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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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Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.

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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”

  3. Thanks, badger.

    Interestingly, often left out of these light-weight articles is the RDSP, another Canadian registered account that the US considers a foreign trust. No mention of mutual funds, PFICs. In the short paragraph that deals with FBARs, it does not talk about the total of the accounts, or aggregate, being $10,000 or above, not just an individual account. ALL accounts need to be reported, with highest balance of each in USD, account numbers, bank, address, etc.

    In addition to filing a tax return, U.S. citizens in Canada are required to file a foreign bank account report (FBAR) before June 30 of every year. They’re supposed to report any “foreign” account that had more than $10,000.

    Ho Hum, maybe not such a big deal it seems.

  4. For those who might be seeking their past IRS transcripts/filings, etc. using this online too, caution:

    Security issues at IRS
    http://www.informationweek.com/government/cybersecurity/new-irs-tax-app-invitation-to-thieves/d/d-id/1113673

    “A new IRS online tool let users view and print copies of past tax returns, but it could become a target for identity thieves.

    The IRS has introduced an online tool that lets consumers download transcripts of their tax filings. But a former IRS attorney warns that the new self-service tool may be a target for thieves, and that the agency’s data security practices aren’t as strong as they need to be.

    Those security practices are expected to come up when the newly appointed IRS commissioner, John Koskinen, testifies at a House Ways and Means Oversight Subcommittee hearing on Wednesday, Feb. 5.”…………

    ……..”All transcript requests are being referred to the online tool, though individuals can still request a copy to be sent by mail. “…….

    ….””it [IRS] has done an abysmal job of data stewardship — that is, how it processes, handles, verifies, and utilizes the data it strives to keep secure,” Ryesky said….”…….

  5. @badger
    This is alarming. I retired from investigating ID Fraud and this is very alarming. One can go for years and not know one’s ID has been stolen.

  7. I just wanted to call attention to the fact that there are some very unscrupulous accounting firms out there who are using fear-mongering tactics to make money out of all of this.

    I have been investigating the streamlined program as an option and contacted a Toronto-based accounting firm, having noticed the name of one of said firm’s accountants in a number of Globe and Mail articles (he is usually quoted as making it sound like everyone potentially affected by FATCA must react by seeking professional assistance with the utmost urgency). I did not use my real name or e-mail address, but the story I presented was basically my own (Canadian citizen who happens to have been born in the U.S., never considered myself American, etc. etc.). The subject line of my e-mail was “concerns about FATCA. The e-mail I got back from this guy contained a very different subject line: “last name (the one I provided), first name, U.S. citizen”. Not only was that disrespectful given that my message clearly stated I have never considered myself American, I found it borderline menacing. Furthermore, he went on to state that I needed to enter the streamlined program and that his firm’s fees for this “start at” $9,000 for a simple return. Outrageous.

    I also did the same thing with a local accounting firm here in Kitchener (same story, same alias). They responded (without rudely accusing me of being a “U.S. citizen”) that they would charge $400/year for the same thing, so either $1,200 for the three years or $400 to do one year and then I could use the return they prepare to do the other two years myself.

    I just wanted to relate this to ensure that everyone is on the lookout for unscrupulous firms that hope to scare us into paying them outrageous sums. If you are going to do streamlined, check around and consider the various options (including having one year done and using that as a base to do the rest).

  8. @Nick…

    It is a buyers beware world out there right now. The Streamline, if a person wanted to do it, does NOT require an attorney. It is easy money for them, and with just a little diligence you can do it yourself. I did the full OVDP myself. I wouldn’t recommend it, but the attorneys DID NOT get rich off it. 🙂

  9. pacifica777 says
    January 25, 2014 at 2:36 pm

    I remember one early OMG reaction I had was to deliberately get my self arrested in the US and become a martyr fighting them from jail…

  10. Hi All–

    Really appreciate all the sharing of advice and experiences on these forums.

    Would love some comments on the below situation, have tried to summarize clearly. THANK YOU IN ADVANCE!
    —————————————————————-

    Elderly couple, US residents, dual US/Swiss citizens
    2003 Swiss inheritance: $200k + 1/12th rental property
    ZKB account established 2003; ZKB closed all US accts in 2009, moved to PostFinance

    2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

    Rental income in US$
    2556 2984 3957 4431 ? ? 11514 11577 13297 13314

    Rental income reported,
    US tax paid? X X X X

    De minimis interest, dividends, gains reported? (no)

    Sched B III – foreign accounts checked? X X X

    Form 8938 ? (no)

    TD F 90-22.1?
    (paper FBAR w 1040) X

    Electronic FBAR ?
    (filed Jan 2014) X X X X X X X X

    GOOD FACTS for NON-WILLFUL, REASONABLE CAUSE:
    – Substantial paper trail: annually communicated rental income, reiterated desire for transparency and compliance to CPA in annual filing letter.
    – Appropriately checked “foreign account” and “foreign income” boxes in at least 2007 TAX ORGANIZER (quite possibly in other years, awaiting copies of TAX ORGANIZER for all years)

    How/why this information did not end up on returns until 2009 unclear: miscommunication, misunderstanding, ignorance, confusion on part of TP & CPA, on how, where, when, what to report.

    – Taxpayer believed Swiss taxes paid mitigated US tax obligation
    – Taxpayer believed reporting thresholds requested by CPA (“is it over $50k?”) were income not total account value; income consistently well below that threshold.
    – Taxpayer inquiry to ZKB seeking guidance on tax reporting, unanswered
    – Prompt action to come into compliance upon clearer understanding
    – Swiss taxes paid every year
    – No foreign tax deduction/credit ever taken
    – After foreign tax credit/deduction and bank fees expensed, anticipate actual tax owed to be de minimis at best
    – Accounts established for good purpose
    – No previous criminal/tax issues
    – Only became aware of FBAR/OVDP due to late 2013 Bank letters, back FBARs promptly filed
    – Ignorance in conjunction with complexity of compliance ; IRM 20.1.1.3.2.2.6 (2) (e)

    OVDP
    – Penalty base could include Real Estate (approx. value $250k) + Account (max value 2006 : $250k) = approx. $500k
    – OVDP penalty 27.5% of $500k + taxes and penalties could end up near $150K
    – Enter OVDP, plan to opt out with TAS assistance, yes?
    – How many years back are in question? Unclear on various SOL
    – If enter OVDP, be prepared for check for total penalty amount to be cashed?
    – If planning to opt-out, benefit of not signing consent to extent forms?
    – as per Jack Townsend, along along with FAQ 35 submissions, include a protective claim for refund, along with a request to defer action until the OVDP is resolved?
    ————————–
    Again many thanks for all insights!

  11. I see that, despite my best efforts at reconstructing a table, it failed miserably. SORRY!

    So the first section with figures was meant to represent the years 2003-2013.

    In a nutshell:
    2003-2008 – No foreign income reported
    2009-present – rental income reported and US tax paid YES
    2010-present – Sched B iii checked YES

    de minimis interest, dividends, gains never reported
    8938 never reported

    TD F 90-22.1 was filed for 2012 as part of US 1040 return
    Taxpayer self-filed FBAR 2006-2013 electronically in January 2014 after receiving bank letters

    THANKS AGAIN!

  13. @KalC… thanks for the kind words. what’s the worst that could happen going forward? Full audit resulting in back tax owed + penalties + non-willfull FBAR penalties 2008-2011?

  15. I’m hoping I can find some advice here although it may be the wrong place.

    I’m a Canadian whose been living and working the the US for 6 years. 2.5 years ago a family member passed away and left me her RRIF. I am not a qualified beneficiary, and so it was cashed out just about 2 years after her death.

    I’m wondering how I report the income in the RRIF after her death to the IRS? I received 2 tax slips from Canada – a NR4 and a T4RIF. I put those down as pension income as directed by an accountant, but now I wonder if it was correct. We did file 8891 but did not elect to differ taxation…..does anyone know?

    I’m especially concerned because the same accountant told me i didn’t have to report my inheritance (I believe it should have been on a 3520) and filled out the 8891 incorrectly. I’m now worried about massive fines.

  16. @all IBS
    re: case studies for OMG persons
    Might it be possible to make “case studies” with a few suggestions as to possible paths to choose?
    I know one can find this info by reading all the older posts (as I did last year) but the amount of data has increased a lot since then.
    Last year I had my own OMG moment complete with panic, sleepless nights etc until after having read through IBS posts and having several specific answers from other IBS persons, I was able to choose the best path for my specific situation. The only thing it cost, moneywise, was about $400 US when I at decided to get some professional advice (online) – which revealed that I actually knew as much or more than the professional, but since I had contacted them, I had to pay anyway. I now realise I got off cheaply. More and more persons are asking the same sort of questions I had last year.
    FWIW I decided to file 6 years back to the IRS and 5 years back on FBARS (with requisite explaination letters) owed zero tax. Have not heard a peep either IRS or Treasury and have renounced. I did the paperwork myself, took a long time, but I learned a lot too. Good luck to all!

  17. @allou and others who have done this: so do you recommend simply filing 5-6 years of back taxes before renouncing as a means of avoiding “covered expat” status? I was thinking of doing the steamlined thing, but that only requires 3 years of tax filing which would not meet the 5 year criteria needed to complete 8854 and get out of “covered” status so it now seems to me that streamlined is not useful for someone who wants to make a clean break and renounce as a “non-covered” expat. Does simply sending in 5-6 years of back taxes (and FBARs??) to the IRS (along with a letter explaining that I didn’t know about U.S. tax obligations) work? Then I could honesly declare on 8854 that I have complied and recieve my CLN?

  18. @NIck, although Streamlined only requires 3 years, there’s nothing to stop you sending in the additional 2 back years at the same time. So long as you’ve done the filing it counts.

    If you renounce you will receive your CLN whether you’ve already done your tax filing or not. The two are separate things and not being tax compliant before renouncing will have no effect on getting a CLN. It’s only the “covered expat” status that requires the necessary back years so you’re compliant. I renounced first and then started my tax back filing last year.

  19. @Nick, forgot to add, yes I have my CLN. I got it within 6 weeks of renouncing and before I started doing any filing.

  20. @MedeaFleecestealer

    I realize they are separate things, but I am still a bit confused as to where 8854 comes in, although my understanding is that one must be in compliance BEFORE submitting 8854 because you must swear on this form that you have filed taxes for the 5 previous years in order to avoid covered status. Does the IRS send you this when you renounce or is it up to each individual to submit it themselves?

    In any case… what matters is not whether you renounce or back file first; the important thing is that you back file before submitting 8854 (you have to file 8854 with your tax return by June of the year following renunciation). So, I guess this means one could file the 5 back years either before or after renouncing as long as you do it before June of the following year so that you can claim you have met these obligations when submitting 8854. And one could potentially backfile using the streamlined process and adding 2 years of returns. Does that sound right to people?

  21. @Nick, as you say it has to be filed by 15th June of the year following your renunciation/relinquishment year. I renounced in March 2013 so I have to file the 8854 by June this year. I only needed to file FBAR’s as I have no income so filing 6 years of those has me covered for the 5 year rule. I’ll do a FBAR to cover the partial 2013 and might need to file an 8938 form – I’ve got to check on that one as I may not meet the requirements. But otherwise it’s just a case of filing the 8854 and all my obligations have been met.

    It’s purely down to personal preference whether you do the necessary filing before or after. If you’re happier getting compliant first then do that. The main thing is to watch your timing as far as filing goes. The earlier in a year you renounce/relinquish, the longer you have to get the necessary back filing done. If you leave the renunciation until November/December then you would only have 6/7 months to get the filing done by June 2015 whereas if you do it now/March you’ll have many more months to get things sorted out. If you do the filing first of course then it doesn’t matter.

  22. @Nick
    I filed 6 years of tax returns and Fbars and letters of explaination for each year, as that was what the IRS telephone helpline advisors told me to do. That was also the path followed by others here at IBS who were in the same situation as me – duals who had no idea they should file US taxes. At the time I filed, I was unaware of streamlined and no advisors at the IRS mentioned it. That was last spring. Now it appears that streamlined is ok to do, and several posters here at IBS have mentioned one can send more than 3 years. I do not know if the IRS international helpline is still in operation. I sent all my forms via registered post and have never heard back from either IRS or Treasury. I renounced last summer and am still waiitng for the CLN. There appears to be a backlog at the state dept. office, so remember to keep your receipt and ask for a copy of the papers/forms you sign when renouncing – then at least you have some proof that you have renounced. You may be in for a long wait before the CLN is returned to you. Good luck!

  23. @MedeaFleecestealer @allou Thanks to both of you for your helpful responses. I think I am finally starting to figure out what I need to do to extract myself from this absurd situation, in part thanks to help from people on this site.

  24. @MedeaFleecestealer @allou @Nick

    Just remember that FBARs are NOT an IRS form and under Title 26. They are under Title 31, and technically not necessary in the 5 years of compliance requirements for renouncing. Again, and it has been posted before, and direct you to Phil Hodgen’s blog.

    Don’t rush to give them more than absolutely required to exit the door!

    http://hodgen.com/expatriate-without-filing-fbars-sure-thing/

    Of course, since 2012, you do have the IRS form 8938, the FATCA form to file, but before that the FBAR, well why bother if NOT required for renouncing..? Think about it. Phil provides good advice.

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