of nothing, rather than to allow more ways for their citizens to thrive.

    @George III

    I can see FATCA not getting repealed, but CBT? After all, CBT was not created by this administration and could very well be FATCA’s biggest impediment. Wouldn’t it be great if they had to choose between their global tax reporting regime and their citizen’s survival?

    In the end, we’ll probably just be a nuisance both in the embarrassment and extra work we caused them in rolling FATCA out.

  23. @shunrata
    Shunrata wrote: “My only question on implementation of the FATCA/FBAR regime is that of ability. I have no doubt they fully intend to find, tax and fine every “US person” in the world, but do they really have the staff and resources to hunt down every little Mr or Ms Nobody on the planet or will the scheme collapse under its own weight?”

    It’s not just a matter of lacking resources; there is no existing legal mechanism for the US (or any other foreign government) to collect a tax claim from a Canadian citizen residing in Canada.

    No foreign government has the power to collect taxes or penalties directly from Canadian residents in Canada. Only the government of Canada can enforce tax collection here. No foreign government can seize Canadian wages or payments, or attach any Canadian asset.

    Further, Canadian courts do not enforce foreign tax revenue claims, especially against Canadian citizens resident in Canada.

    Under the Canada – US Tax Treaty, the Canadian government will NOT assist in collecting US taxes or penalties from any Canadian citizen, unless the tax debt arose before they became a Canadian citizen. This was first reported by Don Cayo in Vancouver Sun and has been stated repeatedly by Finance Minister Jim Flaherty in his letters to Canadians on this issue.

    If the existing Canada – US Tax Treaty prohibits such collection, it seems very unlikely that a Canadian court would bypass both the revenue rule and Tax treaty to enforce a US tax claim against a Canadian citizen.

    For more information see article titled: “US Tax Collection in Canada” in Canadian Tax Highlights, the newsletter of Canadian Tax Foundation September 2011. This is subscription only, but libraries and tax professionals should have a copy.

    “In summary, a Canadian citizen need have little concern about the collection of US tax, interest, and ancillary penalties. However, a US taxpayer who is a Canadian resident and not a Canadian citizen and who owes US tax, interest,and penalties may face collection thereof by the CRA pursuant to treaty article XXVI A. It is extremely unlikely that Canadian citizens or residents will have to face collection of FBAR penalties, except in the very unlikely event that those penalties may be characterized as registrable civil judgments.”
    – Final summary paragraph from legal opinion article.“US Tax Collection in Canada”, published in “Canadian Tax Highlights” Vol. 19, Number 9, Sept 2011-10-14
    Canadian Tax Foundation. The authors are: Erin L. Frew and S. Natasha of Reid Thorsteinssons LLP, Vancouver

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