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 is a attorney drumming up business, but still a good reminder…
What? … More Reporting Requirements in Addition to the Dreaded FBAR Report?
Not sure why he left out 8938 FATCA form…
I know that the general assumption for this blog is that Form 3520 (and Form 3520A) are required for Canadian RESPs and TFSAs, but has the IRS said this explicitly anywhere? I’m no expert, but to me it isn’t clear that either instrument is a “foreign trust.” I wrote to the IRS on-line help desk to ask whether I even need to file these forms. Their answer was:
“Unfortunately, we can only offer our sincere apology that we will not be able to respond to your issue because it is beyond our scope of training or too complex for the intent of this free tax assistance program. However, the IRS tax law service is intended to work in partnership with the professional tax preparation community. Thus, we will refer taxpayers to that resource when their questions involve complex issues and situations. You may have to seek the services of a tax attorney, certified public accountant (CPA), or other tax professional….
We are sorry for any inconvenience this may cause you, but thank you for using our electronic services. References: IRC Subchapter J (Estates, Trusts, Beneficiaries and Decedents- Sections 641-692)”
How can I understand the requirements for these accounts if the help desk at the IRS doesn’t? How can I know what type of account the IRS will classify as a trust? Why will the IRS disclose this sort of information to the “professional tax preparation community,” but not to me? A couple of accountants and lawyers have told me that no, these accounts aren’t trusts and I shouldn’t worry about Form 3520. Others have told me yes, I need to fill out Form 3520, Form 3520A, and possibly others. What do I do now?
As has been pointed out on this site already, it certainly isn’t cost-effective to maintain either type of accounts if you are paying a professional to file these forms for you.
My question for all of you Canadians is this: what are you doing about your kids’ RESPs and your TFSAs? Have you closed them, do you pay a professional to file the various forms, or do you simply report them as foreign accounts on your FBAR?
My question for anyone from the “professional tax preparation community” is: what exactly has the IRS told you about TFSAs and RESPs?
None of the above. What TFSA? What RESP?
As Dan said
And this is why you file every year, and every year you only tell them about what they already know….. and of course you are destitute and living off of relatives overseas. In fact, you’re losing money….. It’s not something they need to know, as it’s literally none of their business.
@a123, I just called my Accountant this morning and was asking about my son’s TFSA, I asked him about filing it by March 15th,, he said he knows some accountants do file for US Persons by March 15th but he told me it was just extra paperwork and unnecessary he said I can do it for you but I usually just file it as a Savings Account with the yearly returns. But I have read it must be filed by March 15th, but I guess I will just have him file it with the 2012 returns. Don’t really know what the right thing to do is.
@ a123
The we cannot compute (beyond our abilities), we cannot comply with your request (sorry about that) response you got from the IRS to a question that requires nothing more than a yes or no answer is a perfect illustration of the fact that the IRS creates needless complexity which does nothing more than fatten the pockets of the tax preparation and now the tax compliance industry too. (It obviously doesn’t keep extra people employed at the IRS because you don’t need people to NOT give answers.) Did the IRS create all this complexity maliciously while gazing larcenously at potential penalty income? I don’t know but there are a heckuva lot of people that feel the pain of their penchant for creating nightmare regs and endless forms. A rational approach would be to say if we can’t answer questions then we need to simplify. Here’s a suggestion, IRS — dump citizenship-based taxation! Shadow Raider can tell you exactly how to do that if you can’t figure it out yourself.
I can’t answer your question either but then why should I be expected to. I’m just an ordinary person trying to live as simple a life as possible so I don’t have things like RESPs or TFSAs. I hope someone here can give you a definitive answer but you have heard both yes and no from so-called experts so you still have to decide which is correct. It shouldn’t be this way. 🙁
@a123, I was advised that reporting my TFSA on a 3520 and 3520A was a firm given – which I found too complicated to do myself, and paid dearly for help with. Not because it was a lot of money to report – merely because of the labyrinthine forms themselves – and the potential for draconian and confiscatory penalties. The reporting had to be done on a TFSA that existed only for a short time, and earned very little, and I am angry, because of course, I lost money – via the accounting/legal fees, and because any interest earned was taxable by the US as income though it was taxfree in Canada. I wouldn’t have taken out a TFSA if I had known about the whole insane ‘foreign trust’ concept and US extraterritorial citizenship-based taxation. And I resent that our own federal Harper government continues to actively promote these accounts without any caveats or warnings, and haven’t gotten any treaty exemption for Finance Minister Flaherty’s proud creations – the TFSA and the RESP. Five years later, they are still taxable ‘foreign trusts’ (along with RDSPs) for the > 1 million Canadian households with a US-taxable Canadian member, but despite knowing about the US crossborder tax system; “….When Finance Minister Jim Flaherty introduced the Tax-Free Savings Account (TFSA) to Canadians in his 2008 budget speech, he hailed the tool as “the single most important personal savings vehicle since the introduction of the RRSP.” http://www.theglobeandmail.com/globe-investor/personal-finance/financial-road-map/tfsas-still-underused-sorry-mr-flaherty/article7416281/ Flaherty has had ample opportunities to address this over the years with the US, but here we are in 2013, and the TFSA and RESP (and RDSPs) are still forbidden toxic savings for us and our families. And RRSPs still require an annual election – though they were finally covered under the Canada-US treaty.
I came across differing opinions about the need for the 3520 and 3520A forms for reporting TFSAs and RESPs, with the majority saying that conservatively, either it was definitely required, or that it was just safer to file the forms anyway because of the draconian penalties for ‘foreign trust’ non-reporting or incorrect reporting. Who can take the chance of any infraction – however inadvertent? So people often pay for the forms to be done professionally. The IRS was also sending out masses of erroneous 3520 threatening filing and penalty letters http://www.aicpa.org/Advocacy/Tax/TrustEstateGift/DownloadableDocuments/Trust%20Advocacy%20Documents/aicpa_comments_on_incorrect_letters_%203520_82812_submitted.pdf , so it is a form that is full of pitfalls – even if filed correctly, or not required. I don’t think that is resolved, and if I remember, was mentioned in the latest Taxpayer Advocate report to Congress as well.
I saw this, but realize we can’t just relay on what we find on the internet: http://www.linkedin.com/groupItem?view=&gid=2283518&type=member&item=214128380&commentID=120555649&qid=4217015d-d5fa-4834-9424-cffc51a694db&goback=.gmp_2283518
Like you, I am confused also about how the IRS can require us to do something, and penalize us – yet they haven’t made a formal ruling on it. How does that work – other than because they have incredible powers and we don’t. And, as you pointed out, if the IRS helpdesk can’t give a straight answer, and classes it as a legal issue that only a professional can receive, then how can a layperson comply properly? On the other hand, when they have finally formally ruled, (ex. on Canadian mutual funds) it has usually been punitive, and often retroactive. They are content to take in thousands in fees for PLRs (Private Letter rulings) on RRSPs whose owners didn’t know to file the 8891 http://intltax.typepad.com/intltax_blog/canada/ , or to make us go through the Streamlined process to fix back years re RRSPs http://federaltaxcrimes.blogspot.ca/search/label/RRSPs .
Hoping somebody can help me. I formally renounced my US citizenship in January 12, 2012. I am now in the process of filing my final US tax return (can’t tell you how good that sounds!) If I understand correctly, I need to file Form 1040NR (Dual Status) along with form 1040 as a schedule for the period from Jan 1 – Jan 12. I did not have any income whatsoever for January. And after my renunciation I did not have any US sourced/related income at all from the US. So both form 1040NR and 1040 should pretty much have nothing but zeros on them. I will of course also file form 8854 along with this. This is all as I understand it… please correct me if I have got any of it wrong.
What I’m not too sure about is the FBAR for 2012. Do I include any information on the form for anything that is after my renunciation date? (ie: any amounts or accounts opened later in 2012 after my renunciation date?) I certainly don’t feel as though I should…. And would it be worth making a note somewhere on the form that this FBAR is only relating to Jan1 -Jan12, 2012?
Would be grateful for any help. Thanks
If I understand your situation correctly, you should just be filing 1040 (not 1040NR) for the period Jan 1 – Jan 12, since you were a US citizen during that time period. Also, since you had no US income after Jan 12, there is no need to file 1040NR (e.g. which otherwise would have been the case for Jan 13 – Dec 31). I’m basically in the same situation, except that I renounced later in the year.
Yeah, the FBAR is not so clear. There’s no official place on the form to specify that it only applies up to a certain date in the year, i.e. it’s for all of 2012. I’m just going to file mine as usual one last time, even though I wasn’t a US citizen for the entire year.
For my final year FBAR, I explicitly queried this with FBARquestions@irs.gov. They said to only include accounts up to date of disengaging from the US, and to mark it at the top with something like part year, to date X. I’m pretty sure their “advice” was made up on the spot, but I followed it anyway and there was no comeback. It’s been four years now.
I agree with 10ken, no reason whatsoever to give the IRS anything beyond the barest legal minimum. The FBAR is demeaning even when it is “required”. Why voluntarily accept more of the same?
…..no reason whatsoever to give the IRS anything beyond the barest legal minimum….. absolutely ,especially for FORM 8854 🙂
I agree… I specifically waited until later in 2012, after my renunciation date and had received my CLN before I opened several new accounts. And I would have no desire whatsoever to inform them of this. Again, though I just wasn’t sure if this complied with the ‘legal minimum’. Was hoping to find something in writing to clarify it, but certainly haven’t found anything “official”.
@10ken: Was hoping to find something in writing to clarify it, but certainly haven’t found anything “official”.
Indeed. Isn’t dealing with the IRS just peachy. If you really search around in Google you can find a whole spectrum of recommendations from professionals, everything from “not required if you’re not a US person at year end” to “send off everything as if you were a US person the entire year”. Nothing, though, from the horse’s mouth (or any other horsey orifice).
Of course, the treasury and the IRS have only had 43 years in which to provide guidance on this. Mustn’t rush the poor dears.
@Watcher and @10ken, it is a double-edged sword because it could land onext in trouble if not including the whole year (even if only a USC for part of the year). But I also worry that to continue reporting post expatriation could even somehow be subsequently used as a stealthy way to somehow negate the relinquishment or renunciation as it could suggest lack of intention to actually be expatriated…
I believe there’s a window of twelve months in which the expatriation could be deemed void if the US Government concluded that the said renunciat was still acting as though he or she was still a US citizen. I would thus think the safest thing is just to report FBAR and 8938/1040 up through the expatriation date, as one could always claim reasonable cause in the unlikely event that they disagree. Might be safer though to hold off on opening new accounts till the following Calender year if you’re really feeling cautious but shouldn’t be a problem once you received the CLN.
Yeah I received my CLN in March 2012. Rather wished now that I had waited until 2013 to open any new accounts or anything…. ‘to be on the safe side’ …. and avoid any of this. Think I will probably just do the FBAR for 01-12 Jan and make a note on the top of the form
I bet you’ll be fine; after all, if they’re that worried they can get back in touch. Doubt they will though, especially if we’re only talking modest sums
I am not understanding the principles of renouncing. I assume everyone is becoming “comliant” by filing the past FBARs, then filling out the 8854 with the same info?
Can’t the IRS come back and fine you afterwards anyways?
@Mark Twain –
FBARs and past-due returns, yes. (But bear in mind that you don’t have to for a long-ago relinquishment, which is part of the appeal of going that route for people whose facts support it. The other is saving $450.)
Their ability to enforce the fine is limited, for a nonresident foreign national with no US assets whose own national government won’t enforce US penalties, as distinct from taxes.
ok, that rules that one out. This country won’t care about the difference between penalties and taxes, they’d just send the lien directly to the state-run tax Collection Agency.
Final FBAR is a conundrum that I was pondering. Thanks, Watcher, your practice was my conclusion. The form instructions say on page 6: Who Must File an FBAR. A United States person …. Logic says — not a US person, then accounts not to be reported. Let’s take bets whether, as renunciations soar, FBAR provides a part-of-year option in the date slot.
A new and improved FBAR form has been proposed, as well as a request for comments.
http://federaltaxcrimes.blogspot.com/2013/03/proposed-new-fbar-form-and-explanation.html
From the article, 780,000 FBARs have been filed for calendar year 2012.
Comments are invited on items like:
(a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility;
(b) the accuracy of the agency’s estimate of the burden of the collection of information;
(c) ways to enhance the quality, utility, and clarity of the information to be collected;
(d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) estimates of capital or start-up costs and costs of operation, maintenance and purchase of services to provide information.
@Chris…
This might be an opportunity to raise the question, why two forms, FBAR and FATCA form 8938? Surely they could get all they need from the FATCA form, and do away with theirs. Also, how many criminals have been caught as a direct result of an fBAR filing in the first place?
(too easy) 10’s of millions of criminals were created overnight.
sorry but you forgetting the QD`s – even more criminals were created 🙂
@Just Me: This might be an opportunity to raise the question, why two forms…
The GAO, TAS and multiple tax practitioners have raised this with the IRS ever since form 8938 first hatched, and IRS has ignored every single instance. Why go over it again? This IRS request for comments is perfunctory. The IRS listens to nobody.
@Watcher…
While true, the FBAR request for comments is under FinCen (not the IRS) and could accept information from the IRS form 8938 by delegated authority, the same way they delegated FBAR enforcement to the IRS. It needs to be on the record, and I plan on making that case, even though I know it will probably be ignored.