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.
@chris… To be fair, the article says fail to report, but doesnt specify 8938 at all. I’d think he was talking about an FBAR, at least given the very broad context of the item. Besides, there are a lot of pieces like this and they always love to sensationalize the evil foreign account and villify their owners.
@ Just Me
We knew you were peeking. I did a Bay of Islands cruise many, many years ago. Would do it again in a heartbeat. Thanks for the visuals! If we ever get straightened out re: the US tax tyranny threat then NZ is where we’d go. I reckon even then we’d want to find flights that don’t enter US airspace though.
@Em…
Non stop from YVR to Auckland on Air New Zealand. It’s route is probably offshore.
@Chris. I don’t see why they don’t just audit everybody with a foreign address or any foreign indica on their return. They knew the statistics when they passed FATCA and made everyone a criminal overnight.
@Mark Twain,
“……and made everyone a criminal overnight.”……
and if not a criminal, then the only other category is: ‘compliant-suspected-criminal’ or ‘criminal in waiting’ – until the next annual FBAR and 1040 filed from ‘abroad’ clears us for enduring another year of suspended sentence – for the crime of being born and/or living outside the US.
How convenient – to instantly redefine > 6-7 million as suspects, and divert the onus and burden of proof onto all those millions worldwide to satisfy any and all whims imposed by Congress, Treasury and the IRS – with no benefit, and massive compliance costs.
@KalC
Thanks for your imput.
The pension plan is a US IRA with TIA cref held in my husbands name.
It looks like as we are now non resident aliens the 5.12 million estate tax exemption between spouses does not apply! I would only get a $60,00 exemption before US taxes kick in.
“US. citizen spouses can leave unlimited amounts to their spouses at death without incurring any immediate estate tax liability. Bequests from U.S. citizen to non-citizen spouses do not qualify for the unlimited marital deduction and estate tax liability is incurred as soon as the first spouse dies (although surviving spouses can attempt to become a U.S. citizen after the death of the first spouse and can avoid that result). Non-resident aliens may only pass $60,000 of U.S. property at death before incurring estate tax liability. Congress is concerned that a non-citizen spouse might leave the country, impeding the government’s ability to recoup the estate tax on the death of the surviving spouse.’
Renunciants with any US assets should be aware of this.
@Heidi
Thank you for posting the results of your research. The $60,000 asset threshold for estate taxation for non-resident aliens agrees with what I have been able to determine.
It’s why if I ever inherit from my parents, I’ll remit the assets to the U.K. ASAP.
I suppose the measly $60,000 estate tax exemption would also apply to all those non resident aliens (think Canadians, Germans, Brits), who have bought holiday homes in Florida, when one of them passes on. Wonder if the estate agents tell them this?
@Heidi ….. good question here : does that mean any european who bought a holiday home in FL. is automatically a non resident alien or does he have to pass the presence test (> 31 days p.a etc.) ?
@Mike Tarrantes
I believe that the substantial presence test was defined on the Phil Hodgen (tax attorney’s) Blog on this site….
‘The arithmetic involves adding the number of days of presence in the United States in the current year to one-third of the days of presence in the preceding year and one-sixth of the days of presence in the year before that. If the total is 183 or more, the person is a resident for the current year. If the total is 182 or less, then then person is a nonresident.”
So if the non resident alien stays too long in the Florida sunshine then they are deemed as resident in the USA and face all the tax liabilities that this entails. I have read somewhere about a special arrangement for a stay up to 6mths for retired Canadians (over 50 yrs) who have property in Florida worth over $500,000 but of course if one spouse is under 50 this wouldn’t apply. I will have to find the link to this info!
@CalgaryM
My daughter is in a similar situation. It is difficult for her to get to her local consulate to apply for a SSN. This is what I suggested to her.
Send in FBARS regularly (they don’t need SSN’s) Complete tax forms and save them but don’t send them in. When she has renounced, she can send in the 5 years of tax forms with a note explaining that she didn’t have a SSN and so was not able to file them on time.
She makes so little money, and definitely is no where near owing anything in tax, I can’t imagine the IRS would ever put any energy into going after her. This is actually the first year she is (barely) over the filing amt.
If there was any chance you might owe any taxes, this would not be a good idea. But it seems reasonable in her case.
@monalisa
Do you know what the US tax liabilities will be on your parents estate if/when you inherit as a non resident alien?
I’ve got no idea. I believe my mother’s estate is worth just under a million though this could drop substantially if she ever had to go into care. My share after expenses would at most probably be around a quarter million if things go smoothly. So not huge but still substantial.
What I don’t know is whether my share would be penalized as a renunciant. I don’t believe I would be punished though realize things could change in the future in efforts to deter Expats from renouncing.
I was not asking from a renunciant’s perspective but from the situation of a non US citizen inheriting from a US citizen. The US are penalizing any money that leaves the country, so I just wondered if a us resident person can inherit under the same IRS laws as a non US person.
http://the-tax-wars.net/2013/03/23/irs-to-get-more-easy-pickings-of-offshore-fruit/
Some interesting points made in this blog
and
I find it interesting that the Streamlined Compliance process is being described as part of the OVD programs;
“the 2012 OVDP streamline process for expats who meet certain requirements.”
Is that IRS spin so that they can include in the inflated numbers of OVD participants these minnows who were promised a ‘different path to compliance’ rather than the one-size-fits-all OVD approach? If it is an alternative path that recognizes that they are not ‘criminal tax cheats and money launderers’, then why call it part of the OVDP?
Are minnows who qualify as ‘low risk’, who are stuck in the 2011 OVDI program, being actively steered out and into the ‘Streamlined process’ now? Or do they as individuals still have to somehow ‘opt out’ and then enter the Streamlined process?
How is the Streamlined process working for those who entered early on – just after September 1st, 2012?
If they wanted more people to enter via Streamlined, wouldn’t it be better to advertise success therein, and not continue to lump them into the OVD statistics?
Still no efforts at transparency for the krill and minnows.
Heidi and ML. You both need to check again. Estate taxes are paid by the estate not the heirs. It doesn’t matter who the heirs are. The money can go to the man in the moon- the exemptions and rates are the same.
If the decedent was a us citizen and resident, the exemption is 5 million less gifts made in the decedents lifetime.
If the decedent was a NRA holding ‘us situs property’ valued at more than 60k, then an estate tax return is supposed to be filed. However, it is unlikely that taxes would b owing. There is still a 5 million exemption . it is now based on the decedents world wide assets.
E.G. I die tomorrow. I am a NRA. My world wide assets are 4.99 million , 1 million of which are in the US. No US estate tax is payable. The filing is a pain in the ass.
I die tomorrow. My US assets are 65k (shares in IBM and Apple) My executor would be crazy to bother. If my executor was a large trust company with US ties, he would have to file thereby eating away at the estate in fees.
I die tomorrow. My world wide assets are 10 million. 500k of which is in the US. (a condo in Florida). The exemption is prorated. 5 million /10 million equal 50%. Therefore 250k of my condo in Florida is subject to estate taxes at somewhere between 18 and 40 %. These numbers are all clearly very rough guides.
The point is that it is unlikely that estate taxes will be owing. The fees to file the forms are and the forms themselves can be excessive.
Heidi. This is a very basic primer. Actually an ad for PWC. Poorly written but illustrative of the fact that estate taxes are unlikely.
http://www.pwc.com/en_CA/ca/estate-tax-update/publications/pwc-2009-04-13-us-tax-exposure-canadians-2013-02-19-en.pdf
In this example David ( a Canadian) dies with a world wide estate of 10 million, 1 million of which is US situs. He leaves his assets to his wife. Because of the 5 million exemption and a marital exemption no taxes are owing!
@KalC
Where do you get this info from? I would love it to be true….
My tax accountant in Switzerland told us as Non Resident aliens we should move all funds out of the US, as banks deposits, pensions etc will be subject to US estate taxes over $6O,000.
I also found this online See estate planning for non citizen spouses.
http://webcache.googleusercontent.com/search?q=cache:zA2FFyxeNb0J:trustsestateslitigation.blogspot.com/+non+resident+alien+US+pension+fund+inheritance+spouse+60,000&cd=3&hl=en&ct=clnk
PS. @KalC
I think your info may only apply to a Canadian Tax treaty, rather than a Swiss or UK one.
I would listen to your Swiss tax accountant. He should be more knowledgeable than I. I am neither an accountant nor a lawyer. He is right in the fact that the mere act of having to file is an expensive pain in the derriere.
The UK has a tax treaty providing similar protection to the Canadian treaty. ML’s issues are with her mother’s estate. It benefits from the 5 million exemption. ML should inherit the full amount.
@ ML and KalC
Found this on the web…. estate tax treaties for various countries
http://www.internationalestatetax.com/?c=article&l=en&s=switzerland&id=30
@badger
I went through streamlined, and received a small refund, despite having never payed US taxes. For those that qualify, it would seem to be an ok program, and it creates and path for renunciation.
Heidi. i think the article supports my thesis that unless you are rich estate taxes are unlikely. Having said that, you could go to the IRS website on estate taxes and you will see why you do not want to have to file even if nothing is owing. They want a copy of the will, the death cert., evaluations of property (house) and on and on and on. All translated in to english and certified. It’s expensive BS.