US expat tax and FBAR: Discussion thread (Ask your questions) Part Two
Please ask your questions here about US Expat tax and FBAR.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
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.
Look at IRS 8854 Look at Section B on page 3. It says ‘Do not complete Section B if your US taxes were less than 155000 for each of the preceding 5 yrs. and your net worth was less than 2 MM and you certify you are compliant and were compliant for 5 yrs.
Correct. If you owe nothing on your 1040 you would be home free. I’m neither a lawyer nor an accountant but I think I understand the form as well as most. Fill it in to the best of your ability. They do not require formal appraisals of the value of your property. It is most unlikely you will be bothered further.
@Duke. Thanks for precisely pointing out the form question that avoids these problems!
Just a note that there is currently a “Badger” commenting over at the Jack Townsend site. That is not me, just someone else who has (unfortunately) chosen the same nom de plume.
Just wondering what the repercussions are for not doing your taxes and filing Form 8854 (expatriation form) aside from the exit tax? I am still trying to decide how to proceed. If it’s just the exit tax, it may be cheaper than hiring an accountant which I’ve been quoted around 3000-4000$.
I renounced in March 2014 so I guess that means I have until June to decide but it makes me sick when I think about it. I’m pregnant so I am trying to avoid the stress that almost killed me up until March 2014. Feeling damned if I do and damned if I don’t.
Stressed : not sure what your question is. If you don’t file taxes or 8854 there doesn’t appear to be much that will happen to you. There haven’t been any reports of them going after anyone in that position. In theory you would be a ‘covered expat’. No one knows what if any would be the consequences. They certainly can’t collect from you in Canada even if they had any idea what to collect.
‘
Isn’t there a 10,000$ fine for not completing 8854?
I read online today that they can’t collect from you but they can order you to go to court and collect it that way.
I guess my question is what are the repercussions as a covered expat ? Are there a lot of people who renounced and just didn’t do taxes or 8854?
Stressed: it’s a decision you have to make. 1) File 8854 and 5 yrs. of tax returns- you presumably owe nothing. 2) File 8854 and no tax returns- you become a ‘covered expat’. No biggy unless you plan to leave a ton of money to US heirs. A covered expat is subject to the exit tax but it might not amount to a lot of money. It would probably cost several thou in accounting fees to find out. 3)Don’t file a thing. You are,I guess , subject to a fine. How are they going to collect? They won’t go to court in Canada and they won’t go to court in the US . They might send a nasty letter.
We don’t know how many people renounced and didn’t file 8854.
Id like to travel with ease so maybe #1 might be my best option given that #2 would cost me in accountant fees too. I’m too scared for 3 I think although you also have to stand up for what you believe in
@Stressed
If you can get 5 years (does it include the 6th dual status year) of returns done for $3000 to $4000, then count yourself fortunate.
At any rate, here’s my standard blurb on the subject that others are by now quite familiar with:
————————————-
If you are considering renouncing and not filing returns, here are some things to ponder:
There is no statute of limitations on those unfiled returns, because they’re unfiled. So that will hang over your head for the rest of your life.
By not filing returns, you have probably moved into the wilfully non-compliant category. I don’t know what the ramifications of that are, but I don’t see how it could be a good thing. FWIW, if you don’t file 8854, then you’re subject to a $10K penalty, and 8854 specifically asks about those 5 years of returns.
By not filing returns (or not submitting 8854), you have definitely become a covered expat. That 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 $663K (2013) 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.
Unless you like to live dangerously, travel to the US is out – that would include plane connections though any of the major hubs. For some people, not a big deal; for others, a very big deal. And, you’d always be concerned when flying over the US to, say, Mexico if you’re a risk averse type of person, due to the (admittedly unlikely) possibility of the plane making an unscheduled landing in the US. Note that increased inter-agency and inter-country data sharing means there’s a reasonable chance that in the future US border people will be aware of all former USCs’ tax status.
The US-Canada tax treaty will protect you (at least in Canada) from the IRS if you were Canadian at the time the liabilities were incurred. I don’t see how there is any guarantee that the treaty could not be changed for the worse in the future. And although it would clearly be unfair if the changes were retroactive, nobody has ever accused the IRS of being overly fair (and the FATCA fiasco has indicated how much we can expect the Canadian government to stand up for fairness).
So, IMO, you would have to have a really, really good reason to not file those returns and 8854. One concern people often have about filing those returns is the cost of getting someone to do it for them. A possible route is to DIY and just do the best you can. I’ll leave it to you to determine what “best you can” involves given that you’re almost certainly not a cross-border tax professional. At any rate, at worst you could be audited later and assessed some $$. If it’s a large amount of $$ that you are unable or unwilling to pay, you could then invoke your treaty right and not pay up; leaving you in more or less the same situation as having not filed. OTOH, at best you did a bang-up job on the returns that can withstand any amount of scrutiny, or, more likely, you can expect the IRS to not have the resources or inclination to worry about your piddly returns, leaving you home free (at least after the SOL runs out).
tdott: You & others repeat the mantra that travel to the states is dangerous for anyone who renounces and doesn’t behave themselves according to the wishes of the IRS. There is no foundation for that supposition
What do I need to start the tax process? Itin number? I don’t have any US identification
Just trying to gather my stuff together so I can have an accountant do my taxes before the 2014 tax season
@Stressed, a US citizen has to have a Social Security Number (SSN). So if you don’t have one then you’d need to apply for one. ITIN’s are only available to people who aren’t eligible for an SSN.
@Duke of Devon
What you say is likely currently true, and I should reword my blurb to reflect that.
However, I suspect that given the events of the last few years with respect to massively stepped up enforcement of tax issues, it’s just a matter of time before a person’s tax status (assuming they’re on the radar) is linked to the other information that pops up on a border guard’s computer screen. It would be reasonably straightforward to do, and it just seems like something that would be too good (as far as the US is concerned) to pass up.
Stressed. When you find out how much is involved trying to get a social security number you might change your mind.
@ duke of Devin, what do you mean? I just see one form that you complete and hand in with your first tax submission
@ duke of Devin,
It’s an itin that I need not an Ssn as I would not qualify for that. It’s a different process, one obviously more complicated than the other
Stressed / Duke of Devon,
We’re back to the same discussion of what is or is not logical re applying for / obtaining a SSN AFTER expatriation (assuming one would not then be eligible to receive a SSN – As one boss used to tell me, “To Assume makes an ASS out of U and ME”): http://isaacbrocksociety.ca/renunciation/comment-page-86/#comment-1164238.
It took me a year to get a ssn. It was utterly frustrating!!!
Honestly, this is all just confusing me more especially that link that was posted.
calgary411, so basically, if you don’t have a SSN, you’re better off NOT getting one before expatriating and doing taxes, as the darn things are so painful to get if you’ve lived out of the US for decades. And, you also do NOT need an ITIN for filing after expatriating. Is that right? If so, cool.
Oh, you’d still need an ITIN for tax returns. At least they’re relatively easy to get.
Stressed. My apologies. On reading the instructions for 8854, it seems reasonably clear that you need neither a social security no, nor a TIN.
You are no longer a US citizen so you are not entitled to a social security no. 8854 says if you don’t have a TIN either that you merely attach a statement as to why not.
@calgary411 – it says that the streamline method requires an itin or Ssn ? So how do you get around that? The irs website also says that it will not accept tax submissions with no #
So, Stressed, somehow you have to determine or get an answer from the IRS or from the SSN people. Do you need to apply for an ITIN (if you cannot apply for a SSN as you are no longer a US citizen, having renounced) — or will the US still allow you to apply for a SSN? Maybe someone has gotten the right answer. I don’t know.
[What Duke says makes sense! And, tdott agrees, but then you have the directions for the Streamlined method of tax returns. I’d say that is what we should “assume” — if the Streamlined requires either a SSN or an ITIN — is the more logical choice of the ITIN as we cannot leave the “required number” blank.]
tdott,
I think that is what we should “assume” given their directions.