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.
@Duke, Well the IRS is nuts, so I would not put it past it to try to collect on all that FATCA data.
THE INTERNAL REVENUE SERVICE NEEDS TO ENHANCE ITS INTERNATIONAL COLLECTION EFFORTS
Final Report issued on September 12, 2014
Highlights
Highlights of Report Number: 2014-30-054 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
In today’s global economy, businesses and individuals are becoming more and more involved in international transactions. For U.S. taxpayers, income received from these international transactions is subject to U.S. tax rules and reporting requirements. Accordingly, the role of an international revenue officer is very important in helping taxpayers comply with the tax laws and reducing international tax noncompliance.
WHY TIGTA DID THE AUDIT
The IRS faces many unique challenges in collecting taxes from international taxpayers. Moreover, the IRS does not have reliable statistics on the rate of noncompliance of these taxpayers with their U.S. tax obligations. The overall objective of this review was to evaluate the IRS’s collection efforts on delinquent taxpayers residing in foreign countries.
WHAT TIGTA FOUND
International tax noncompliance remains a significant area of concern for the IRS. However, the IRS’s collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations.
TIGTA’s review found that the IRS has not provided effective management oversight to International Collection, which contributed to several control weaknesses in the program. For example, International Collection does not have:
Adequate policies, procedures, position descriptions, or the training needed to ensure that international revenue officers can properly work International Collection cases.
A specifc inventory selection process that ensures that the International Collection cases with the highest risk are worked.
Performance measures and enforcement results reported separately from Domestic Collection.
A process to measure the value of the “Customs Hold” as an enforcement tool.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS: 1) develop a formal International Collection Strategic plan; 2) update International Collection guidance to provide specific policies and procedures to international revenue officers; 3) evaluate and update the current international revenue officer position descriptions; 4) develop a formal International Collection training plan using Subject Matter Experts to develop and teach international specific courses; 5) evaluate the International Collection inventory selection criteria; 6) develop separate performance measures and track specific enforcement results for International Collection; and 7) continue to pursue direct access to the Customs Hold information.
IRS officials agreed with all of TIGTA’s recommendations and have taken or plan to take corrective actions. However, while the IRS has implemented some corrective actions to improve the selection of international collection inventory, develop separate performance measures, and track enforcement results, TIGTA does not believe that the IRS’s completed corrective actions fully addressed the recommendations.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2014reports/201430054fr…html.
E-mail Address: TIGTACommunications@tigta.treas.gov
Phone Number: 202-622-6500
Website: http://www.treasury.gov/tigta
Wow, they’re crazy. The report says they’re specifically targeting Americans living abroad and immigrants.
– U.S. individual taxpayers and resident aliens1 working, living, or doing business abroad
– Nonresident aliens working or doing business in the United States
I’ve long been thinking that it is easy to nail non-compliant recent immigrants to the US. Just get a list of visa holders from USCIS – especially H1-Bs. They’re likely to get the most from them and milk them with FBAR penalties and 30% of what they have in their home country.
Seems to me that they’re really desperate for money.
The Commissioner, SB/SE Division, should evaluate the International Collection inventory selection criteria to determine whether it ensures that the most productive collection cases are being selected for assignment.
“International revenue officers can request that a Customs Hold be input into the Treasury Enforcement Communication System (TECS) for delinquent taxpayers. Once the taxpayer is on the TECS, the U.S. Department of Homeland Security (DHS) notifies the IRS whenever the taxpayer travels into the United States.”
I guess that means they can detain you in the US until you pay up.
“the Customs Hold as one of the most effective enforcement tools available to them in dealing with delinquent international taxpayers.”
“The Commissioner, SB/SE Division, should continue to pursue direct access for the TECS Coordinator to the TECS to maximize effectiveness and accountability for the accuracy of information input to the system and implement a process to capture the Customs Hold information necessary to measure the success of this enforcement tool.”
This report is significant. It probably deserves its own post highlighting the important parts.
Probably should be forwarded to the lawyer to present the risk to naturalized Canadians who still have family in the US.
@Stressed, as an American born you simply don’t qualify for an ITIN and never will I’m sorry to say. It’s an SSN or nothing. As you’re going to be filing covering the years you were a US citizen you’re eligible for an SSN.
Is there any surprise that FATCA cart is way ahead of the horse?
I called the SSN office today and they told me to call the US consulate in Toronto so I did and nobody answers. The IRS website doesn’t tell you much either. Any idea how to proceed with this? I am assuming I have to go to this office or the one in Niagara Falls.
I guess my Form 8854 won’t be in on time… because this sounds like a lengthy process.
@Stressed
In theory, if your 8854 is not in on time, you will be a covered expat.
What I don’t understand is why you are getting a SSN. You renounced and thus are not a USC, right? So why aren’t you using a ITIN (which I *think* you can apply for along with your returns).
@tdot,
People are telling me I can’t get an itin bc I would quality for an Ssn. I’m so fet up with this crap. Like how do they expect us to get all our taxes in if it takes months to get an Ssn!!!!!
Anyone out there renounce and just not do their taxes? What did you do about form 8854?
I didn’t ever work there either. I left as a child. I still had to get a ssn and it wasn’t easy either. It will get more frustrating before it gets better. Sorry there isn’t good news there just isn’t.
@Stressed
What year did you renounce, and what are the years of the returns that you have ready to send in?
@Medea Fleecestealer
Can you cite something official or semi-official that indicates that a USC born must use a SSN, even if they’ve renounced? As this has great significance for Stressed and there seems to be some confusion (well, I’m confused), it would be good to see a bit more on this, if possible.
Stressed, I filed the 8854 without SSN or ITIN. The instructions for 8854 say to include a statement as to why I had neither. It wasn’t a very nice statement. 😀 No taxes filed.
@petros,
Did you pay the “exit tax”? Can you still travel to US? Any other consequences you’ve faced?
I am a law abiding citizen- a social worker for heavens sake – but I have to stand up for what I believe in. I feel like I’ve been abused by the US and need to put my foot down!!!!! It’s such a corrupt system and what are they going to do with our money? Bail out more banks?
@tdot – I renounced in March 2014 and I haven’t actually completed my taxes, they are just gathered with other information to go to an accountant, who can’t help me until I have an SSN. He was going to do them mid-October, which likely won’t happen because I’m reading that an SSN is a pain to get.
@Stressed
You have until next year to get this sorted out. 8854 and those 5 years of returns are due next year – June 15 2015, Oct 15 if you get an extension.
Stressed. The last thing I want to do is add to your stress level. I once had a phone conversation with the former deputy IRS commissioner for international affairs. The question we had was whether or not to enter OVDI which would have cost a bundle. His words were ‘I can’t advise you to not obey the (American) law BUT, it’s really not a legal decision or a moral decision- it’s a business decision.’ What are the costs and risks.
You can file 5 yrs of taxes and a 8854. Attach an application for a ITIN with a reason why ( ‘I am no longer a US citizen’). Or file just the 8854 with a letter as to why you don’t have a SS no. or a ITIN. In this case you will be a so called covered ex pat. So what?
Or file bugger all . What can they do? I think precious little. You will still be able to travel to the US.
Petros can correct me if I’m wrong. He filed tax returns and 8854 but not FBARs. He was able to and is still able to travel. He didn’t have to pay an exit tax. Very few of us would reach the threshold where an exit tax was due. This whole exercise generates huge amounts of work, wastes huge amounts of time and paper and generates very little in revenue. The only winners are the accountants and lawyers. ( what’s new?)
@tdott, this from the IRS website:
“IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).”
“Who needs an ITIN?
IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN.
Other examples of individuals who need ITINs include:
• A nonresident alien required to file a U.S. tax return
• A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
• A dependent or spouse of a U.S. citizen/resident alien
• A dependent or spouse of a nonresident alien visa holder”
http://www.irs.gov/Individuals/General-ITIN-Information
Remember that all this is written for those people who are IN the US to live and work. ITIN’s etc, are for people living/working in the US who aren’t eligible for an SSN. The fact that people living/working outside of the US may need some type of number hasn’t really been considered and hence the system hasn’t been amended in any way to cope with the changing circumstances.
The application form for an SSN requires you to provide your US birth certificate.
http://www.socialsecurity.gov/forms/ss-5fs.pdf
Section 1 of the Fourteenth Amendment to the United States Constitution provides that “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”
“A Social Security number (SSN) is a nine-digit number issued to U.S. citizens.”
http://en.wikipedia.org/wiki/Social_Security_number
If you were born in the US you’re eligible for an SSN and therefore are not eligible for an ITIN.
And of course until the IRS receives your CLN and 8854 form you’re still considered a US citizen for tax purposes so will need an SSN to file. If you weren’t a citizen you wouldn’t need to give up your citizenship in the first place so you must be eligible to get one.
You could try filing with an explanation of why you don’t have an SSN with the returns. Form 8854 does make provision for that:
“Identifying number.
Generally, this number is your U.S. social security number. An incorrect or missing identifying number may result in a continued obligation to file U.S. tax returns as a citizen or resident of the United States for persons expatriating after June 3, 2004, and before June 17, 2008, and/or a penalty of $10,000. If you
were never issued a social security number, please attach a statement explaining the reason.”
http://www.irs.gov/pub/irs-pdf/i8854.pdf
However, the IRS also says, for Streamlined at least, any returns which don’t have a number will NOT be processed.
“Anyone interested in using this procedure should be aware that all tax returns must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed.”
Again, it is clear that for a US citizen an SSN is required. If you can live the rest of your life with the uncertainty of not knowing if the forms have ever been processed or not go ahead and file with just an explanation.
Oops, missed out the link for the last quote about returns not being processed without an SSN/ITIN.
http://www.irs.gov/Individuals/International-Taxpayers/New-Filing-Compliance-Procedures-for-Non-Resident-U.S.-Taxpayers
Could someone explain to me how much the exit tax is? (Eg 15, 10 percent?). I’ve read the form a few times and still having trouble understanding. I remember reading you don’t have to pay taxes on anything under a certain amount too. Will I be able to fill out form 8854 on my own as a covered expat? I don’t own any property Or anything complicated.
Still trying to weigh my options and don’t want to get in over my head, although I already feel like I am.
@ Stressed
There is no exit tax if your total net worth is below US$2 million. If you do not own property or hold a lot of assets in retirement accounts that would trigger unrealised capital gains, it is certainly unlikely that you will have to pay any exit tax. However, as a covered expat you’re supposed to keep filing US tax returns for the coming 10 years. If you’ve never filed a US tax return and you fail to file 8854 or anything else now, it is not impossible the IRS will not even bother to contact you, but on the other hand they might start sending you some very nasty letters and if you ignore them there is a chance that they would put you on a detain list if you try to enter the US. There have been too few reports to predict with anything close to certainty what will happen. Some here on IB will advise you to file the 6 years of tax returns and fbars to be on the safe side, while others will tell you that you will be perfectly safe without filing anything. It is a hard decision to make.
You said you want to feel safe in travelling to the US, so I would advise you to file at least the 8854 and 6 years of 1040s. You can put in an explanation of why you do not have an SSN or ITN. If you here nothing for a couple years you are almost certain to be safe. Alternately, apply now for an ITN so that you will have a number to attach it. Although you should have had an SSN to file the past years of taxes, now that you are no longer a US citizen, you are eligible to apply for an ITN and you can use the same number on all the forms.
In fact, your final US tax filing for 2014 will be as a nonresident alien (form 140NR) for the period from the day you renounced until 31 Dec 2014, and there is certainly nothing wrong with using an ITN on that filing. Then the same number will tie everything together, which is what they want.
And in any case, I think it would be impossible for you to get an SSN, since you are no longer a US citizen or resident alien.
IIRC, the streamlined program includes an application for an ITIN to go along with the tax returns, no? No number needed, they apply it to the package of submissions.
@The Mom. from my previous posts:
However, the IRS also says, for Streamlined at least, any returns which don’t have a number will NOT be processed.
“Anyone interested in using this procedure should be aware that all tax returns must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed.”
http://www.irs.gov/Individuals/International-Taxpayers/New-Filing-Compliance-Procedures-for-Non-Resident-U.S.-Taxpayers
@Stressed–Sept. 30 @ 7:23 p.m.
I relinquished (i.e. became a Canadian with the intent to lose US citizenship) December of 2012. After reading Form 8854 I was so pissed off about the whole disgusting business I decided they could kiss my ass. I filed a final FBAR (because I was a US citizen for most of the year) for 2012, skipped the 2012 tax year 1040 because I was low enough income to be below the threshold (at least by some measures, they can’t even make up their minds on that simple concept) and dusted my hands off saying good riddance. I was marginally compliant before that time (no one can tell for sure).
I will never file a Form 8854; why should I give them a shopping list? If they want to come after me they’ll have to do the research themselves. Three days after becoming a Canadian, I applied for and had my Canadian passport in hand. I have since traveled to the US many times on that Canadian passport with no issues. In fact I now get more respect at the border with my Canadian passport than I ever did with a US passport (which I still have but will never see the light of day again).
I contacted the Vancouver consulate, explained I was no longer a US citizen and requested an appointment to get a CLN. That appointment never became available because their system is so messed up. I offered to return my US passport by mail because I believed I shouldn’t have it in my possession because I was no longer a US citizen. They said don’t bother; they would only mail it back.
Its now been almost two years and I have heard nothing from the US government. I don’t expect to hear anything going forward. The US government is the largest bureaucracy in the world. Don’t expect it to make sense, work properly, or otherwise be functional. If they make it impossible to get a SSN, take that as a sign they don’t want you to file anything. If you don’t have a SSN, you don’t exist in their system. Sleep easy at night. Contribute to ADCS.
@maz57 just because you became a Canadian citizen with the intent to lose your American one doesn’t mean you have actually done so. Until you personally go to the embassy/consulate and say so in front of the consul staff you are still an American citizen. Why do you think they said they’d mail back your US passport? Because you haven’t fronted up at the embassy to tell them you’ve relinquished. If you had they’d have taken your US passport off you. Like it or not, until you do that you’re still an American in the eyes of the US.