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.
@MedeaFleecestealer
I am looking at renouncing citizenship. Did you have to pay any penalties etc for not filing FBAR?
@aussiemum, I did file FBAR returns as part of the Streamlined program which I entered to become compliant.
You need to read these two links as the IRS has recently changed the rules for 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
Thanks for the links.
Arhhhhhhh that makes me breathe easier. I think I know what I’ll be doing this weekend….. Last 3 years of tax returns with my red pen marking on top!!!!
@aussiemum
If you want to renounce and do not want to be a covered expat (*), then you will need 5 years of returns. So, if you plan to renounce this year, you’ll need at least 2009-20013. If you plan to renounce next year, you’ll need at least 2010-2014. 3 years of returns won’t cut it. Note it is possible to provide more than the required 3 years of returns in Streamlined, so you may want to consider doing that.
Also note that we have heard of nobody who did Streamlined (version 1) or even QD (quiet disclosure) being hit with penalties of any kind.
(*) IMO being a covered expat is something you really do NOT want to be – there are too many negatives associated with it, both financial and non-financial.
@aussiemum, yes for the Streamlined you must file at least 3 years of returns and 6 years of FBARs. But to be able to sign the 8854 form you need 5 years of returns so adding an extra two will solve that problem. Of course, if you have no income, as I did, then filing the 6 years of FBARs meets the 8854 and Streamlined requirements.
@all, is anyone else having trouble seeing posts on IBS? I’ve been having trouble for the last few days. I cleaned my registry out the other day and thought it had solved the problem, but it seems to be coming and going. It’s not only my posts I can’t see, it’s everyone else’s. I replied to aussiemum earlier today and was able to see my post, but now I can only see her original one asking about penalties for not filing FBARs. I can’t see any posts after that. I also have to keep entering my username and e-mail address when adding a new comment.
@Medea Fleecestealer, I’m having the same problems reading posts as you are. The problem started a few days ago. There are threads that you know have many new posts but you can’t access them. It’s becoming very frustrating. I don’t know what the problem is.
@omgheestillanamerican and Medea Fleecestealer
There is definitely something going on, and I have observed differences depending on which browser I use.
When I can’t find something, I have been going to Archives as a work around..
mvh
Yeah, but how do you find this blog in the Archive?
The only other thing that I did recently was a Windows update, but that was before I cleaned out the registry. I can’t think that would have affected the site here though, as all the other websites I visit are fine. But this is the only blog I contribute to, the others are just info sites or forums. Would that make a difference?
@Medea Fleecestealer
Do you mean this particular thread you are having a hard time finding again? I just clicked on you auto notice I received in email to find it, or in Ask your Question box on the side bar..
Maybe I don’t understand your problem.
In archives, if you have a key word, just do a Control F Find function. For instance to find this thread, I would probably just do the control F for “US expat tax and FBAR” which got me several hits that got me back here. But then maybe that is not your problem.
That bubblelebustin is not me!!!
@Bubblebustin,
The new bubblelebustin is probably a spammer. They reposted one of my comments almost verbatim. Didn’t really make sense, at first I thought you’d been drinking and trying to make fun of me : ) It’s probably somebody trying to look like a regular poster who has intentions of spamming the site soon.
Yes, I usually come to the site by clicking on the Comments link when I receive an e-mail notification. But I’m not seeing the posts once I get here although they’re fine in the e-mails. It’s the only way I know what’s being posted as replies. At the moment on the blog itself I’m still only seeing aussiemum’s original post about FBAR penalties, none of the ones that have been posted since.
It doesn’t make any difference if I go to Archive and then either select the blog from the side bar or by searching for it, I’m still not seeing any posts. It makes replying quite difficult because the only way I can refer to what’s been said before is by going back to my e-mails all the time.
Also usually my username and e-mail address are in the boxes on the blog ready for when I post a reply. But since the problem started I have to add those every time I make a new post.
It’s not just this one blog either; it’s every time I make a post on any blog here that I have the same problem.
@Medea
Ditto what you said, plus the reply button doesn’t seem to be working and I sometimes have to load Brock’s main page twice to see all the posts. Creepy.
@ Medea
Well that’s interesting . The only problem I am having is on the home page where no posts after June 17 are showing up in Chrome whew you scroll down, but do show up in IE. , and I am having to add Name & email each time, but with auto fill no big deal.
I’m using IE10 (can’t stand v.11).
What’s autofill? A Chrome thing?
@ Medea
Auto fill completes input boxes for name, address, phone, email, etc based on past input. Maybe that is a Chrome thing. Since I changed to Chrome a couple years ago I can’t stand any version of IE, but will revert for specific needs. Using Chrome on my cell phone too
@Just Me, I guess that’s similar to what I get here. Usually the info for username and e-mail automatically appears, but not lately.
I did e-mail Pacifica earlier this week about the problem, but eventually said that it seemed to have sorted itself out. But she hasn’t replied at all so I’m wondering if e-mails aren’t getting through either.
Ah, now that’s interesting. I just posted over on the relinquishment blog re pukekonz’s CLN approval and the username/e-mail was there automatically and I can see the post that I made. But on this one, the last entry is still aussiemum’s original of the 19th June. So maybe it’s just this blog that’s affected.
@MedeaFleecestealer and @tdott
Thanks for responding. It does not say at the IRS link what the due date is to enter into the Streamlined Procedure. Is the cut off 30th June? And does anyone know what a high or low risk determination is as below. I assume I am not one of them as I have heard nothing!???
“A taxpayer who has initiated participation in the 2012 Streamlined Filing Compliance Procedures prior to July 1, 2014, and has not already been notified of a high or low risk determination will not receive correspondence related to their risk determination and the returns will be processed without regard to that risk assessment.”
This is what they used as far as I know:
“Compliance Risk Determination
The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.
The risk level may rise if any of the following are present:
•If any of the returns submitted through this program claim a refund;
•If there is material economic activity in the United States;
•If the taxpayer has not declared all of his/her income in his/her country of residence;
•If the taxpayer is under audit or investigation by the IRS;
•If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
•If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
•If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
•If there is U.S. source income; or
•If there are indications of sophisticated tax planning or avoidance.”
http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers
I don’t think there’s a cut off date for entering Streamlined. It’s just that 1st July 2014 is when FATCA “officially” comes into force. Anyway, there have been some modifications made to both Streamlined and the OVDP as outlined here and they affect the risk assessment side so read it thoroughly. Apologies if I posted it before, but I’m still not seeing any posts after your original one of the 19th June re penalties.
http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance
@tdott
In your opinion, what are the negatives (financial and otherwise)……..
“IMO being a covered expat is something you really do NOT want to be – there are too many negatives associated with it, both financial and non-financial.”
aussiemum,
This is from the IRS site re “Covered Expatriates” — http://www.irs.gov/instructions/i8854/ar01.html
Expatriation After June 16, 2008
The rules in this section apply to persons who are considered to have expatriated after June 16, 2008.
Who Must File
If you expatriated after June 16, 2008, the expatriation rules apply to you if any of the following statements apply.
(1) Your average annual net income tax liability for the 5 tax years ending before the date of expatriation is more than the amount listed next.
$139,000 for 2008.
$145,000 for 2009.
$145,000 for 2010.
$147,000 for 2011.
$151,000 for 2012.
$155,000 for 2013.
(2) Your net worth was $2 million or more on the date of your expatriation.
(3) You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.
You expatriated before 2013 and you:
Deferred the payment of tax,
Have an item of eligible deferred compensation, or
Have an interest in a nongrantor trust.
Covered expatriate. You are a covered expatriate if at least one of the statements in paragraphs (1), (2), or (3), set out above (under Who Must File) applies.
Exception for dual-citizens and certain minors.
Dual-citizens and certain minors (defined next) will not be treated as covered expatriates (and therefore will not be subject to the expatriation tax) solely because one or both of the statements in paragraph (1) or (2) above (under Who Must File) applies. However, these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation as required in paragraph (3) above (under Who Must File).
Certain dual-citizens.
You may qualify for the exception described above if you meet both of the following requirements.
You became at birth a U.S. citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country.
You were a resident of the United States for not more than 10 years during the 15-tax-year period ending with the tax year during which the expatriation occurred. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.
Certain minors.
You may qualify for the exception described above if you meet both of the following requirements.
You expatriated before you were
18½.
You were a resident of the United States for not more than 10 tax years before the expatriation occurs. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.
Taxation Under Section 877A
If you are a covered expatriate in the year you expatriate, you are subject to income tax on the net unrealized gain in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). This applies to most types of property interests you held on the date of your expatriation. But see Exceptions below.
Gains from deemed sales are taken into account without regard to other U.S. internal revenue laws. Losses from deemed sales are taken into account to the extent otherwise allowed under U.S. internal revenue laws. However, section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. For 2013, the net gain that you otherwise must include in your income is reduced (but not below zero) by $668,000.
Exceptions. The mark-to-market tax does not apply to the following.
Eligible deferred compensation items.
Ineligible deferred compensation items.
Specified tax deferred accounts.
Interests in nongrantor trusts.
Instead, items (1) and (4) are subject to withholding at source. In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. In the case of item (3), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. See paragraphs (d), (e), and (f) of section 877A for more information.
Deferral of the payment of mark-to-market tax. You can make an irrevocable election to defer the payment of the mark-to-market tax imposed on the deemed sale of property. If you make this election, the following rules apply.
You make the election on a property-by-property basis.
The deferred tax on a particular property is due on the return for the tax year in which you dispose of the property.
Interest is charged for the period the tax is deferred.
The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates.
The due date of the return required for the year of death.
The time that the security provided for the property fails to be adequate. See item (6) below.
You make the election in Part IV, Section C.
You must provide adequate security (such as a bond).
You must make an irrevocable waiver of any right under any treaty of the United States that would preclude assessment or collection of any tax imposed by section 877A.
@aussiemum,
Some of the issues with deliberately becoming a covered expatriate can be found in a blog post from Phil Hodgen here[1]. Note that the post is from last year. I think with the “new streamlined” procedures released by the IRS last week, it takes less of a leap of faith to submit those 5 years of returns and so deliberately becoming covered makes even less sense.
[1] http://hodgen.com/deliberately-choosing-covered-expatriate-status/
I’m beginning the process of Renouncing. For the FBAR portion I’ve been asked for the highest amounts in my bank account for the past 5 years also who I share it with. My question is if I approach my Bank for account balances for the past 5 years will this not set off some RED flags on my account? The account itself I’ve had with this Bank for at least 28 years, and is the only one I have.
@tdott
Could you please elaborate about these financial and non-financial negatives? Thanks
IMO being a covered expat is something you really do NOT want to be – there are too many negatives associated with it, both financial and non-financial.