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.
@Devon,
Sorry to hear you are ‘one of us’. You will find lots of support here. MedeaFleecestealer gave good advice.
I would suggest you take your time to understand your options better, and not be in a rush to do anything that you might regret later. One thing going for you is your non-US birthplace!!
Devon,
Welcome to Isaac Brock. Yours is a situation where you appear to have done all you can to make the best of your family situation, recognizing and making the hard decisions in how to best provide for yourself and your children. And, now you have this immoral “US Person” obstacle.
Medea is correct, you have to slow way down and take this one step at a time. Read, read and then read some more here and ask any specific questions that you have as you go along is the best advice I can give because we all have to make our own decisions based on our own family’s facts and whether we wish to ever return to the US to live (which is a logical choice for some). I can see many Canadian benefits for you and your children, one who has a disability and the medical expenses you face just with that. The Canada Disability Tax Credit is not covered in the US/Canada Tax Treaty so that can mean that there is possibility for benefit received from Canada can be taxed in the US. Ontario MP Mike Sullivan discusses that fact here (a few days ago):
as he also tries to educate the Canadian Parliament, especially the Conservative members, that my Canadian-born adult son cannot renounce his automatically bestowed US citizenship because of his ‘mental incapacity’ to understand the concept of citizenship and the inability of a parent, a guardian or a trustee to renounce on such a person’s behalf, even with a court order. (This may or may not apply for your child with a disability, depending on what that disability is.) To further complicate this is possibly misleading or incorrect advice here:
Your Canadian RRSP is addressed in the Canada/US Tax Treaty — and you can file Form 8891 each year so as not to be taxed on yearly gains in that account / deferred until you are collecting from that at retirement. Your TFSA is not, thus far, addressed in that Treaty so US taxable and also subject to 3520/3520A reporting as a “foreign trust” (I know, it is not foreign to you — just to the US, as are our local CANADIAN “foreign financial institutions”, one of which you work for). If you decide to save in a Canadian RDSP (Registered Disability Savings Plan) on behalf of your child with a disability (which is such a wonderful savings opportunity — but will not likely benefit your child. Despite Conservative MP Gerald Keddy stating that RESPs and RDSPs are NOT US taxable, my US tax lawyer gives the correct advice that they are taxable.
Medea gave correct advice about the requirement for reporting of the “total or aggregate” of all your accounts, which is separate from your actual tax filings, in the Foreign Bank Account Report (FBAR), now known as FINCEN 114, which must be filed electronically (and as I understand not a complicated process — my filings for that were all manual and I was able to figure out how to do those myself).
I’ll stop commenting right here, not to further distress you. We who comment here understand what you are feeling at the moment. We really do. You are likely at this moment feeling very alone and without anyone to understand, in your “OMG” moment that we’ve all had when learning of this. Part of the value of this blog is the emotional support you will get from others here.
The sad fact is that not only are you betrayed by the US, you are now also betrayed by your Canadian government who have passed (and soon to have Royal Assent) for US law to come into Canada to take precedence over your rights under the Canadian Charter of Rights and Freedoms. That you work for one of the “foreign financial institutions” this is to protect and have learned all of this through your employment there is just further incredulity. I wish right now that I could give you a big hug if that would help at all. Just know that you are here among people who care about your plight and will help provide answers to the many questions you will have as you research and determine the best path for you and your family.
PS: With this ‘US situation’ for you and your kids, you might seek legal advice on having revised that stay order if returning to live in the US is what you determine would be best for you and your children. But, weigh such a decision with the same real research you’ll have to make regarding your more immediate decisions. You sound like a strong woman; keep that strength and don’t let any of this break you down. Where you find yourself is NOT your (or our) fault; it the fault of the immorality of all of this by the government of, now, the two countries you are attached to.
Also, Devon, read here: http://isaacbrocksociety.ca/2014/06/01/its-time/ to know of the newly formed Alliance for the Defence of Canadian Sovereignty. A good place to start understanding further is by viewing the video on this page http://www.adcs-adsc.ca/Parliament.html of the adcs-adsc.ca site.
We are starting to raise what will be significant funds required to challenge that the rights of you and your family, me and my family and all other designated *US Persons* in Canada are being taken away under what should be the protection of the Canadian Charter of Rights and Freedoms. Some of us are NOT rolling over to the US threat on the rest of the world through FATCA and US citizenship-based taxation. We hope to convince ALL Canadians that it is in their interest to support our cause for the precedence set with implementation of the FATCA IGA in (formerly) sovereign Canada.
Bravo @calgary411 for your support of others here like @Devon, at IBS.
Thank you for all your efforts to educate others in their OMG moment.
@Devon,
You mentioned paying tax if you sell your house. Just so you know, there is a US$250,000 deduction on the capital gain if you sell your house.
badger,
The least I (and I know for you and all you do) to pay back with what we have learned since the beginning of our OMG moments. Again, this would not be possible without the Canadian sites of Isaac Brock Society and Maple Sandbox — and, now, the awareness fostered through the Alliance for the Defence of Canadian Sovereignty (adcs/adsc.ca), as well as the other international sites we’re aware of. We are that big VILLAGE that it takes.
Re capital gains: something else to note is that you can be taxed on “phantom gains” due to exchange rate differences at the time you buy and sell. For example, if you buy Canadian stock in a year when the Canadian dollar is weak and sell it break-even (no loss or gain) in a year when the Canadian dollar is strong, you will have a US phantom gain that is subject to US taxation, even though you made no actual gain or loss. You can even sell at a loss (in CADs), but still have a phantom USD gain. Same goes for selling a house.
Also, I don’t think anyone else mentioned this, but Canadian mutual funds outside of a RRSP (e.g. in a TFSA as DEVON apparently has) are considered PFICs (passive foreign investment corporation). The taxation of PFICs is confiscatory, so not only are you taxed on your TFSA mutual funds, but taxed at a horrid effective rate. If you have a lot of money in non-sheltered mutual funds, consider carefully how to deal with them, as I believe that selling them may also trigger bad tax consequences.
There’s really not a lot of good news when it comes to US taxation of Canadian income.
I can’t tell you how much comfort I actually do feel feel just reading these responses. I’m so overwhelmed right now I can’t even put it into words.
Seven years ago I walked out of my house with my son and six months pregnant with my daughter after catching my husband smoking crack, only to find out a week later (when I get up one morning and my SUV was missing, I thought it was stolen, the police informed me it was repossessed) that my husband had literally smoked away my house too. however despite losing everything, I had my kids and we were safe. I’m strong person and I told myself nobody is ever going to take away the things I worked so hard for ever again. It took almost seven years to be completely debt free (with the exception of the mtg on my home which I only got this April. ) but everything that I used to pay towards debt I’ve now been putting in my investments.my sons RDSP, my daughters RESP and my TFSA and RSP. And I feel like I’m right back where I was seven years ago where I can lose it all again. How my supposed to provide for me and my kids future if the US is going to be taxing me on everything I earn?
Ok, I’m done whining! Thank you for the hug! It was exactly what I needed Right now.
http://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/
‘Why Is The IRS Softening the Offshore Voluntary Compliance Program ?’
Posted by William Byrnes on June 11, 2014
May have been posted before, but this blog post makes some very compelling points.
An interesting question he doesn’t raise is why any new initiative should be part of the ‘Offshore Voluntary Compliance program at all? Why should it be related to or an offshoot of a program designed for ‘tax cheats’ and criminals if Koskinen says; “we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives….”. So, if the IRS is “well aware” of the problem, and for the first time acknowledges that many expats have lived for the “vast majority” of their lives outside the US (neglecting to acknowledge that many were BORN duals and lived their ENTIRE life outside the US – and may never have set foot inside it, and pay full taxes applicable where they actually live and earn income).
And just how long has the IRS been “well aware” of the problem, and continued to process those residing abroad through the OVD grinder, or in the mysterious maw of ‘Streamlined’ where no light shines? Just how long has the IRS been willing to let those abroad who owe little or no US taxes pay thousands or tens of thousands of their legal local already taxed family savings on US tax lawyers and accountants, or suffer the stress and anxiety of not knowing how to proceed, because of the IRS’ own willful behaviour despite being “well aware”?
Much is made of the deemed US taxable person’s ‘known legal duty’ to the IRS.
What of the IRS and Treasury’s duty to those outside the borders and jurisdiction of the US that they demand obeisance from?
Devon, your words are too overwhelming for me. Don’t for a minute think you are whining.
I want to know where are the government representatives to protect you and your children as you do everything possible to right your life situation.
It is bloody criminal that we should be on our own to defend ourselves as U.S. law comes into Canada to criminalize good Canadian citizens and residents.
Will the media please do its job and tell these stories so other good Canadians will support the Alliance for the Defence of Canadian Sovereignty? There must some good journalists that view it important that ALL Canadians have the same rights under the Canadian Charter of Rights and Freedoms.
I have just sent my informal submission to the Senator address list that I prepared — a plea for the last chance to take implementation of the US FATCA IGA out of Bill C-31. Senators have overturned other ‘done deals’.
Can or will Canadian Senators find the moral fortitude to have a real good look at what has happened with sticking such an important item into an omnibus bill to pass in the dead of night, little or no awareness from the Canadian public?
As much as you anyone of you can, please donate to support the Challenge, either or both sides of our southern border.
Devon. You were born in Canada… Unless you might want to return to live south of the border, there is no need to do anything.
@ Devon
I read your story last evening (and more today) but got too upset then to attempt a reply … and this won’t be much now either I’m afraid. Like you, I was born in Manitoba (seems like a hundred years ago) so it will always be my home province. Reading about your complex and heart-touching situation sent all the molecules in my head into hyperactivity and rendered it completely useless (this happens all too often since my OMG moment 2 years ago). Thank goodness others, including our indefatigable calgary411, stepped up with support and some information which we all hope will eventually help you decide what to do. Unfortunately the US government has made perfect solutions impossible — for ALL of us. I can only offer you a virtual hug and remind you that because YOU ARE CANADIAN (since birth) the CRA will NOT collect anything from you on behalf of the IRS.
That’s the right answer for Devon, Em.
http://isaacbrocksociety.ca/2012/02/13/3200/
@Devon.
Agree with KalC. You are fortunate, you do not have a US birthplace, the banks will not flag you unless you give them any US information.
Do not travel to the US and do not apply for a new US passport.
Just spotted this info onthe IRS website about the new Taxpayer Bill of Rights. Here’s the pertinent info:
“The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are:
1.The Right to Be Informed
2.The Right to Quality Service
3.The Right to Pay No More than the Correct Amount of Tax
4.The Right to Challenge the IRS’s Position and Be Heard
5.The Right to Appeal an IRS Decision in an Independent Forum
6.The Right to Finality
7.The Right to Privacy
8.The Right to Confidentiality
9.The Right to Retain Representation
10.The Right to a Fair and Just Tax System”
http://www.irs.gov/uac/Newsroom/IRS-Adopts-Taxpayer-Bill-of-Rights;-10-Provisions-to-be-Highlighted-on-IRSgov,-in-Publication-1
Points 4, 7 and 10 seem to be particularly relevant to those Americans living abroad, point 10 especially. The only fair and just tax system is a residency based one!
Devon: So much great and empathic advice has already been given so I won’t add any more. I just want to join the others who have welcomed you here and who have extended their moral support.
Thanks, Medea, for highlighting the US taxpayer rights we as US Persons Abroad certainly do not have. We should use that more in our discussions.
@Devon
I am so very sorry you are also caught in this mess when life has already served you up some rough times. At IBS you will find the stories of many with differing outlooks and have chosen different paths to sort through this mess. Read all of them and find what resonates personally with you.
I am also a late comer to this insanity and though I have researched buckets of information I still have not come to any definitive conclusions as to the correct path for myself. (It actually changes daily). Some days I feel emboldened, have a big mouth commenting on news articles and feel like a warrior fighting for justice….other days aren’t so pretty. There is a feeling of statelessness, the US is criminalizing us and our government will not protect us. Some have talked in jest of starting our own state/commune just to feel we have a home. We have each each other here and that can be so very comforting.
I have to believe that in the end justice will prevail. Yes, maybe naive but it is my hope. So for today I have decided to fight anyway I can. Follow this site and Maple Sandbox, join in on the recommended activities the really smart folks here suggest. It makes you feel less helpless and not just sitting as a victim. Let everyone in your universe know what is going on. I personally recommend, though I am just a simple minded old lady, is just sit and chew on this for a long while. No one can hurt you if you stay out of the US. We will eventually beat this, it is just wrong.
@tdott
I thought PFICs were also calculated on RRSPs if the wee box for deferral was not checked on a 1040. Hope I am wrong.
RE Taxpayer rights – – I particularly like the one about FINALITY!!!!! Has anyone out there ever gotten a message from the IRS saying “Thank you for filing and everything looks fine, we are done here” ????? Rather, they leave you hanging for years, never knowing if you are free and clear and “done here” It’s outrageous, not only for (but particularly for) those of us renouncing or relinquishing. If I had a spouse like this I would divorce. If I had a boss like this I would get so frustrated I would quit. If I had a professor like this I would be in to see the department head or Dean on a daily basis ranting about how unfair this is, holding me “captive” Their excuse is that they are overworked/understaffed – – well that is awful but are not rights “rights” anymore????? The IRS should go on strike to get their financial house in order so they can provide service as they have promised!
How about
1. The the right to be informed…..
that you are a member of a unique club and subject to citizenship based taxation wherever you are.
Can anyone go onto the Treasury website and enter an FBAR for anyone else? Can then that person be charged and fined for filing FBARS? And sent to jail for form crime all according to all of the laws and regulations in back of the FBAR form? Error? Spite? Sabotage? Terrorism? Politically or personally motivated hatred?
Hmmm, I suppose you would be correct. I’ve never consider the possibility that anyone would not want to defer tax on their RRSPs.
@tdott
If you never filed US tax forms of any sort than you never checked the deferral box for RRSPs. If one was to try and become compliant in the present they would calculate PFIC taxes owed. I think if one has not been filing, RRSPs are a huge can of worms. If you add PFIC taxes, annual un-reported gains even though the money remained in your RRSP to FBAR penalties there might be a lovely bill awaiting you. Unless someone has been filing US returns on a regular basis I really don’t see how they can ever renounce. (Unless they are wealthy of course). Am I wrong thinking here?
I have never heard of anyone becoming compliant who treated their RRSP mutual funds as PFICs.
Note that this is specifically addressed in Streamlined:
See http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers.
Also, even if you are compliant and had not been making the election, you can file late, see: http://isaacbrocksociety.ca/2013/08/22/irs-makes-useless-paperwork-less-onerous-for-u-s-persons-in-one-country/comment-page-1/
So, AFAICT this is a non-issue (and I’m the person that’s usually the alarmist).
Note that FBARs are also addressed in Streamlined.
New rules have come into force for US expats:
http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/irs-streamlines-back-tax-process-for-ex-americans/article19217522/
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States
Might make things a little easier, but I doubt it’ll stop the flow of renunciations/relinquishments.