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.
@CanuckDoc
Did you mean to say “Does not need to file an 8854″? Are you referring to the 8854 which applies to 2013? If so, that would be quite useless, since anyone who renounced in 2012 (like myself) would have had to file 8854 for 2012 and submit it last year.
I think KalC is correct on this. I just had a look at this years and prior years 8854. They do the same adjustment every year, i.e. for the current year the rules are different to those in prior years.
Fbar… Deals with offshore banking. I’ve been in Canada for 14 years, a citizen since 2006.
Wikipedia definition of offshore bank is offshore bank is “a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages.”
I reside in canada.. I bank in canada in my mind I have NO offshore bank.
Its redicolious!
All here do hear what you are saying, Carrida. It is US exceptionality in making the rules and not having changed citizenship-based taxation law to residence-based taxation law by now, as the rest of the world’s countries (save Eritrea).
What is the percentage of US Persons, born and educated in the US, who actually were taught about or understood what US citizenship-based taxation law is and its consequences. The US did a piss-poor job of educating us (as some say we should have known all this by middle-school education in the US), either when we lived there or when we moved away from there. A US blind eye to all of this — until recently. Vultures, I’d say.
Our supposed US citizenship is supposed to be more important than our Canadian (or any other country) citizenship — and we will, of course, eventually come to our senses and return to the exceptional Homeland.
@calgary411 i would have to say a very small percentage of people actuall know about CBT and yes the americans have done a very very poor job of educating people about it.
when i left there and moved to canada i did not give it a second thought for over 20 years about having to file with the irs.
it is alarming or shocking to me that now after countless trips to the states from canada that it is only over the past couple of years that i have become aware of the requirement to file taxes with the irs. why did the american border agents 25 years ago first inform me of this requirement. why did the irs when i filed my last 1040 and used a canadian mailing address not inform me of having to continue with filing requirements.
the american gov’t has to take a large part of the blame for doing such a poor job of informing its citzens of the requirement of just what being a citizen is.
Carrida, it is ridiculous — there is no doubt.
I’ve just given this comment to another person here. It may help you. Start reading and as you do, continue to ask questions that you do not find answers for. Remember we do not give legal advice of any kind. http://isaacbrocksociety.ca/2011/12/12/relinquish-dont-renounce-if-you-can/comment-page-14/#comment-1018976
SharonCarrida,It appears that the FATCA FAQs have changed since I looked at them. I use them every few days in correspondences.
There are new rules for which penalties apply to the various types of innocent persons.
http://samuelclemmons.wordpress.com/2014/01/22/irs-ovdp-faqs-have-changed/
I was born in US but have lived in Canada since I was a baby. I received my Canadian Citizenship in 2004. I never applied for a SSN because I never intended to work or live in the USA. Canada is my home where I grew up and chose to live. I understand that I am eligible for relinquishing my US citizneship. I have never filed any taxes with the IRS because I wasn’t aware until very recently. My question is, after relinquishing, would I then backfile for 6 years after receiving my certificate of loss of citizenship? Would they stiff me with these scary penalties and fines for being non compliant all these decades and try to make me file farther back then that? It is going to be so costly just trying to do that, I can’t imagine what would happen if they try to have a field day with you by asking for ridiculous demands and threats if fines and penalites. Can they collect that from you for not filing if you live here in Canada? This site is great with all the people here standing together to help one another. After receiving the Loss of citizenship certificate, would one hire a US accounting firm to file the back taxes or are there knowledgeable Canadian Tax companies that can do that here? ANY info would help so much. I was just about to go through the streamline procedure with an american tax firm but my gut tells me to hold off til I know more.
@CN888, firstly don’t rush into anything until you’ve done your research. When exactly did you gain your Canadian Citizenship in 2004? If it was before June then you should read this:
http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
Secondly, no, the IRS cannot collect any penalties or taxes from Canadian citizens.
You would not be able to file back taxes without having an SSN and to apply for one is, so I understand, a complicated and long process.
Were your parents Canadian? If you then you may have dual nationality and this might be possible for you:
http://isaacbrocksociety.ca/2014/01/21/possible-relinquishment-route-for-cln-for-some-duals-at-birth-in-canada/comment-page-2/#comment-1023820
I repeat, don’t rush into anything. The Canadian government hasn’t signed an IGA with the US on implementing FATCA yet and many people are fighting hard in Canada to make sure the government doesn’t. Research thoroughly with a view to how things affect you personally before making any decisions.
@Mark Twain: Thanks a lot for posting your comments on the updated ODVP FAQs. One of these may help someone I know.
MedeaFleecestealer: thank you for your reply. I wrote my citizenship test in February 2004 and I received my Canadian citizenship in April of 2004. I’m so confused with that link you sent me. I don’t quite understand it… My parents are both Americans but shipped me to Canada when I was a baby because of their marital problems. When you relinquish, don’t you have to file back 6 years of taxes. I understand that to file your taxes you will need an SSN number so I’m not exactly sure how that will work.
@CD888
READ THIS BEFORE YOU DO ANYTHING:
http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
@ CD888,
It has to do with when the current exit tax law came into effect.
If you relinquished your citizenship, Dept of State considers your citizenship to have ended the date of your relinquishing act. Prior to June 2004, so did IRS.
Then, beginning 4 June 2004, IRS considers the date of loss of citizenship to be the date you notify the US government of your relinquishment (eg, signing your DS-4079 at the consulate), not the date of the relinquishing act itself.
But if you already weren’t a citizen when the law came into effect, it seems logical that a new US law would have no effect on you. If so, you would not be required to file the previous 5 years and the exit tax form.
There is some legal opinion on this in the post Pre-1995 Relinquishers and the IRS: Three Recent Legal Opinions. (Though the person who sought these legal opinions was a pre-‘95 relinquisher, this post is relevant to people up to 2004 as well)
Also Michael Miller, a US tax lawyer, writes about this and explains it very clearly, with references to the law and jurisprudence as well, in this article, Expat Live in Fear of the Malevolant Time Machine.
There’s also links a few more threads on the topic under Read This if Relinquishing Act Performed Prior to 4 June 2004
And an opposing view from US tax lawyer Phil Hodgen.
What does IRS say? They have not made any official statement one way or the other that I’m aware of. There’s an unofficial comment, which Michael Miller posted on Phil Hodgen’s site.
“For persons whose CLN shows a loss of citizenship date that is on or before June 3, 2004, section 877A should not apply. Even if the CLN is received today. I’ve discussed this with people at the IRS and they’ve informally stated that they agree.”
@Mark Twain:
Attached excerpt on updated OVDP FAQs, which were released in July 2013:
“While the content and structure of the Q&As for OVDP 2012 are largely similar to the Q&As under the prior OVDPs, highlighted differences include Q&A 21 and Q&As 54 and 55. Q&A 21 provides that U.S. taxpayers that challenge a foreign government’s disclosure of tax information by that foreign government through the foreign country’s judicial system must notify the U.S. Justice Department of that challenge in order to qualify for entering OVDP 2012. Q&A 54 provides that taxpayers with certain Canadian retirement plans (e.g., RRSPs or RRIFs), that failed to make an election under the U.S.-Canada Income Tax Treaty to defer income earned by the RRSP or RRIF can effectively make the election as part of OVDP 2012, or as an effective part of the two prior OVDPs for taxpayers participating in those programs. Q&A 55 suggests IRS is willing to entertain similar relief for taxpayers that have other foreign retirement plans.”
http://www.wtas.com/pressroom/irs-updates-offshore-voluntary-disclosure-program/
Currently
In the not too distant future:
U.S. taxpayers that challenge a foreign government’s disclosure of tax information by that foreign government through the foreign country’s judicial system must notify the U.S and will be subject to the greater of a $10K penalty or 95% of the gross reportable amount of their financial accounts.
Link to another threat the US is trying to implement they say against people who renounce.
http://www.brighttax.com/8/post/2012/05/ex-patriot-act-to-permanently-banish-some-who-renounce-us-citizenship.html
@Pacifica777 thank you for clarifying the 2004 exit law better. I feel at home here among many people in similar situation to mine and having so much knowledge. I was having a hard time trying to really understand it, as I found it confusing. This may come as a repeated question, so if I fall into the category of people who expatriated before June 2004, would I still have to voluntarily file back taxes and FBAR forms? Or wait to see if the IRS requests it? I’ve been reading and it seems that most people say you have to file back 6 years of back taxes and FBARS etc, so I’m thinking it would be unavoidable. But I’m grateful for the information that I have received.
Can someone tell me what forms I would need to complete in this case and if I just go to the US embassy to file for relinquishment of my US citizenship? I also read that for relinquishment you have to notify the DOS in writing??
I read on another site, scare tactics that if you don’t comply now you will lose your chance and will face severe fines and penalties.
@bubblebustin
Thank you for your link as well.
CD888. No the whole point is that if you expatriated before June 2004, you are no longer a US person and you don’t need to file anything related to taxes. Nada, Rien, Bupkis.
All you do is go to the consulate, tell them you relinquished way back then because you intended to give up US status. Intent is critical. They have to give you a CLN and it doesn’t even cost $450. Do’t pay attention to scare tactics. See the sidebar to the right titled ‘for those who expatriated before June 3, 2004
This is from the IRS site. Please correct me if I am wrong… I am reading this and understanding that if one wants to relinquish their US citizenship, in my case I lived in Canada almost my entire life and call it home. I became a Canadian Citizen in April 2004. It says below that “Individuals who renounced their U.S. citizenship or terminated their long-term resident status for tax purposes on or before June 3, 2004, must file a Form 8854, Initial and Annual Expatriation Information Statement (PDF), to comply with the notification requirements under IRC 877. For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.”
Since I didn’t know that I should have done that officially after becoming a Canadian Citizen, and I want to do that now, is it too late?
How would you file back taxes or FBARS if you get your certificate of loss of citizenship because I don’t have a SSN and you need one to file your taxes. I keep seeing deadline of June 2014 to file. What is that about? I feel like I keep reading and become more and mrs confused and scared.
Lets say I were to do the streamline process to make me compliant, what would the consequences be to renounce after its done? The streamline process files 3 years plus the current year, and 6 years of FBAR. If I renounce after that will they go after 3 more years of back taxes because of that? I’m trying to weigh my options here, and if you ask me I would want to just relinquish because not only did I become a Canadian Citizen because I grew up here my shoe life, but this unfair treatment to US citizens living abroad has given me no desire whatsoever to be American in any way even more so now. I can’t believe how the US is punishing those who choose another country to be their home.
Expatriation on or before June 3, 2004
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their US residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes. You are presumed to have tax avoidance as a principle purpose if:
Your average annual net income tax for the last 5 tax years ending before the date of the expatriation act is more than $124,000, or
Your net worth on the date of the expatriation act is $622,000 or more.
If you meet either of the tests shown above, you may be eligible to request a ruling from the IRS that you did not expatriate to avoid U.S. taxes. You must request this ruling within one year from the date of expatriation. For information that must be included in your ruling request, see Section IV of Notice 97-19. If you receive this ruling, the expatriation tax provisions do not apply.
The expatriation tax applies to the 10-year period following the date of the expatriation action. It is figured in the same way as for those individuals expatriating after June 3, 2004, and before June 17, 2008. Individuals who renounced their US citizenship, or long-term residents that terminated their US residency, for tax purposes on or before June 3, 2004, must file an initial Form 8854, Initial and Annual Expatriation Information Statement. For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.
Individuals who renounced their U.S. citizenship or terminated their long-term resident status for tax purposes on or before June 3, 2004, must file a Form 8854, Initial and Annual Expatriation Information Statement (PDF), to comply with the notification requirements under IRC 877. For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.
What to do if you haven’t filed a Form 8854
For more detailed information on how, when and where to file Form 8854, refer to the Instructions for Form 8854.
What to do if you haven’t filed an Income Tax Return
Among the various requirements contained in IRC 877 and 877A, individuals who renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation. If all federal tax requirements have not been satisfied for the 5 years prior to expatriation, the individual will be subject to the IRC 877 and 877A expatriation tax provisions even if the individual does not meet the monetary thresholds in IRC 877 or 877A.
Individuals who have expatriated should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved.
For more detailed information on what to do if you have not filed your required federal income tax returns, refer to Filing Past Due Tax Returns.
Significant penalty imposed for not filing expatriation form
The Internal Revenue Service reminds practitioners that anyone who has expatriated or terminated his U.S. residency status must file Form 8854, Initial and Annual Expatriation Information Statement (PDF). Form 8854 must also be filed to comply with the annual information reporting requirements of IRC 6039G, if the person is subject to the alternative expatriation tax under IRC 877 or IRC 877A. A $10,000 penalty may be imposed for failure to file Form 8854 when required.
IRS is sending notices to expatriates who have not complied with the Form 8854 requirements, including the imposition of the $10,000 penalty where appropriate.
The Instructions for Form 8854 provide details about the filing requirements, related definitions and line-by-line instructions for completing the form. Failure to file or not including all the information required by the form or including incorrect information could lead to a penalty.
@CD888,
(1) DOS Forms and Relinquishment
You would make an appointment with the embassy or consulate. Some consulates use online booking. For some you book by e-mailing them (they have an address for it on their website).
Things vary a bit from place to place. You can read people’s accounts of their relinquishment/renunciation meetings in the Consulate Report Directory. http://isaacbrocksociety.ca/consulate2/
“Notifying the DOS in writing” means applying for the CLN.
Here’s a list with links to the standard DoS forms for relinquishment, The consulate fills out the 4083. Some consulates fill out the 4081, some prefer you fill it out in advance. You sign the documents when you’re at the consulate.
If you have already relinquished your citizenship (eg. upon obtaining citizenship in another country) and are now applying for a CLN:
4079. Request for determination of loss of citizenship. This has four pages of questions, requiring dates; it’s best to fill it out in advance of your consulate meeting.
http://www.state.gov/documents/organization/97025.pdf
4081. Statement of understanding of consequences
http://www.state.gov/documents/organization/81607.pdf
4083. Certificate of loss of nationality http://www.state.gov/documents/organization/81609.pdf
Statement. Not necessary, but can be useful to supplement your 4079 with a written statement to show that your relinquishment was intentional and that your post-relinquishment conduct has been consistent with having relinquished.
http://isaacbrocksociety.ca/consulate2/
(2) Tax
I think you’re right, it’s scare tactics. It seems the only fines/penalties we’re hearing of so far have occurred to people inside the voluntary disclosure programs (OVDP/OVDI).
The very important thing is *do not do anything in a hurry* – because once done, you can’t undo it. Read a lot, ask questions, think it over/give yourself some time to get a feel for things — only then do what you feel is best for you, given your situation and your risk tolerance.
No need to rush. It’s possible you might not file taxes at all. Even if a person is supposed to be up to date on taxes, Dept of State does not require that one is up to date on taxes at the time of their consulate meeting and issuance of the CLN is not contingent upon that either. So, don’t feel you have to jump into anything quickly.
http://isaacbrocksociety.ca/relinquishing-acts-performed-prior-to-2004/
Cd888 please read the article in the right sidebar http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
It explains more clearly than I can why the rules you refer to cannot and will not be applied retroactively to people like you.
@Pacifica777 and @KalC, thank you both so much for your thorough explanation and patience. I’m feeling rather dumb trying to understand everything in all its complexity and serious nature. It has caused me many sleepless nights lately and a feeling of being sick to my stomach. I’m trying to see what my options are and which is the best route for me to take. I have no sad feelings or regret about ridding my US citizenship, it’s more a matter of doing it now and relinquish it because I intentionally committed an act of expatriatism or renouncing once I became tax compliant. I have been leaning more and more towards notifying the embassyof my intention to relinquish. I just needed to find out more info about possible repercussionsand consequences.
I hear many people say that the IRS cannot fine you or subject a penalty to you or CRA will not assist them to money for them. Then what is the biggest scare in terms of real consequence. Like what would happen if you didn’t comply and never plan to step foot on American grounds? I guess I just asked the question that is on mind.
I appreciate so much all the people here who are trying to help us with our questions and concerns. You have no idea how comforting it been to have this site to turn to when there seemed no place turn to for answers. Thank you!!!
@CN888, as others have said, despite what the IRS says, pre 3rd June 2004, filing requirements don’t apply to you. It’s also quite clear in the instructions for the 8854 form which only contains info for people filing AFTER that date.
http://www.irs.gov/pub/irs-pdf/i8854.pdf
There are no instructions regarding filing prior to 3rd June 2004 and it’s extremely unlikely the IRS will go chasing after people who renounced/relinquished before this date. So apply for your CLN and then you’re done; no tax filing required.
Nothing at present as far as scare tactics goes. If you never go to the US and don’t file, there’s nothing they can do to you in Canada. Only if Canada signs an IGA which allows the banks to pass on your account info to the US could there be problems. Switzerland has been suffering with this for the last 2/3 years with American clients having to sign W-9 forms to keep their accounts open. Now the banks are also asking for proof of tax compliancy, again with the threat of closure should you not be compliant, and I’ve read of a couple of isolated cases where accounts have been frozen pending proof in case the banks have to apply the 30% withholding rule to those accounts. So the sooner you can relinquish the better it will be because you can present proof to your bank, via the CLN, that you are no longer a US person for tax purposes.
CD 888. You have a straightforward case. You make an appointment, tell them you relinquished in 2004. They issue a CLN .
You ceased to be an American in 2004. You have no tax obligations. The IRS has no interest in you. You are just as free to visit the US as any other Canadian. You are well off compared to many here with very complex stories.
@ innocente I am very familiar with FAQ 52.2, as I use it often as an example of the ridiculousness of FATCA, and the plea bargain program OVDP. It looks like they had added stuff at the end about streamlined during this last week–because I didn’t notice it about a week ago.
I had also never seen the 12.5% plea bargain, to give away 12.5% of everything you own because you relied upon all of the paper Pub 54’s published prior to 2009 when they entrapped all of us schmucks.
http://samuelclemmons.wordpress.com/2014/01/03/fatca-entrapped-10s-of-millions-of-us-persons/