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.
“Expedient” wasn’t the right word – “foolproof” is better.
You might start here for the forms you need, Briggs: http://www.irs.gov/Forms-&-Pubs.
Briggs — we all denounce what is going on ; what you want to do is either renounce (most likely) or, if you can, claim relinquishment.
@WhiteKat
I am just in the process of trying to understand all that lies ahead with these matters. I did jointly own a home with my ex which was sold and split up when divorced. From what I read so far, this amount I received is not taxable. I want to be able to freely live the Canadian way of life,move forward knowing the US has no claim on my future wealth. I could hire professionals but I still have a bad taste in my mouth and smaller bank account from the divorce.
I appreciate the all the different thoughts and suggestions this site has been offering up. Lots of food for thought that’s for sure. Keep it up all, I am hungry.
@ TDott,
Re:
Good point! Thanks.
I’m still concerned about the 4th prong “the making and receipt of the oath or affirmation alters the affiant’s legal status with respect to the foreign state,” though. And would be most interested and pleased if you or anyone has a more positive interpretation of it than I do.
Re
I think the difference is that, in the case of a citizen taking govt employment, it’s not the oath one took upon commencing employment that is the relinquishing act, it’s the employment
If one is a citizen of the country, the relinquishing act is “accepting, serving in, or performing the … employment” 349(4)(A)
If one is not a citizen of the country, then the oath is the relinquishing act.. 349(4)(B)
But my theory is if a person is a (4)(A) put a copy of your employment oath in your CLN application anyway. Sometimes the consulates are confused (not exactly news) and ask for it anyway, even though the CLN comes back as a (4)(A), and also I lean towards throwing the kitchen sink in a CLN application.
@allou
Why are you filing 1040nr if you have no US income or assets for that part of the year?
@Briggs
If your half of the gain on the house was under $250K (USD), you owe no taxes on it. Otherwise, you would.
@pacifica777
You’re right, of course. Oath and government employment are 2 different ways to relinquish. Dang, it’s hard to keep all this straight.
@tdott
Awesome! Just been reading other articles, is it true if I receive my CLN that I am not required to file past due returns?
Briggs,
That is one option and would be entirely up to you, your need or want to ever cross the border, and the level of your risk tolerance. Keep reading; keep thinking about things. This is not a decision you can make in one day or even one week. Don’t rush.
I don’t see how taking the oath of Canadian citizenship with the intent of relinquishing US citizenship can be negated by having Canadian citizenship retroactively instated at birth by legislation that passed after you performed the relinquishing act.
…it would be like someone trying to get their exit tax back from the US after the same legislation passed. Too bad, so sad!
Actually, Canada changed the Citizenship Act to allow these citizens at birth the same year the US created the exit tax – coincidence?
@tdott
That’s $250k net gain on the sale of a principle residence.
@Calgary
Thanks for your words of wisdom. I will continue to research all avenues available. Have a month till my appointment at consulate. Very exciting to know that after that day the US can no longer violate my future …
@bubblebustin
Sometimes my brain wants to give up.
@ TDott,
Re: “Dang, it’s hard to keep all this straight.”
You can say that again!
I agree with you too in your earlier comment where you wrote “however, this stuff is fascinating in its intricacies and bizarreness.”
@ Bubblebustin,
Because your logic is much too logical for the American government’s mind to grasp?
@shunrata
I once saw a bumper sticker that said “long ago something snapped- and it felt good”.
I’m still waiting for the good.
Briggs FWIW I repeat that you are no longer a US citizen. You recently became a Canadian with the intent to relinquish your US citizenship. Before that, as far as you knew, you were a permanent resident of Canada and not a Canadian citizen. Therefore you should be able to obtain a CLN dated when you became Canadian.
Now, the next problem is whether or not to try and satisfy their ridiculous claim that somehow you are obliged to file 5 years of tax returns. It is possible to do but it won’t be easy. You can’t file without a SS number or a TIN. You can’t get a SS number since you have already relinquished your US citizenship. Catch 22. If you try to file, as a citizen, you are admitting that you didn’t intend to relinquish. I suppose you could file with a taxpayer identification number. (TIN).
Bear in mind that they don’t have the resources or interest to chase after you. You will also hear that you won’t be able to travel south if you don’t file. There is no evidence to support that idea.
There is no ideal way out of this mess.But the mess isn’t your fault. It was imposed on you without your consent. Each path will exert a toll in time, money, or worry. Good luck.
@moonstruck “but I am not clear about what actually goes on the 1040nr”
Neither was/am I exactly either. I that read the instructions for 1040 and 1040NR carefully (I hope). Things to remember are checking the box 39b on 1040, as it is a dual status return. This means you get no standard deduction. And to write in the dates at the top of the forms. However I assume we are still eligible for the standard exemption – in my case 1= married filing separately (there is no mention of NOT being eligible)
I went with the IRS instructions and the explanation by Phil Hodgens: “The technical method for doing this is described in IRS Publication 519, Chapter 6. You file a Form 1040NR because at the end of the year you were a nonresident alien. Attached to that tax return is a Form 1040…The tax liability reported on your Form 1040 also flows to the 1040NR and the total tax liability for both returns is reported here.”
So what we actually file at year end, is the 1040NR, since we are non-resident aliens after renunciation. The information for the 1040NR comes from the 1040, which is proof of our tax owed to the US. I just loved filling in all those nulls/zeros.
Then comes the 8854, when I finally can appreciate the advantages of not being wealthy! I recall having read somewhere that a copy of the final US filing has to be filed together with the 8854, so I plan to send them copies of everything-2555EZ etc. So much for the paper reduction act frequently mentioned in IRS publications. If there was a way to do this electronically it might be better, on the other hand the risk of data theft may be less with paper forms – very important to get a postal receipt with all information of what you send to where and when.
Good luck to you too, and thank you for commenting.
@allou
In my last year I only filed 1040 up to my renunciation date. Since I have no US source income, no 1040-NR was required. It wasn’t a “dual status” return, as the IRS definition of “dual status” didn’t apply to me, i.e. neither a resident alien nor a non-resident alien. Since I have no US source income and am neither a US citizen nor resident, green-card holder etc. none of those classifications apply. I suppose filing 1040-NR with 0s everywhere won’t cause any harm, but who knows, we’re talking about the IRS where almost anything can be laid out to your disadvantage.
Form 8854 only goes to treasury, all tax forms + 8854 go to the IRS. It’s in the instructions.
@Moonstruck, my accountant reported all my connected income onto the 1040nr, using it as the tax return with an attached 1040 as a statement. The 1040NR covered the entire twelve months even though I renounced in early 2013.
One thing I will mention, however, is that the IRS retained a portion of my anticipated refund; upon ringing them, they explained that they rejected my claiming the foreign earned income exclusion (form 2555). They didn’t allow for it since my actual tax return was the 1040nr with the 1040 just attached as a statement for the part of the year I was still a US citizen.
I realize that I could probably get my accountant to argue my cars to the IRS but, as we’re only talking about a few hundred dollars, that a game of ping pong would cost me more in extra fees than what I lost. I also want closure and don’t want to split hairs because the IRS might decide to then split hairs over something else…so am going to leave sleeping dogs lie.
I am, however, disappointed that my accountant hadn’t instead relied on foreign tax credits via form 1116. It’s a catch-22 because I am concerned that if I tell the accounting firm that they’ll just use this as an excuse to raise my bill even higher. They haven’t even invoiced me yet even though it’s been over six weeks, so still have no idea what I will owe them. I’m thus inclined to pay them off with a minimum of fuss because I don’t want this dragging on and on. I just want to put all this finally behind me!
I don’t know if I should chase them for an invoice or wait for them to bill me. I regret that no fixed fee had been agreed beforehand. My advice for a dual status return would be to just use 1116 instead of 2555.
@To All, I might sound like a pushover but I have to keep my accountant sweet in case I ever got audited; I had frighteningly complex PFIC calculations on earlier tax returns that could be potentially disputed by the IRS; my open statutes of limitation for the PFICs won’t be indisputably closed till the end of 2018 which is quite a long time, so need to remain on good terms with my accountant in case I need her help… I hate how this whole situation has placed me in such a vulnerable position with the accounting firm.
@notamused @monalisa
“neither a resident alien nor a non-resident alien” – that I suppose is me too after renunciation since I am no longer a USC and do not live in the US. It would simplify matters o just file the 1040 and the 2555EZ up to the date of renunciation. The partial year 2555EZ deduction covers my earned income. I do not know what to do about the other standard exemption on 1040- should that be reduced according to the number of days I was still a USC in 2013? It would simplify matters to forego the 1040NR since I have no US source income or assets.
I certainly would not want to have the FEIE disallowed because I also filed a 1040NR full of 0’s.