Liberty and justice for all United States persons abroad

The Isaac Brock Society

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.

3,618 thoughts on “US expat tax and FBAR: Discussion thread (Ask your questions) Part Two”

  1. @ Macker,

    Also the consulate, being part of Dept of State, doesn’t get into tax matters when you renounce. Here’s some general information about that.

    A person has until June 15th of the year following renunciation to wrap things up with IRS (form 8854, 1040s etc for the five years preceding renunciation and the partial year of renunciation). FWIW, if they never do this, their CLN remains valid and they remain a non-US-citizen. Anyway, to avoid covered expatriate status with a 2015 renunciation, one has til June 15th, 2016, to complete filings with IRS.

    A person’s citizenship (or lack of it) is not dependent on their tax status. The consulate doesn’t want to see tax forms or ask/discuss about taxes. Not their department. Dept of States’s only involvement/connection with tax is the following:

    (1) At the consulate the person signs DS-4081, Statement of Understanding of Consequences; one of the 12 items on it is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”

    (2) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements, 7 FAM 1243(a).

    (3) The questionnaire, DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” [DS-4079 is used to determine if a relinquishment actually occurred when the person claims it did. DoS does not require the 4079 for renunciation, but allows consulates to use it for renunciation files as well, if they wish. So, some consulates use the 4079 for renunciations and some don’t.] The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some time ago. But it has no relevance either way to a renunciation.

  2. @ Pacifica777
    Thanks you. I got to @macker first (by 1 minute) but you did it much better with helpful annotations. 🙂

  3. @EmBee,
    Funny we both replied within a minute. Good you mentioned the very important no-extension for the FBAR in yours!

  5. @embee and @pacifica777,
    Great! Thanks so very much for your help and info on this – it makes sense.

  6. This may be of interest. From Bruce Schneier on Security in today’s newsletter:

    “I’m not sure what to make of this, or even what it means. The IRS has a standard called IDES: International Data Exchange Service: “The International Data Exchange Service (IDES) is an electronic delivery point where Financial Institutions (FI) and Host Country Tax Authorities (HCTA) can transmit and exchange FATCA data with the United States.” It’s like IRS data submission, but for other governments and foreign banks. Buried in one of the documents are the rules for encryption. And it recommends AES in ECB mode.”

    https://www.schneier.com/blog/archives/2015/02/irs_encourages_.html

  7. @Brucespoint: Well, as a practical matter, data is far more likely to get stolen due to bribery or handling errors on the bank’s or IRS’ end, than someone intercepting it in transit and breaking encryption (even with outdated & problematic encryption schemes like AES).

    As a symbolic matter, it goes to show that the IRS doesn’t care at all about best practices and can’t be bothered to educate themselves. In short, pretty much like the attitude of all of the Homeland to CBT itself.

  8. 2:58 pm ET
    Jan 16, 2015
    ‘What Tax Preparers Are Really Charging for 2014 Returns ‘
    ” ……….That average $273 fee is for a Form 1040 plus Schedule A..”….”.The average cost reported by the National Society of Accountants conceals a wide variation among regions, as seen in the graphic below. The group found that the highest average fee, $348, will be charged by survey participants in the Far West—a region encompassing California, Oregon and Washington, as well as Hawaii and Alaska.

    The lowest average fee, $198, is expected in the upper Midwest—Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota..”…….

    No mention of the costs for those living outside the US – including those filing useless nil returns.

  10. Last year I paid an accountant to do my individual U.S. taxes. Can this fee be written off on my Canadian taxes? If so, where on my Canadian taxes do I put this information?
    Thanks for your help!

  15. I am not sure if this is the right place to ask this, but I will ask it here anyway!

    I attended the funeral of a very dear friend earlier today and realized that I need a will. I made up a will about twenty years ago with a “will kit”, but it is seriously outdated. My children are no longer “children” and several people named in the will have predeceased me. The executor in my “current” outdated will is my brother (who like me, is an “accidental” – never lived or worked in the US, but was born there). I was going to get a new will drawn up by a lawyer, but want to keep it simple while doing all I can to protect what little I have from my thieving uncle (his name is Sam).

    Here is my situation: My wife is “pure” Canadian. I have two daughters, neither of whom inherited my defect (due to the fact I have never lived in the US). My oldest daughter married a Texan in January, lives in Texas and is in the process of getting a green card (she just wouldn’t listen). My youngest got married in August to a “pure” Canadian and lives in Canada. Both my brothers are tainted like me.

    I have very few assets (pretty much our house and my pension) but do not want my evil uncle to end up with anything. I also don’t want to spend a fortune on some cross-border tax lawyer or accountant who I do not know. I have a trusted friend who is a lawyer, but has no expertise in all of this US foolishness. I do not accept that the US owns me or has any say over me, but want to do whatever I can to facilitate my heirs in avoiding any interference by my thug uncle.

    I have been thinking that I should appoint my youngest daughter as my executor to avoid my tainted brothers and my now-tainted eldest daughter. Does that make any sense, or does it even matter? I would normally have it so that, in the event my wife and I died at the same time, things are split 50-50 between my two daughters. Are there any concerns/pitfalls now that one of my daughters is tainted?

    I am basically looking for a simple will where if I die, everything goes to my wife. If we both die, everything is split between my daughters. Nothing goes to my uncle. Would someone who understands this US stuff mind telling me if there are strategies I need to employ to shut my uncle out, or can I just carry on like a normal Canadian?

    Thanks.

    Canadian Cop

  17. @Canadian Cop

    My simple advice is to carry on like a normal Canadian. I (an accidental dual at birth like yourself) have not made any changes to my will. It is straightforward like yours will be – everything to my (Canadian only) wife, and if we both die, everything split evenly between our (Canadian only) children,

    To me, the most important characteristics of an executor are: responsible, fair, honest, trustworthy and ability to manage money. If one of your brothers fits the bill I wouldn’t think that his “US Personhood” should matter. Your eldest daughter living in Texas may pose logistical difficulties due to being so far away. I would get your lawyer friend’s advice on who may make the best executor.

  18. Hi calgary411;

    I skimmed over the Hodgen article briefly – it looks very informative and I am going to look closer tomorrow. It is getting late on the east coast and I have to work in the morning. Thanks for providing this – I am always amazed at how you can keep track of all this information and can find it so quickly.

    @Mr. A;

    Thank you also for your help. I was/am hoping that I could keep it simple (like a normal Canadian – something I always thought I was until FATCA stated otherwise)! My brother certainly meets the criteria you listed for an executor, but according to the US, he is a money launderer and tax cheat because he banks where he lives! If his birthplace does not jeopardize anything, I guess he is back in (probably much to his chagrin).

  19. Canadian Cop. The Hodgen article is not helpful to you . In his eyes you would be tainted and if you expatriated without filing you would be a covered expatriate. Neither are any good.

    Here’s what you do. You behave and act as a pure Canadian. Your executor can be your brother, your wife or your daughter_ whichever is best qualified and more important, willing.

    Your executor then needs a lawyer to help. The lawyer must not have US connections and must be willing to ignore your uncle completely.

  20. Duke of Devon and Canadian Cop,

    If that is correct, then not good news.

    But, if it is the case which I can also now see, a good thing to bring to light here as how many would be so affected — deemed by some US law a damned *covered expatriate*? For me, the consequences of the US getting anything that should go to my children (or for any one of us to not have our estates go to anyone we wish and not to the US) is the only thing that now sometimes keeps me awake at night.

    Our Canadian litigation is so important.

  23. Depends. If they know he’s a covered expatriate, she is supposed to pay a tax of around 40%. This is rarely applied because the numbers are small, and usually they have no way of knowing. That’s one reason his executor needs a local lawyer.

  24. @ Duke of Devon

    Thanks for your advice. Charl’s question hit the nail on the head regarding a big part of my concern. I don’t want my older daughter penalized because she lives in my greedy uncle’s house. I was kind of wondering if my younger daughter might have to sneak my older daughter her share in $5000 cash portions in paper bags over a period of time (it wouldn’t be long). I also don’t want the biggest share of my meagre estate to go to a lawyer. If I am understanding correctly, it does not matter if the executor is tainted but there may be issues with my daughter in Texas getting her “fair share” based on how well I can hide my birthplace. I guess I will have to make sure my obituary does not state where I was born…

  25. I need help! This question relates specifically to FBARs. As much as IBS has enabled me to alleviate my despair and make some sense of the various compliance options, now as filing time draws nearer, my husband and I are fighting over which option to take. Since I’d be a fool to reveal much detail here, I’m going to keep it vague. The gist:

    -US citizens long-term in Asia
    -Absolutely squeaky clean US tax compliant the whole time
    -Filed FBARs for our joint bank account for as long as I can remember
    -Opened a second account in another bank a few years ago as a place to set aside money. No US indicia (They never asked! They just used our local IDs)
    -Out of pure carelessness, never declared second account on FBARs
    -Closed the second account last year, using funds to pay off a debt. Months later, opened new account at the same second bank to service a mortgage from that bank.
    -Have never filed a form 8938: never knew they existed until reading about them here.

    The question is: now what? I see four options:

    1) Report the new account on FBARs and 8938 from now forward, but not amend past FBARs or returns, in the hope that the chances of being found out retroactively are miniscule. After all, no US indicia, different account number. In every other aspect, we have no red flags regarding our taxes.
    2) Streamlined
    3) OVDP
    4) Continued non-disclosure for accounts in the second bank. After all, no US indicia. How would they ever find out?

    I am in favor of option 1. Husband strongly for option 4. He worries that declaring any account at all with the second bank will open a can of worms, obligating that bank, under FATCA IGA, to report past years accounts, and sending us to debtor’s prison.

    We both are disinclined toward 2 and 3. To be honest, neither of us really understands them, even after reading hundreds of articles and comments on IBS and elsewhere. We can assert non-willful innocence about the 8938, but the FBAR is the issue. Our reason for not declaring the second account was carelessness and laziness. All these years, we’ve thought of FBARs as simply inconsequential paperwork dreamed up by Treasury bureaucrats–never really took it all that seriously until the whole FATCA thing blew up. Every year we have simply copied the information from the previous year’s FBAR onto the new one, updated the balances, and sent it in. Since we rarely touched the second account, it just never crossed our minds to put on the FBAR. This is the truth. But to the IRS, I’m afraid that the fact that we did report our “regular” account on FBARs but not the account in the other bank, removes any excuse of ignorance of the law. Thus, we are at great risk of being declared willful and losing everything we own (literally! Our entire net worth is less than the sum of six years of willful noncompliance fines). I can’t imagine how to write a Streamlined essay that simply says, “We were sloppy, please forgive us.”

    I need advice. When I look at other comments here at IBS, it seems that my option 1 has a weak consensus. But I’m not sure. I want to end the worry, but avoid a fine we cannot afford (even a $10,000 fine will put us in the red right now). But that brings me back to square 1, before I discovered IBS. I haven’t encountered a single tax professional who didn’t give me the condor creeps. I’d be interested in a referral to a professional I can trust and who won’t charge a fortune.

    Meanwhile, I’m losing sleep again and my husband and I fight about this every morning. FATCA is harming my marriage.

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