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.
@tdott
Thanks for your answer. Sorry I repeated the question. I did not see it come up but have now changed browsers and it is working.
Looking up some information on FBAR. We know that FBARs are not under the same code sections applying to taxes.
Would an “undocumented relinquisher” (no CLN but otherwise spotless record) from seven years ago, need to file FBARs at all?
Take a look at the Section on 31 USC;
http://www.law.cornell.edu/uscode/text/31/5314
Notice the following that I think needs a letter writing campaign from ACA and MPs….
(b) The Secretary may prescribe—
(1) a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section;
(2) a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable;
Why is this important?
The Secretary by the STROKE OF A PEN, could exempt the following;
1.) Expats who are bona-fide residents overseas.
2.) Country by country exemption. Why didn’t Harper negotiate an IGA FBAR exemption for Canada!
I’m starting the Renouncing process. For FBAR portion I’ve been asked to provide all my bank accounts there highest balances for the past 5 years and who I share them with. I only have 1 deposit account, which I’ve had for about 28 years, if I start asking for this information at my Bank, will this not start rasing red flags at the Bank!
Doesn’t anyone hang on to their paper copy bank statements these days? I have mine going back some 20+ years! Also on the computer in a spreadsheet, but only for the last 3-4 years usually.
@SmallFish, accuracy on the FBAR can be far from perfect. It especially doesn’t matter if you over-report, because there is no tax due on the final amount (it’s a form ‘for information only’).
I doubt it would raise red flags if you were to ask, but if I were you, I’d take my best guess at what the highest balance was in each covered years, perhaps going by statements, online transaction history, or even plain memory, then bump it up by 10% or so and report that. Provided the balance isn’t in the millions nobody will either notice or care. (If you must ask your bank, maybe just ask for a full account history for the past few years; that sounds a lot less like a direct request for FBAR information.)
Of course, if you had 25 or more ‘foreign’ accounts you could have sidestepped listing them entirely. Too late to start furiously opening accounts now, though…!
@Relinquished,
Yes, they could have made a ‘same country exception’ for FBARs, or make the reporting threshold more reasonable (hasn’t been updated since inception in ’70s ) and convert the 10,000. AGGREGATE (sum of all ‘reportable accounts’) into today’s dollar values (obviously much higher threshold if converted), or acknowledge that the FBAR is being used in a manner that it was not originally intended (to use as a tool against true criminals, vs. now against all living abroad with local accts, or US residents/immigrants with pre-existing accts, etc.). They could acknowledge the absurdity of making those with signatory/co-signatory powers on foreign employer accts, or POA on non-personal accts, etc. and could have exempted them, or not counted them in the aggregate, but they CHOSE not to.
The IRS and Treasury have CHOSEN to continue using the FBAR as a weapon of financial destruction and as a fundraising tool in lieu of any actual US tax owed.
And neither the President, nor either of the major parties Repub/Democrits have objected to this abuse of those living normal lives outside the US. No-one has objected to this twisted use of the significant and life altering FBAR NON-willful penalties – which did not originally exist until some time in 2003 (only willful, which was the IRS burden to prove) – and which Congress gave the IRS the power to levy ON CONDITION that they do EDUCATION to alert people of it – which they still have not (See historical overview published in 2006 ‘EVOLUTION OF THE FBAR: WHERE WE WERE, WHERE WE ARE, AND WHY IT MATTERS’
By Hale E. Sheppard* http://americansabroad.org/download_file/view/434/200/ . )
The IRS has chosen to cut funds for even sporadic IRS US tax info and help sessions at the embassy/consulates in Canada – despite having the second highest number of people deemed US citizens/taxable persons in the world after Mexico. The notice to that effect has been on the Ottawa embassy site since at least 2011 if not before – despite the advent of the OVDI, and despite its deliberate campaign of threats and smears, IRS has not seen fit to change that ( “Taxpayer Assistance’ “The information on this page is intended especially for taxpayers residing in Canada. Note: Owing to budget cutbacks, the Internal Revenue Service will not/not be providing any in-person assistance or tax seminars at the U.S. Embassy and certain of the Consulates General in Canada.” http://canada.usembassy.gov/consular_services/taxpayer-assistance.html )
Obviously they don’t want compliance – they want revenues generated from penalties. And they want to use the threat and might of the FBAR law as a club to frighten and intimidate those abroad with. This even effects those inside the US who have family members who name the US resident as having POA or executor status for advance planning – even if there is NO current access to funds abroad.
The Taxpayer Advocate has noted the significant problems with the IRS enforcement of the FBAR in several of her reports, ex. http://www.taxpayeradvocate.irs.gov/userfiles/file/Full-Report/Most-Serious-Problems-IRS-Offshore-Voluntary-Disclosure-Programs.pdf .
Interestingly, professional advisors to the IRS at one point made recommendations to change aspects of the FBAR, but to no avail. Since the IRS site changed, the webpage is no longer easy to locate in order to cite.
The FBAR and FATCA for individuals reporting form 8938 were noted to be ‘duplicative’ – and likely to confuse those reporting and result in inadvertant errors – but this warning was to no avail.
The IRS and Treasury are continuing to act WILLFULLY regarding wielding the FBAR as a weapon of asset destruction against those living lawful lives abroad.
I don’t think so (I have requested that same information and the bank employees gladly complied to my request–no question asked). Furthermore, if you do online banking, you may be able to access those records yourself, thereby bypassing any officious bank teller.
@aussiemum
Not sure what answer you’re referring to, as I don’t believe I provided one.
At any rate, re being a covered expat:
It means, among other things, that you are subject to the exit tax. You will be taxed on mark to market capital gains subject to a $600K exclusion. As well, you will be taxed on the total (not gain, total) amounts in any RRSPs and, I believe, pensions that you may have, and there is no exclusion. RRSPs/pensions are, I believe, taxed at the highest marginal rate. The RRSP/pension tax is a major issue for covered expats IMO. Note also that you won’t be able to use the $250K exclusion for your principal residence when calculating the gain on it.
I believe a US citizen receiving a gift or an inheritance from a covered expat must pay taxes on the gift/inheritance at the highest tax rate available. This is potentially an issue if the covered expat has a USC child.
Additionally, there is the possibility that at some point the Reed Amendment will be updated such that covered expats will be barred from entering the US. This has already been tried at least once and didn’t make it, but these guys seem to have a real hate on for expats, so persistence is expected.
http://www.reed.senate.gov/news/release/reed-offers-amendment-to-prevent-ex-citizen-tax-dodgers-from-reentering-the-us
@tdott, @aussiemum
Just a few more points:
The exit tax exemption for 2013 increased to US$668K.
My understanding is that for 8854 valuation and therefore, presumably, exit taxation, company pension plans are taxed on the fair market value which is an actuarial calculation for all future years. You are taxed on money you haven’t received yet. And, aren’t you taxed on such pensions in Canada as you receive them?
Taxed on the total amount of an RRSP? OMG. Then of course you pay Canadian tax as you withdraw it.
The inheritance (and gift?) tax to a US citizen beneficiary of a covered expats follows them for life.
Because of Eduardo Saverin taking his money to Singapore, Congress tried to double the exit tax from 15% to 30% in the EX-PATRIOT Act.
@aussiemum
I am trying to do the last 5 years of tax returns and I just want to cry 🙁 This is hurting my head! Does anyone know how I claim the employer superannuation (retirement fund) contributions on my 1040? On what line do I put this on my 1040? Can I still use form 2555EZ or do I have to use 2555? I can’t see where it would go on that form either.
I know these need to be declared on the FBAR. Haven’t gotten there yet. Just trying to do these tax returns. Thanks…………….
I’m a USA citizen and have some foreign accounts. If I renounce my USA citizen this year (2014), but don’t receive my CLN (certificate of loss of nationality) back before the 2015, would I still need to file an FBAR in 2015?
Bill
@Bill
I renounced in November 2013 and received my CLN (certificate of loss of nationality) a few months ago. As far as I and the US government (?) are concerned I was no longer a citizen as of that date back in November, so that is the last date I am using for FBAR reporting.
I am a US citizen and have filed 1040’s annually and a 2555; however I was unaware of the FBAR requirement. How should I best proceed? This is complicated somewhat by the fact that I do pay into a retirement fund as required in my country. I mistakenly thought this was not taxable income nor needed to be declared. Do I need to go back and amend the 1040’s as well as filing FBARS and a 8938 and for how many years?
@Bill, same for me. I renounced in March 2013 and that’s when I filed up to, so only 3 months of that year for the FBAR.
STILL NOT SEEING POSTS AT ALL. WHAT IS WRONG WITH THE SITE? CAN SOMEONE PLEASE RESPOND?
@All, Peter suggested refreshing the page which seems to have worked for me. Maybe it will for others.
@Medea, my accountant told me that I only needed to report up to my renunciation date in 2013 for my final FBAR for that year. However, she warned me that with possible over-reporting for FATCA from UK financial institutions, that there was a possibility that I might still be questioned by the IRS after they start receiving the FFI reports.
She said there was a remote but still increased risk of audit perhaps in 2016 or 2017. But I believe this would only happen if the IRS somehow got mixed up about my having filed 8854 because the FATCA reporting would only go back to 2014, which would be post-renunciation. At the time of her warning, she believed they would report back to 2013, so I should be safe.
@Monalisa1776, yes that’s what I did too. Filed the previous 6 years (2007-2012) for the Streamlined and then filed the Jan to March 2013 renunciation date at the same time as the 8854 form was done.
@Medea, even if the IRS were to start erroneously sending out correspondance audits or even assessed penalties to former citizens, I would hope that a few phone calls or letters from my accountant (a certified enrolled agent) should put matters to rest. She would be willing, under threats of penalties for perjury, to vouch for me that we’d filed 8854, etc. Plus, I know longer have any assets in the USA that they’d be able to go after.
I think it’s more likely that the IRS will just send out masses of correspondence to everyone they’ve received information about via FATCA. FDIC reporting to remind people with US personhood about their reporting/filing obligations. They simply aren’t , at least in the beginning, going to have the resources to aggressively audit and fine affected people abroad, apart from eggregious cases.
Plus, I understand that the IRS will be more lenient towards FFIs for the first couple years of FATCA reporting (2015 and 2016); thus, I don’t think that they will start really probing Expats until at least 2017 if not 2018. And by that time, we should be safely out of the system in that our statutes of limitation for 2013 should be safely closed. 🙂
@monalisa1776, I wonder if they’ll even do that. They’re going to have so much paperwork to get through I think they’ll only go after those they decide they can actually get money out of. Hopefully the likes of us will simply be too small fry to bother with. With cutbacks likely to continue they simply won’t have the resources to do much else I wouldn’t have thought.
I agree, Medea. We will be sent for separate processing until the IRS has the funds to go after anyone other than their intended targets: residents with offshore accounts. Expect threatening computer-generated form letters to shake the trees for low-hanging fruit. Note: in the instance that they do take a closer look at us, the larger the bank account, the more scrutiny.
Maybe the IRS can get some “make them pay their fair share” ranting homelanders to volunteer to look for gold in those hills of paper.
@all
I believe the IRS will be swamped. They may have to bundle these submissions returns to inexperienced low paying workers who will not do their work correctly but have access to American Abroad personal information. It will end up like the mortgage bungling , this time effecting those innocent Americans Abroad.
Maybe FATCA will die from the cost and insane rules. I just hope the younger generation coming up will have the sense to see all this stupidity.
Julio. File going forward.
An update for you all, in the hope that it may be of interest to some. I renounced in June of last year, received my CLN in August, and waited until this spring to do my final filing. I filed 1040NR with 1040 for the first half of the year, took the FEIE on the 1040, and declared all passive income to that date, and took a tax credit on that. On the 1040NR I declared my US Social Security and a government pension, both excluded by treaty (UK), and filed for the treaty exemption. Finally added the 8854, declaring all my worldly goods, certifying that I am not covered. Total: 25 pages of documents that I couldn’t have begun to do by myself. My US (Idaho) tax person specialises in Canadian returns, but was able to do all of this. He had done my 2012 return for $500. I had filed my FBARs quietly, but I was compliant for the tax forms. I had discovered errors in my filing after discussions here, and I filed corrected returns as needed. In every case, I owed no US tax. So I’m squeaky-clean (ish). The final return cost me $1500. The firm that did my returns, whom I warmly recommend, is Sandpoint CPAs. The man I worked with is Brad Williams. Sandpointcpa.com. As always, in the past 18 months, you all have been a huge support and I’ve learned so much! If I were living in Canada, I would be a much more active supporter, but I left in 1996. As it is, I’ll continue to lurk and comment from time to time. I’m happy to talk or email privately with anyone here, if it helps. Good luck to all of you in this process. May the gods of the IRS smile upon you, because that’s about what it takes.
@Rev Susi
Thanks for your updates and comments from time to time. I always read them. Good luck to you. Now, on with life without the IRS lurking, although you will NEVER escape the NSA. LOL
@RevSusi, Congratulations on getting things all wrapped up and stowed away for good!