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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. @shunrata

    Regarding Australia and FATCA

    Just had a conversation with an Australian CPA who specializes in Australian & international tax on this blog. I asked the question, and here is what he said…

    As part of the Treasurer’s 6 November 2013 Media Release concerning the backlog of some 92 tax & superannuation measures, it was indicated that the legislation necessary to enact a treaty status IGA with the US for FATCA would be proceeding. It will take effect upon Royal Assent – presumably, this is expected before the 1 July 2014 commencement date for FATCA.

    No bill seems to have been introduced into parliament as yet.

    I just posted a reply to him, and am shutting down for the night…

    cheers

  2. @ Just Me – thank you for that.

    I had seen the document he’s referring to but nobody seems to know what’s happening. It doesn’t seem to be high priority at the moment.

  5. I’ve heard bad things about so-called amnesty programs, but has anyone had any experience with the “streamlined” process below?

    Seems like it would apply to many Canadian citizen “U.S. persons” like me who didn’t have a clue about about filing obligations, have worked in Canada, paid all their taxes to the CRA and have no U.S. investments or income. I would resent even having to do this, as I consider myself a Canadian living in my own country, but it sounds like doing this (and then renouncing citizenship) would be a way of dealing with possible future problems. I’d like to hear other peoples’ experiences with this.

    http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers

  6. @Nick..
    There is not a quick answer. It all depends… There are a lot of threads on IBS about the Streamlined program and the inherent risks. Easiest way to find them is to search from archives.

    Do a Control F (Find) on Streamline here…

    http://isaacbrocksociety.ca/blog-archive/

    You might consider looking into the seminar just posted to help you examine your options. You have a BIG learning curve before you DO ANYTHING…

    Be sure to read this post from today…
    http://isaacbrocksociety.ca/2014/01/14/solving-the-problems-of-u-s-citizenship-information-sessions/

  7. @Nick, I’m going through the process right now. Just about to do the final filing and the 8854 form. I renounced in March last year then filed the necessary back years, but I only needed to file FBAR’s because I have no income/assets so didn’t need to file any other tax forms. Apart from worrying that the documents would not meet the June 30th deadline once I’d sent them off (they did by the skin of their teeth) the process has been easy. If they’d missed it I would have been penalised of course. But from 1st July 2013 FBAR’s have to be filed online only so theoretically missing the deadline shouldn’t be a problem. That’s assuming of course that the IRS have geared their system up to cope with people filing from abroad. My tax preparer made up the Streamlined Questionnaire for me from the info I provided to go with the forms. I might have been able to do it all without the aid of a professional, but as I’ve never filled in a US tax form in my life I preferred the expense of having a tax preparer over the possibility of screwing things up by not knowing exactly what I was doing.

  8. @Nick and MedeaFleecestealer

    I would definitely read Phil Hodgen’s blog about filing FBARs and expatriation…

    It appears that it is NOT necessary to file FBARs to expatriate, and Petros did not. (so consider this advice)

    Expatriate without filing FBARs? Sure thing

    This post is for people who want to renounce their U.S. citizenship (or cancel their green card status) but they have not filed FBARs. They are concerned that going through the expatriation process will trigger massive FBAR penalties. Can they somehow finesse the FBAR problem and the penalty risks by simply not filing the late Form TD F 90-22.1 and getting out of the U.S. entirely?

    Yes. You can expatriate, not file FBARs, and exit cleanly and correctly as far as the IRS is concerned. (Weird, amirite?)

    Now starting in 2012, the FATCA form 8938 is another story as that is a Title 26 form and is required with your tax filings.

    Think this all through carefully.

  9. When corresponding with decision makers OVDP should not be called an “amnesty”. It should be called a “plea bargain”.

    The streamlined program is another thing. It is lesser of a worry.

  10. @MedeaFleecestealer You said you renounced before doing the streamlined thing? I thought that they would make you do this before accepting the request?

  11. @ Nick,

    A person can renounce before getting up to date with taxes. Dept of State deals with the citizenship itself, and citizenship or lack of it is not dependent on one’s tax status.

    Dept of State’s only involvement/connection with tax is the following:

    (1) At the consulate the person signs DS-4081, Statement of Understanding of Consequences, One of the 12 items is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”

    (2) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements.

    You have until June 15th of the year following your renunciation to certify that you have been tax compliant for the five years previous to your renunciation. This certification is a yes/no question on the exit tax form (8854), which reads: “ Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?”

    So, to wrap things up with IRS, if you renounced on, say, 23 January 2014, you’d have to have filed the following with IRS by June 15th, 2015 (when I write 1040s, I mean any other forms required with it as well):

    (1) 1040s for 2009-2013,
    (2) a partial year 1040 for all income to 1 Jan – 22 Jan 2014;
    (3) if you have US source income, a partial year 1040-NR for 23 Jan – 31 Dec 2014 for your US source income only.
    (4) 8854.

    If a person does not do this, it does not affect their citizenship status – they remain a non-US citizen as of the day of their renunciation, but it results in IRS considering them a covered expatriate.

  12. @NIck, no you can do it either way. Either get up to date on the tax side first and then renounce or renounce and then do the back filing. So long as all the relevant paperwork has been filed and you can say on the 8854 form that you’re tax compliant you’re fine.

    The embassy/consulate is not allowed to ask about your tax situation when you renounce/relinquish as it’s not their job to check this. It’s between you, the IRS and the Treasury. They may tell you about needing to be compliant and may even give you an 8854 form, but they can’t refuse you.

  13. @MedeaFleecesteale and @pacifica777 Thanks for this clarification. People on this site are so incredibly helpful and I appreciate it.

    So it looks like renunciation will save me from having this hang over my head for the rest of my life and possibly cause even more trouble down the road, but will simultaneously bring me out to the IRS if they get a copy of the CLN. I obviously haven’t been tax compliant since I had no idea I was supposed to be until this week.

  14. @MedeaFleecestealer Would you mind sharing how much it cost to get a tax specialist to help you with the streamlined process?

  15. @Nick…
    If you are ‘determined’ to go the streamline route, you don’t need to pay a so called expert to do it, imho. You are perfectly capable, unless you have more money than time.

    You are new here, and don’t know my history, but I did the OVDP by myself. So, if I can that Minnow processing plant without paying out BIG bucks to some ‘expert’, you can certainly do the streamlined.

    Again, this is NOT a recommendation to do or not do the Streamlined, just letting you know that with a “little drudgery” you are perfectly capable.

  16. @Just Me
    The big issue I see with DIY is mutual fund PFIC calculations. However, I think an argument can be made to ignore the whole Canadian mutual funds as PFICs and just treat the gains as regular dividend and capital gains. Opinions?

  17. @Just Me It isn’t that I want to do the streamlined route, but from what I have gathered so far, if I cannot relenquish, this seems to be the best way to be done with this.

  18. @Tdott, I believe people could get away with treating PFICs as ordinary capital gains and dividends, especially if under the wealth threshold for having to file 8938 (which blatantly asks how many 8621 PFIC forms the filer has filled out).

    I can remember how terrified I felt when I became aware of how much the PFIC filing was going to increase my accounting fees. If I hadn’t been able to find an ‘affordable ‘ preparer, I would have probably risked it by amending five years and just treating my investments like ordinary shares then renounced. It would have been a case of self-preservation.

    Luckily (or perhaps unluckily!! ) I found an enrolled agent who was willing to take on my case and do all the PFIC calculations so really had no other option because the cat was out of the bag. If I had refused to hire her, she could have threatened to be a whisle blower and turn me in, as I had gone to her directly rather than asking under client privileges via a tax attorney.

    My dilemma was that I had acquired over forty five holdings in mutual funds (all quite small investments) because they are traded just like ordinary stocks where I live, so had been oblivious to the PFIC mess I’d created!!! I felt absolutely desperate because one accountant was going to charge me at least $500 per PFIC, which at over forty holdings would have meant having to file at least three years of amended returns plus the current year’s….I thus would have been looking at an accounting bill north of $100,000!!!!

    But I found another preparer willing to do the compliance for ‘only about $12,000 plus another $4000 to set up a relationship with a US-compliant financial planner so I could move my investments out of the PFICs and into a compliant portfolio. (ALSO faced a huge tax bill north of $10,000)!!!

    I was originally going to try and keep my US citizenship but when I became aware that I was going to continue facing annual accounting fees north of $2500 even with full consolidation and compliance, I realised that I was going to find it too burdensome so renounced.

    The whole costs will have come close to $50,000 !!! It’s also made me extremely bitter.

  19. Different view (with rationale) from usual discussion of US tax liability of TFSAs. Not cited here as tax advice. But an interesting divergence from the advice I have usually been reading. However, I know from converstions that there are still people treating/reporting TFSAs as if ordinary GICs or term deposits. If the IRS takes a different view, that is a problem. This article has a very interesting argument and provides footnoted references.

    I include it not as advice but in case it might be useful somehow.

    ‘THE US IMPLICATIONS OF A TAX-FREE SAVINGS ACCOUNT’
    —Kevyn Nightingale and David Turchen, MNP LLP

    …”The IRS has not pronounced on this question, and the issue has not yet been litigated.

    Given the small size of a TFSA (the maximum aggregate contribution to date for any one person is $25,500), 15 it is not likely that any individual will have enough money at stake to justify the cost of a private letter ruling, let alone a court case. Similarly, because of the small size and today’s low-return investing environment, the issue is not likely to be pressing for the US Treasury. So we are not likely to see a government opinion on this matter in the short term. …”

  21. @NIck I’m not sure it would be comparable with what you’d pay in Canada as I’m based in Switzerland. However, I paid just under CHF1,500 for the FBAR’s and Questionnaire last year and I expect a similar or slightly less amount this year for the 8854, final FBAR and possibly 8938 form. But as Just Me says, you could probably reduce that by doing a lot yourself. The FBAR’s themselves are fairly easy to complete unless you have dozens of different accounts. It just depends on what your financial situation is like and whether you feel up to tackling it yourself. I didn’t need to file form 1040NR which is the main tax form so couldn’t tell you how complicated or otherwise it may be. If you can, find copies of the various documents online from either the IRS or State Department websites and study them to see if you could fill them in yourself.

    On the side, does anyone know if you can backfile FBAR’s online? I know online is now mandatory from this year going forward as it were, but thinking of others entering Streamlined would backfiled paper copies still be accepted without risking a penalty?

  23. I just looked at the new 8854. Much to my amazement, I see that anyone who expatriated between June 2008 and Dec 2012, “Does need to file an 8854” unless they fall in a few noted circumstances. I read it 3 times. Unfortunately, doesn’t apply to me, because i expatriated in 2013, and have to complete all the stuff about income, financial worth, etc. But I find it hard to believe. Some people might be very happy. Can someone else look at it, and see if i am reading it right. Just Google IRS 8854.

  24. Doc, As always it is obtuse. I think what happened is as follows. If you expatriated before 2013, they assume this is not your first 8854 and so you only fill in the sections referring to deferred items.
    Naturally mass confusion will ensue. Cheers.

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