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.
In regards to the FBAR, I couldn’t find anything specific on my question:
How does it actually work, from a practical standpoint? I realize we are reporting our bank account numbers, and highest balance. Is that based on an honour system report, with potential penalties if something comes out contrary to the info you provided later on, or is a case of the IRS approaching a Canadian bank and saying “Hey, let me take a look at account 12345 for the 2009 tax year.”
I mean this as a separate question related to filing for back taxes, particularly with the streamlined filing compliance process, as opposed to the FATCA requirements which will have some sort of data transmisison to the IRS.
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@Born in Canada
You ask the imponderable. The honest answer has to be, “Who knows?” With the IRS, you have to realize their actions can be capricious, and so they may or may not check for accuracy of high aggregate amounts once they have FATCA data pouring in. We don’t know that they have ever done that, but nothing to prevent them in the future. It may only be important for assessing future penalties, but not something where slight differences drive a penalty, but then it depends on how desperate for revenue they become.
When you see actions like this, you have to understand who you are dealing with. YOU CAN NOT TRUST THEM!
@saddened 123, if you’re still reading here re reporting on that TFSA, from http://isaacbrocksociety.ca/expat_tax/comment-page-5/#comment-212135 this is not tax advice, and you’d need to check on it, but I was just reading this about the March 15th deadline for filing the 3520-A:
You can file a form 7004 by March 15th, in order to get a 6 month extension to file the 3520-A (which would then be due when exactly?) Best to check on that exact extended due date – I’ve seen it written as several conflicting dates. That means that there is misinformation and confusion out there – even on practitioner sites. The form is quite short, but the caveat is that it is used as an extension application for many other forms, so is not very clear. Needs to be completed properly – so could get a preparer to look at it for you?
This is where I saw information recently;
“The filing deadline for Form 3520-A to report ownership of an RESP or TFSA is March 15th. However, this deadline can be automatically extended for 6 months by filing Form 7004 (Application for Automatic Extension). Although the Form 7004 is relatively straightforward, an employer identification number (“EIN”) is required to file. An EIN can be obtained by filing Form SS-4 (Application for Employer Identification Number). ” http://www.snclaw.com/cgblog/59/122/Filing-Deadline-to-Report-U-S-Person-s-Ownership-of-RESP-and-TFSA-Approaches
@badger or anyone
If the US does not recognize RESPs and TFSAs as the tax saving vehicles that they are in Canada, then why are special forms required? I would have (naively, apparently) thought the US would regard them as regular savings or investment accounts and tax them as such?
Also, does anyone know if there is a web site or page that summarizes the tax gotchas for folks like us? It seems that I can usually expect some new (usually bad) revelation every few days of reading IBS. Would be nice if there was a one-stop-shopping spot for this info.
TIA
It is unreasonable to expect the financial inst. behind a RESP or TFSA to file a trust return with a foreign (us) gov’t. It is impossible for an individual to do it. It follows that the best thing to do is to ‘forget’ that they exist.
@tdott, none of this is tax advice;
but, the IRS considers TFSAs (and RESPs) ‘foreign trusts’, and requires the 3520 and 3520A for ‘foreign trusts’. Which is what most of the information I’ve read and received says. That is the conservative opinion, because of the potential high penalties imposed for not filing the 3520 and 3520A.
Even on lists and advice that seems more comprehensive, it pays to compare and confirm the information – re deadlines, where to file the forms, etc. – I’ve seen errors, and contradictions. The filing address and guidance could also have changed from the time the site posted the information. Best to double and triple check.
Here is one list to use, but it is not exhaustive, and it depends on your particular circumstances which forms to file, and they have may all have different due dates, for which some have possible extensions available and some do not (ex. NO extension available for the FBAR Form TD F 90.22-1 for foreign financial accounts!!!!!!!!!). For example only, see http://moodystax.com/take-note-mark-your-2013-canadian-and-us-tax-calendars/ or http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CEAQFjAA&url=http%3A%2F%2Fmoodystax.com%2Fdownloads%2F2013-American-Tax-Calendar.pdf&ei=N-48UeyeAoqMyQHMk4CADA&usg=AFQjCNGc1dxLVJaJs72oHuyiBV1RsCQfmg&bvm=bv.43287494,d.aWc
The extension form 7004 for the 3520A was mentioned here: http://www.snclaw.com/cgblog/59/15/Filing-Deadline-to-Report-U-S-Person-s-Ownership-of-RESP-and-TFSA-Approaches
Even just trying to send the forms to the right place is a potential pitfall, since sending it by courier requires an actual street address rather than an IRS P.O box address. The IRS forms sometimes only give P.O. address. IRS street and complex addresses are sometimes really complicated – and they have to be correct, otherwise the form could go astray – and either not be received, or be late. You’ll want to get a signature or other proof of timely mailing and timely receipt.
I used this information:
http://www.irs.gov/uac/Private-Delivery-Services-%28PDS%29
http://www.irs.gov/uac/Submission-Processing-Center-Street-Addresses-for-Private-Delivery-Service-%28PDS%29
Sending things from abroad can run into IRS refusal to accept a ‘foreign’ post mark vs. a US postmark as confirmation of timeliness – and timeliness is so critical for forms like the 3520A and the FBAR (the FBAR has special rules regarding proof of timeliness vs. that of the 1040).
Re FBAR timeliness and proof of actual delivery RECEIPT by the IRS:
“Any FBAR filer wanting to file by mail at this late date should consider using certified mail return receipt requested, obtaining and maintaining a stamped receipt from the IRS.” http://federaltaxcrimes.blogspot.ca/2012/06/june-30-filing-date-limited-informal.html
I also looked around here, but again, the date of the discussion is critical, and where there is disagreement, how do you decide what is correct? http://www.taxalmanac.org/index.php/Discussion:FBAR_Form_due_date
Some forms can be filed electronically, although some filers do not want to submit information electronically – for data protection and other reasons. Electronic filing can also be a problem depending on what browser you use – for the FBAR (which some filers will not do electronically so long as there is still the option to file on paper). If you decide to do it that way, leave time for unforeseen bugs. Last I read, it only worked in Explorer http://www.taxabletalk.com/2012/06/28/efile-an-fbar-use-internet-explorer-not-firefox-or-chrome/ .
Re FBAR timeliness and proof of actual delivery RECEIPT by the IRS:
“Any FBAR filer wanting to file by mail at this late date should consider using certified mail return receipt requested, obtaining and maintaining a stamped receipt from the IRS.”
@ badger
This isn’t in relation to a FBAR but I’d like to mention that this was how I sent my I-407 package to the USCIS (almost 1 year ago with no response whatsoever). They ignored the return receipt request which was attached to the package. All I have as proof that it was received is a screen shot of the tracking which showed someone signed for it. As you mentioned, if you don’t have an actual street address you cannot send things by courier. The whole system is built with deliberate gotchas in this respect. “The better to penalize you with my child”, said the big bad wolf (sort of).
@Em, thanks for sharing that. You’re right, the whole thing is so fraught with complications – and never is any aspect designed for the reality that this is all being done by people OUTSIDE the US. I haven’t even mentioned the reported problems with obtaining and paying for official translations to be made where original forms and documents aren’t in English, or where notarized copies are required, etc. Every aspect of this can go astray or incur extra costs – and often the goal can be only to prove that we owe nothing, our accounts are legal, etc. and not be fined and penalized into oblivion – even in the absence of anything owed to the US in terms of taxes assessed. Nothing is logical or obvious. All is only complications and potential punishment. Multiple deadlines, multiple addresses, sometimes two copies – each to a different place.
Who would choose to continue to do this for a lifetime? And all on top of the obligations we already meet where we live, in the non-US countries where we are also citizens, or permanent residents.
How many seniors or those with literacy or language challenges, or with perceptual/sensory disabilities find this impossible?
And it’s gotten to the point that practitioners abroad are wary of US filings too, are hard to locate, expensive, and may ask for signed letters of engagement with open-ended terms – even when the income to be reported is limited, and the forms are the more common ones. It is even hard to get any kind of estimate, much less a more or less accurate idea of how much you’re going to pay.
How can one protect oneself from not only the IRS, but the practitioners?
The only answer seems to be – if one can, to renounce rather than face years and a lifetime of this jeopardy and needless, meaningless stress and fear.
Jack answers this question “Does the statute of limitations for the FBAR penalty (both civil and criminal) toll if the taxpayer is outside the U.S.? ”
Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance
Darn it… The link didn’t work. Gosh, I would really like the ability to edit to be added back on this blog…
http://federaltaxcrimes.blogspot.co.nz/2013/03/statutes-of-limitations-for-fbar.html
Thanks for the detailed post, Badger!
Can someone answer a pension plan tax question for a non-resident alien married couple, (who have renounced US citizenship)
What is the estate tax liability on a US deferred compensation pension fund for the surviving spouse when the pension fund holder dies?
It looks to me that the surviving spouse would only get a $60,000 allowance before US estate tax is assessed on the entire pension fund.
I am looking for opinions regarding my mother’s situation. She is Canadian born, but lived in US for approximately 7 years during which time I was born. She moved there from Canada with my father for him to pursue a job opportunity. She did not work in the US, and doesn’t think she had a green card. She remembers going to the embassy in Canada, to get ‘permission’ to move to US as my father’s wife, but she doesn’t remember much about that embassy visit.
I just recently found out that she has been collecting social security benefits from the US for the last few years based on the fact that she was married to my US father. I presume she must have a social security number in order to collect benefits, but I am not positive about that.
She says she was told (by whom I am not sure) that she did not have to pay taxes on this money (whether she means to Canada or US, I’m not sure), because of a US-Canada tax treaty. In any event she definitely does not file US tax forms and never has.
As her only daughter, and executor, I will have to have contact with US to end these benefits some day, and file her final tax returns.
I am so confused by her situation, I am not sure where even to start with my research. Some of my questions are:
What is her current tax obligations to the US? – Is she correct in assuming she has none?
Could she have lived in the US without a green card those many years ago? If she had a green-card, considering how long she has been out of US (over 50 years) does it matter anymore?
Is social security taxable in Canada? Is it taxable in the US?
Any input by my wise friends at IBS would be greatly appreciated.
As far as I know, because of the tax treaty, social security is taxable only in the country of RESIDENCE. I.e declare it in Canada and apply any deductions available. No need to involve the reveneurs.
Forget about a green card. When the time comes simply inform the SSadmin. Bob’ your uncle.
White Kat, when my Canadian husband worked in the US, he had an HB1 visa and his late wife and daughters were there on a visa. Likely this was your mother’s situation too. Only my husband had a SS number.
It’s my understanding that, depending on the circumstances, foreign spouses can receive SS. I don’t think they need their own SS numbers to do it. I am not sure if SS retirement benefits work like a regular pension, which is taxed at the cite of origin (I have a pension that is landlocked down in the States and I will have to file at least state tax when the time comes to collect – if it still exists, no guarantees for someone in my age range.)
You can always just ask. There are SS offices designated for Canada that you can call. Great Falls Montana is where the office for Western Canada is. I have always found them helpful. SS in general is not manned with evil people as far as my dealings with them go.
White Kat. This is from a quick google search. -RevCan website. these changes are now the law. declare 100% of SS on Canadian return Claim 15% as a deduction. SS not taxable in US for Canadian resident.
“Under the changes, the U.S. will stop withholding tax. U.S. social security benefits received by a resident of Canada will be taxable (only) in Canada. However, Canada will include in taxable income only 85% of the benefits you receive. The other 15% will be exempt from tax.”
@WhiteKat,
U.S. social security is taxed in Canada. It goes on the Canadian return as Foreign pension income but then 15% of it is deducted at line 256, so only 85% is taxed in Canada. This is part of the U.S./Canada tax treaty. Your mother would not have to file a U.S. tax return as a recepient of U.S. Social Security resident in Canada.
As to your question re could she have lived in the U.S. without a green card – absolutely, many people did. I don’t think you need worry about that.
Do check your mother’s tax return to determine if she has been reporting the U.S. Social Security – I am sure she has been.
I do my mother’s returns for CRA and IRS. Social security is only taxable in Canada if your mom lives in Canada. Depending on your mom’s circumstances, she may actually be able to deduct 50% of the SS benefit on line 256 instead of 15%. My mom deducts 50% since she has been receiving the benefit since 1989. Here is the link to CRA explanation for the 50% deduction:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/256/ncm-xmpt-eng.html
@KalC, a, Tiger, iamQuincy
Thanks for your input. It sounds like mom and I can relax. I will do some more inquiries, but it sounds like my mother has nothing to worry about from an IRS perspective, and probably never had a Green Card. She may have a SSN but if she does, it’s probably only because she is collecting SS benefits.
@tiger, I will check to make sure she is claiming SS on her Canadian tax returns, but as you say, she probably already is, especially since she has an accountant file her returns.
@KalC Bob the uncle will be the one to tell SS when to stop sending the cheques (or should I say ‘checks’).
Heidi. No one answered your question. I don’t see how tax would be owing. The pensioner is a NRA? Presumably not a ‘covered ‘ expatriate. In that case estate taxes do not apply. I suppose there could be withholding taxes held at source on US source income. Every pension plan must be different. If by chance estate taxes did apply, there should be a 5 million exemption. Professional advice recommended.
Re a comment from Just Me on another thread, this is some more information regarding US Social Security that some might be interested in.
I corresponded with this firm and sent them information and got back a reply as follows:
From: Peggy Creveling
Sent: Sunday, March 17, 2013 9:34 PM
To: calgary411
Subject: RE: Re: Website Contact Form
Dear calgary411,
Many thanks for this. Yes, at some point we’d like to do a separate article that specifically focuses on US social security for expats. We could include a more detailed discussion on this. SE Asia (where we reside) is a popular place for expats to retire, but unfortunately there are few social security agreements here.
Best regards, Peggy
Peggy Creveling, CFA
Executive Director & Advisor
Helping Expatriates Make Smart Financial Decisions
Creveling & Creveling Private Wealth Advisory
3 Sukhumvit Soi 30, TBI Tower 7A
Bangkok, Thailand 10110
From: calgary411
Sent: Sunday, March 17, 2013 8:14 PM
To: Peggy Creveling
Subject: Re: Website Contact Form
Perhaps this would also be very helpful as so many countries have social security agreements with the US
http://www.ssa.gov/international/agreements_overview.html#a0=11.
U.S. International Social Security Agreements
Introduction
Since the late 1970’s, the United States has established a network of bilateral Social Security agreements that coordinate the U.S. Social Security program with the comparable programs of other countries. This article gives a brief overview of the agreements and should be of particular interest to multinational companies and to people who work abroad during their careers.
International Social Security agreements, often called “Totalization agreements,” have two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.
Agreements to coordinate Social Security protection across national boundaries have been common in Western Europe for decades. Following is a list of the agreements the United States has concluded and the date of the entry into force of each. Some of these agreements were subsequently revised; the date shown is the date the original agreement entered into force.
Countries with Social Security Agreements
Country
Entry into Force
Italy
November 1, 1978
Germany
December 1, 1979
Switzerland
November 1, 1980
Belgium
July 1, 1984
Norway
July 1, 1984
Canada
August 1, 1984
United Kingdom
January 1, 1985
Sweden
January 1, 1987
Spain
April 1, 1988
France
July 1, 1988
Portugal
August 1, 1989
Netherlands
November 1, 1990
Austria
November 1, 1991
Finland
November 1, 1992
Ireland
September 1, 1993
Luxembourg
November 1, 1993
Greece
September 1, 1994
South Korea
April 1, 2001
Chile
December 1, 2001
Australia
October 1, 2002
Japan
October 1, 2005
Denmark
October 1, 2008
Czech Republic
January 1, 2009
Poland
March 1, 2009
Do you agree with this?
Not receiving Medicare for expats living in other countries is a given and understood by expats. Perhaps
should be emphasized in your information for real clarity in your information.
Regards,
calgary411
From: Peggy Creveling
Sent: Sunday, March 17, 2013 4:38 AM
To: calgary411
Thanks for contacting us, and for the feedback. For clarity, we’ve changed that sentence to say the following:
I hope this edit is helpful.
Peggy Creveling, CFA
Executive Director & Advisor
@calgary411
Thanks for following up on that one. As someone who had to pay into S.S. until I renounced (self-employed), it makes my hairs stand on end whenever I read mis-information like that statement regarding the loss of SS. benefits when renouncing (even though I’ve done the research as well and know that that is not the case).
Another option not mentioned above is to transfer credits for S.S. payments from the USA into the S.S. system of the country one has become a citizen of, if the USA has such an agreement with the other country.
Thanks for your further info on this, notamused.
My final response back to this firm was:
What do you do about form 8854 if your CLN arrives after you’ve filed your American taxes? Do you send it on by itself to IRS?