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.
@badger and northernstar – Thank you!
You’re right. I have gone back to the electronic filing and now see that my SSN will suffice. Not sure how I got that confused (general disgust with useless forms maybe). Well, one less thing to worry about. Thanks,
Thanks NIck,
Yes I guess that having a SSN saves you a hassle since you want to get your 5 years of back filing in order to renounce. This may sound like a stupid question but can someone who has never been in the system (no SSN, no tax filing, no passport etc.) renounce (ex. as a 2nd option to a failed relinquishment attempt) and then file 5 years back (no FBARS) without getting a SSN? I expect that the answer to this is no.
@Mr. A, Well, it does say this in the instructions for the 8854 form:
“Identifying number.
Generally, this number is your U.S. social security number. An incorrect or missing identifying number may result in a continued obligation to file U.S. tax returns as a citizen or resident of the United States for persons expatriating after June 3, 2004, and before June 17, 2008, and/or a penalty of $10,000. If you
were never issued a social security number, please attach a statement explaining the reason.”
http://www.irs.gov/pub/irs-pdf/i8854.pdf page 4
So you could file the 5 years & 8854 with an explanation and wait and see if anything comes of it. Depends if you want to take the risk though. Otherwise, yes, you’ll have to go through the hassle of getting an SSN which sounds time consuming – like years – and needs a lot of documentation to get one.
http://www.ssa.gov/ssnumber/
Thanks Medea,
That is interesting to know. I do not want to exercise any claim on US citizenship and never want to have to get a SSN. If I ever find myself in the position of renouncing and attempting to file the 5 yrs I think that I would just attach the statement of the reason why (which would be something along the lines of “I have never lived my life as a US citizen”).
What do you think would be a bigger risk ? :
a) renouncing to get the CLN and then doing nothing (no tax filing at all) OR
b) renouncing and then filing an incomplete return (5 years, no or minimal tax owed due to the foreign tax credit, no FBARS) with no SSN (only the above attached statement)
Bear in mind that I would never cross the border again with either scenario.
sorry to be so obtuse, but is reporting FBARs 1st step in complying with FATCA? The $50K threshold in all accounts for reporting by the FFI to CRA, to IRS I understand. How does the $10K threshold aggregate of accounts per FFI apply?
@Mr. A, I can only tell you what’s happening here in Switzerland which, unfortunately, seems to be leading the way on the banking side of FATCA. I renounced last year, just before one of my banks sent me a W-9 form to sign. Having informed them of the situation they gave me time to receive my CLN, a copy of which I sent to them straightaway on receipt. They were happy with that and I haven’t heard anything from them about it since. However, I didn’t tell my other bank that I’d renounced and recently received a letter from them stating that they strongly recommend all their US clients to be tax compliant and suggesting I join a voluntary disclosure program if I wasn’t. They also asked for proof that I had entered the program. I suspect, although it wasn’t stated in the letter, that if I didn’t provide said proof my account would probably be closed. I immediately sent them a copy of the CLN and also a copy of the Streamlined Questionnaire as I had recently entered that program. I then had to sign a W-8EN form for that account.
So it will depend on how the Canadian banks tackle FATCA and the possible compliancy issue. It may be that presenting them with a CLN as soon as you receive yours will be enough, but they may decide to go further and question your tax compliancy too. The reaction in Canada may not be as extreme as it has been here in Switzerland. Banks here have been throwing out their American clients in increasing numbers over the last few years as FATCA looms nearer, but this is also partly due to the US’s attack on Swiss banking secrecy. However, given that FATCA is supposed to start in July and receipts of CLN’s seem to be slowing down due to backlogs at the State Department, being tax compliant might be a better option. But the decision is really yours. Which will you feel happiest/easiest with? If you decide to file then you have supporting evidence for your bank that you have become compliant as you should keep copies of all your filings, the 8854 form and your explantion as proof. If you don’t file you have nothing to show them should they question you about compliancy. It really depends what the US-Canadian IGA agreement says and what Canadian banks decide to do next.
@Mr. A Are you Canadian? In Canada, it really remains unclear exactly what the consequences would be of not complying after renouncing. The CRA will not collect taxes on behalf of the IRS and in Canada (unlike Switzerland and other countries) they cannot close your account. The banks could turn over your info. to the CRA which in turn would send it to the IRS, but it doesn’t appear as though there will be any way for the IRS to actually get its hands on your money. So, if you never step foot in the U.S. again, it is possible that nothing will happen although many of us prefer to become compliant before or after renouncing just so that we don’t have this hanging over our heads.
@always something says
FBAR predates FATCA. FBAR rules are just the convenient penalty hammer the IRS uses to gather in that so so delicious penalty nectre until the FATCA prision walls are fully constructed.
Don’t confuse the amounts…
FBAR 10K is aggregate of all your personal account that YOU have to report to FinCin under Title 31… It is NOT part of your tax return. It is a separate information and penalty form.
FATCA 50K de minimis rule, is just the amount below which, if aggregated across the FFI, that they have to report. It also relates to the rules of the newer FATCA form 8938 that the IRS has created under Title 26 and is part of your income tax reporting.
The FFIs are NOT limited to it, they just Don’t have to report it if less. It is a pain in the ass for them to do, and some may just reporting everything, so don’t get too hung up on it or think it is some ‘safe harbor’. At least that is what is reported by several sources which we have posted before.
Hope this adds a smidgen of clarity to confusing issues..
@MedeaFleecestealer
Couldn’t Mr A renounce and then get an ITIN to use as his “Identifying number” on 8854? Probably good idea to attach an explanation with it as well.
I realize this sounds somewhat convoluted, but given the sometimes arbitrariness of the IRS, perhaps this is what is expected?
@Medea,
As NIck has stated, I don’t think that our banking situation will necessarily parallel Switzerland’s. Our IGA states that the US will not require a reporting Canadian Financial Institution to close the account of a recalcitrant account holder if the US gets the account info. I think that there would hell to pay if a Canadian bank closed the account of a Canadian citizen living in Canada. I feel that I am reasonably safe for now (l look like any other Canadian in my banks’ databases). I am just concerned about where this is going and if the reporting requirements ramp up in the future (ex. having to show a passport or birth certificate – a clear violation of our Charter of Rights & Freedoms and our Human Rights Act). Thus I would like to get a CLN if possible but I don’t want to take steps to be a US citizen (such as getting a SSN etc.). I am working on possible relinquishment strategies – renunciation would be a last resort
(or doing nothing and hope that I never get caught by the banks).
@NIck
Yes I am a Canadian from birth (born in the US to a Canadian parent), came to Canada as a baby and have only lived my life as a Canadian. I have never thought of myself as a “real” American – only thought of my birthplace as a novelty (like Canadian Cop) when ex. crossing the border. I have never had any need or desire for true American citizenship and would be now quite happy to be rid of it. I have no SSN, no US passport etc. and want to keep it that way to be consistent with possible past relinquishing actions. The thought of actually filing US tax returns goes against every grain in my body.
@Mr A.
Re: Our IGA states that the US will not require a reporting Canadian Financial Institution to close the account of a recalcitrant account holder if the US gets the account info.
I doubt you will find anything different thanthe language is in the model IGA and ALL IGAs. However, I think if you look at the applicable Article there are qualifiers to that….
Article 4 (2)
Suspension of Rules Relating to Recalcitrant Accounts. The United States will not
require a Reporting [FATCA Partner] Financial Institution to withhold tax under section 1471
or 1472 of the U.S. Internal Revenue Code with respect to an account held by a recalcitrant
account holder (as defined in section 1471(d)(6) of the U.S. Internal Revenue Code), or to
close such account, if the U.S. Competent Authority receives the information set forth in
subparagraph 2(a) of Article 2, subject to the provisions of Article 3, with respect to such
Account..
So, to fully understand this provision, you have to look at section 1471(d)(6) fof the IRC and subparagraph 2(a) of Article 2, subject to the provision of Article 3, with respect to such account.
Now compare that to the Canada IGA and see if there is anything different. I will let you do the further research. 🙂
Cheers
@tdott, I don’t think so. It would depend on whether the IRS still consider him to be eligible for an SSN once he’s renounced.
http://www.irs.gov/Individuals/General-ITIN-Information
In any case he’d have to attach an ITIN application to his tax forms when he sends them in.
@Just Me/Mr. A, indeed the US covers its bases for these sorts of things. If a bank client refuses to sign a W-9 allowing the necessary information to be passed on guess what will happen. But the Canadian situation is different in that it isn’t seen by the US as a tax haven in the same way they see Switzerland. Swiss banks are in for heavy penalties for “sheltering/aiding” tax evaders which I think is unlikely to be the case in Canada. I think this is why many American customers’ accounts here were closed, even before the banks started sending out W-9’s.
@Mr. A I also am more concerned about the possibility of requirements “ramping up” in the future than I am about the current situation. Most of us who have lived our lives as Canadians will not have U.S. “indicia” in our bank’s system and in any case once we have our CLN we could simply show them that in the very unlikely event that they were able to identify us. It is important to remember that the Canadian banks do not actually want to lose hundreds of thousands of customers if they don’t have to. All they care about is avoiding the 30% withholding tax; they can avoid this by doing “due diligence” and if someone shows them a CLN, they have done their due diligence according to the current IGA. So for now I really think that most “accidental” U.S. persons will be fine but we still need to take steps to deal with this (i.e. relinquishment) because we just don’t know where this will go in the future.
Having said that, I personally don’t think Canada will be able to let this go further than it has. Remember that the number of U.S. persons (and their Canadian spouses) in Canada makes up a far greater percentage of the population here than in countries like Switzerland, France or the U.K. The economic and political implications of closing bank accounts of potentially well over a million people (out of a population of 35 million) are almost unthinkable. And this isn’t even on the radar of the broader Canadian public yet.
Nick,
I hope that you’re right about the banks. I have called two local credit unions in my area. Both are under the $175 million asset level where small FI’s are apparently exempt from FATCA. I spoke to senior people in each one – the first (at the bigger of the two CU’s) was aware of FATCA but didn’t seem to know too much about it (I found myself explaining it to her) and told me that their board had not made a final decision on whether to comply with FATCA or not. The branch manager at the second smaller CU had absolutely no idea what FATCA was and left me with the distinct impression that they will not be involved with FATCA in any way. I don’t know too much about credit unions but it’s a good option to explore if things get difficult with the banks.
Medea & Just Me,
Thanks for pointing these things out – in Canada we’ll just have to watch closely to see if any accounts actually get closed.
@Nick, they could be a good option. But then again, do you want to trust your money to an organisation who doesn’t seem to know anything about the biggest financial change to happen recently? The info’s been out there for some years now and they still know nothing about that it’s doing to the financial world?
@Mr.A, it’s a shame we don’t have more reports from other countries like the UK, France, Germany, etc, as far as what the banks are doing. The UK jumped on the FATCA bandwagon almost immediately so I would guess their financial institutions are geared up for it by now, so whether Americans have been having the same type of problems as we have here in Switzerland would be interesting to know. That would give a better indication of what might be coming Canada’s way.
@Just Me, Mr. A, I just found this in a post over at the English Forum which may also be relevant to other countries.
“According to NPA II.G
Closure of Accounts of Recalcitrant Account Holders
The terms of an NPA will provide that the Swiss Bank agrees to close any and all accounts of recalcitrant account holders, as defined in Section l47l(d)(6) of the U.S. Internal Revenue Code. The terms of the NPA will require that the Swiss Bank implement procedures to prevent its employees from assisting recalcitrant account holders to engage in acts of further concealment in connection with closing any account or transferring any funds. The terms of the NPA will also provide that the Swiss Bank agrees not to open any U.S. Related Accounts (as defined in Paragraph I.B.9, above, but without regard to the dollar limit or the reference to the Applicable Period) except on conditions that ensure that the account will be declared to the United States and will be subject to disclosure by the Swiss Bank.”
So that pretty much confirms that in Switzerland if you don’t sign a W-9 your account/s will be closed.
This is in a thread where someone has just received a request from PostFinance to provide a copy of a FBAR he filed by the way. He’s the only one to report receiving this request, but I wouldn’t be surprised to find out more reports come in further down the line.
@Medea – I put a small vignette of the way the UK is ‘implementing’ its IGA here. In a word, discouraging.
http://isaacbrocksociety.ca/2014/02/08/important-canadian-iga-notes-from-canada-revenue-agency-and-department-of-finance/comment-page-2/#comment-1085647
There is a lot of discussion about income splitting in the Canadian media lately. If implemented, does anyone know how income splitting would be dealt with by the US tax treaty? For example, would I be able to deduct Canadian taxes I pay on my spouses’ income while still filing in the US as married filing separately?
@Watcher, yes it really depends on how a country’s banks deal with FATCA and its requirements. As an ex-dual though I can say that UBS seem to be quite happy now that I’ve presented them with my CLN. I’ve even been put back into my local branch’s care rather than being under their “American” division. No idea what would happen if I wanted to try and open something like an investment or retirement account; investments aren’t my thing and I’m already at/near retirement age. I don’t think I’d have problems though as I’m no longer American in their eyes. The form uses the same questions as UBS uses so hopefully production of a CLN would suffice. The only problem I could see from a quick look is that there’s no way to tell them you have one, i.e. it needs a question like “if born in the USA, have you renounced/relinquished? If yes, please attach copy of CLN to this application.” They do ask if you’re a dual, but that doesn’t really solve the problem of being born in the USA anyway. No supplementary question pops up if you tick the “no” box for duals.
Has anyone who gave up a green card or citizenship and never did any more paperwork ever received a letter from the IRS about form 8854?
Also, is the exit tax for property that was owned at the time of expatriation or is it for property owned at the time of filing 8854 (for example, if someone finally fills out form 8854 years later)?.
Hi all,
This may not be the place to ask, but I have what should be a very simple question, though neither the IRS helpline, the IRS webpages, nor the local IRS office was willing or able to answer. (making the effort is a story in itself, but basically I was told I need to hire a tax lawyer or CPA who specializes in foreign accounts – just to answer a basic filing question!).
So, last year I filed the f1116 form for the tax on interest income in my non-US savings accounts. I did not use all the foreign tax credit, and there was almost $400 left over. This year I do not have any taxes on foreign savings interest (well I do, but will be able to reclaim it from the foreign government), so do not need to file a f1116. I will owe taxes in the US this year due to a combination of passive foreign income and US capital gains.
So my question is, when I file this year, how exactly do I document the carryover amount from last year’s f1116? Do I simply enter it on my 1040, line 47, and attach a statement and/or photocopy of last year’s f1116, showing where I got the amount? Or do I have to file a new f1116 just to show the carryover, even though I have no foreign tax to claim for 2013?
Any help would be appreciated! Thanks in advance.
@Howard
Good question. If you are able to utilize some of your unused credits, which remember is based upon a ratio of U.S. Taxes and Foreign taxes paid, I would guess you would have to go through the process of filing the form 1116 to show how you determined that you could use it. At least that is what I would do. Would a tax practitioner that deals with this all the time say you could do it the other way, I have NO IDEA. 🙂
Hi Howard,
I had to use the carryover back in 2010. I used Turbotax so it was keeping track of my carryover on it’s 1116 worksheet. Mine had the full amount of my available carryover listed on form 1116 line 10, and then the rest of 1116 (lines 11 to 21) calculated the amount to be used. The number from line 21 was then transferred to line 27 and 29 in my case. The number from line 29 then gets transferred to 1040 line 47. Line 10 on 1116 says to attach a statement showing detailed calculations. Turbotax produces it so that is what I included. Hope that helps.
U.S Expat Tax Advisory System.
@SerfingUSA…
I am pretty sure, that everything is figured on your renouncement date. You have to do a market to market calculation of global assets and pay tax on that figure at that moment in time. That is, if you are an Expat that meets certain asset or income tests. Below those test levels, no exit tax is required.