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.
Babs. Slow down. As far as I know, the threshold for 8938 is $400,000 if filing jointly and $200,000 if filing separately.
Clearly 2 and 3 are out of the question.
You are ‘squeaky clean’ as far as filing is concerned. Why not stay that way? You say you opened the latest account ‘last year’ You could file a fbar for it going forward.
@Portland: Thanks. I welcome any dissenting opinions. I wonder if anyone has any knowledge of someone who started filing (whether FBARs or taxes in general) “going forward” in the past few years and was caught out?
There are several hundred million tax returns filed each year and untold millions of fbars ( now called FinCen report 114). Hardly any are audited. You be the judge.
@CanadianCop
This may be of help to you re ‘executor of your will’.
http://isaacbrocksociety.ca/2013/03/28/americansabroad-should-not-be-an-executor-of-will/
@heidi
Thanks for pointing out this thread. I’m back to thinking I should have my younger daughter be executor and have her dole out my older daughter’s share in cash increments over a period of time – just to be on the safe side…
@Canadian cop
In an insane world a sane man must act insane
Where have we gotten when an honourable law enforcement officer serving his country even contemplates cash in bag estate planning
@heidi & Canadian Cop
Thank you heidi, that is good to know – the signing authority over accounts and theoretical FBAR penalty risk. Just another crazy example of the total insanity of all of this. Although for non-compliant Canadians like us, we’ve already committed many of these supposed FBAR crimes.
On a practical level, assuming your brother has never lived his life as a US citizen in any way, what is the likelihood that his place of birth would come up while performing his duties as executor? Would the lawyer ask? (importance of having your local trusted lawyer) Would the bank/FI ask about him as your accounts are closed and distributed to your heirs? Would there be more chance that your own place of birth might be asked?
I can still see your point about playing it safe and having your non-US person daughter as executor.
@Canadian Cop
Have your daughter or wife be the executor of your estate… if somehow they find out the US person angle… that can tie up a simple estate. Also… the executor can gift money to your US person via their own accounts & not through the estate… that would make it simple all around… don’t gift from the estate… leave the US person a small amount… then gift from her mum and/or sister… that is what I think I am going to do… also… I left instructions… shake all them mattresses real good.. cause that could be my bank… made many, many stupid mistakes that I haven’t figured out how to get out of yet… I am not rich… but I refused to give the uncle… jack… unless u count the bird that I am more then willing to give them….
@ george
I agree wholeheartedly. If it was not so frustrating, I might even be able to see a little humour in it…
@Mr. A.
My brother and I are basically in the same boat. Being from Campobello Island (Canadian Island but you have to go through the US to drive there), it was common 50+ years ago for mothers to cross the border, have their babies and bring them home. So we were born there and spent the first couple of days of our lives there before returning home. Never lived, worked or voted there. Both of us continue to live as solely Canadians. I don’t recognize the US as having any authority over me, especially when I am in Canada. I just don’t want to put anyone on the spot or tempt fate unnecessarily. I am, for the most part, just so uncertain about how this will play out – I guess I am hoping for the best (that our lawsuit is successful), but preparing for the worst. I have always had a healthy mistrust of government, and what I have seen from the current US and Canadian governments has certainly reinforced this.
@US_Foreign_Person
Thanks. I think you and I are on the same page, I just was having difficulty figuring out the process. I will be happy to eliminate the need for paper bags (doesn’t look good)!
@Canadian Cop
It sometime easier to figure out the angles when others throw in their suggestions… I have to think of this because we come from a mix family…. 1st & 2nd class families… fair to everyone except the uncle… he can bite me… told my family… if there are any problems… give them my new address but not the name of the place when I am gone… it could be months before they figure it out why they can’t deliver mail to me… hehehe
A home safe, giving the executor the combination may be a better choice than a mattress. I cleaned the home of a hoarder for the daughter when the hoarder passed. You can’t begin to imagine the money throughout, and where it was stashed. Some of it may have ended up in the landfill. 🙁
@The Mom
Thanks but I don’t care for a safe… when someone tries to rob u… u don’t want that all in one place or easy to find… if u stash at home… have a place no one would think to look at & make sure family knows where it is… I was robbed once… they busted open the safe I had in the house… no money… just my good booze… lol
Newest post from Victoria’s blog:
http://thefranco-americanflophouse.blogspot.ca/2015/04/fatcacbt-who-paid-penalties.html
‘FATCA/CBT: Who Paid the Penalties? ‘
FWIW, I’ve heard of a couple of cases where the executors of the will of a deceased USC put said deceased USC thru Streamlined as a CYA measure.
Presumably that’s not a desired outcome, so I would say pick your executor carefully.
Although I told myself to take a week off from posting here, I have a follow-up to my earlier question (on the previous page in this thread) regarding whether or not to begin FBAR reporting on an account I had failed to report. To recap: tax compliant for 25 years, filed FBARs for our two accounts in Bank A, never reported an account in Bank B. Closed account in bank B in early 2014, then near end of 2014 opened new account in Bank B to service a mortgage. Account never contained more than $8000. Bank B does not have any US indicia for us in their records (they never asked).
I’ve been advised over and over again here, as in Portland_PLC’s comment at the top of this page, to simply report the new account going forward. My worry is an audit being triggered. After all, our version of “tax compliant” may differ from the IRS’s. And what if they discover the old account in Bank B?
Today I found two things that scared me. One is a Facebook comment on a thread about a near-identical situation:
Another is this article, which implies that audits of expats are on the rise:
http://finance.yahoo.com/news/irs-favorite-people-audit-133452472.html
So, the fights between Hubster and myself over what to do continue.
Sorry. I suppose my question (continuing from above) is not asking for advice, but whether anyone here has actual experience in a similar situation, whether adding a new account to an FBAR or simply quiet disclosure of FBARs, in either case going forward (not amending past returns) and not having triggered an audit? I’m really searching for actual precedents to bring to the debate with my husband.
Barbara,
This brings to mind a comment of older days: http://isaacbrocksociety.ca/expat_tax/comment-page-12/#comment-261995
Disclaimer: Yours is a real and serious matter and this is not to be taken as my advice nor for you to bring to the debate with your husband, but it is food for thought.
Interesting thought about FBARs. I’ve seen similar remarks. As to the question of whether they look at them, yes they do, at least they did look at paper ones upon arrival. I have direct experience.
Two years ago our FBAR was returned to us in the mail, with a note pointing out we had neglected to write the filing year at the top of the form. We corrected and re-sent, never heard from them afterward. So someone was looking. As to whether anyone or any computer algorithm now scans the electronic ones, automatically flagging differences, is another question. The major question we now face.
I think I have a problem. Well, I know I do – I have a very obessive personality. Once I get started on a topic I leave no rock unturned and I have not stopped reading on this topic for a few days!
You might remember my story from the comments section on the Consulate Reports post.
Based on my research, I feel like Nate (we) have the following options:
1) Do nothing. Pros: free, keeps doors open if one day….. Cons: If we get detained at a border… or Nate shoots off his mouth with the lady at the bank… we’re screwed. This is a boogeyman that I don’t think I will get over easily – and I’m just as worried now for my godchildren who received dual citizenship by virtue of their dad.
2) Relinquish based on government employment (using the language and arguments that were suggested in the Consulate report post – thanks everyone!). I think that we can’t use the may 2004 provincial job because Nate traveled to the US using his US Certificate of Birth Abroad in 2006 (the only time!) so it means that in order to do this, we would have to come clean with the taxes… am I understanding correctly?
“Regardless of your financial status, you are not a “Covered Expatriate” if you satisfy all the following items:
You became a U.S. citizen at birth; and
You also became a citizen of another country at birth; and
On your expatriation date you “continue” to be a citizen of that country; and
On your expatriation date you “continue” to be taxed as a resident of that country; and
On your expatriation date you were not a U.S. resident for 10 of the 15 tax years that end with the year that you expatriated.
Note, however, that you will still have to certify that you are up to date with all U.S. tax requirements. Failure to do so will render you a Covered Expatriate even if you satisfy all the dual citizenship requirements. all of this applies to Nate, so in order to take advantage of forgoing the exit tax, we would need to come clean with the IRS for certification.
Pros: we wash our hands of the situation. Cons: we risk really breaking Nate’s dad’s heart, it’s potentially costly, and it’s like putting a target on our back.
It will obviously be up to Nate, but I want to give him options
If we are going to go through with this, am I understanding correctly that the best thing to do is the quiet disclosure? What is the ideal timing for it if we want to relinquish, as I don’t think I will be able to complete all that is required in time for the April 15 or June 15 deadline although I read something about December 15 being an option…
With that, a few questions….
* So. If one wanted to get started on filing, where does one even start? I tell you, I have gone on the IRS website half a dozen times and gotten lost in it. I know most people complain about CRA but having been on the IRS website, and having talked to one of their less-than-helpful agents (I’m looking at you, Carol!) I thank my lucky stars every day for the CRA. I can’t afford to have a professional prepare Nate’s US taxes, and I don’t mind doing the legwork if someone points me in the right direction.
* Nate has made less than $25k per year. It’s only this year that he is regularly working in his field (he’s finally supply teaching!) but even at that, I don`t think he’s going to make any important threshold). Speaking of teaching, he’s been contributing to the employer pension plan (Ontario Teachers’ Pension Plan). Is that going to account for anything in this process?
* Our chequing account is joint, but I think, and could be mistaken, that all of my e-savings accounts are solely owned by me. The kids’ RESPs are in my name only (bank wouldn’t let me put Nate’s name on because it can only have one name or something?). He has one TFSA that has $66 in it. It’s almost laughable. We have two lines of credit; joint. What are the implications? Do we need to report credit cards?
* The house we sold in 2013 was in my name only. Does that mean that he can be spared the capital gains on that house?
* The only time any of our accounts went over $10k in the past few years is when we were given money to fix the septic tank for our new house. I’m hoping that’s good news.
* I’ve read stuff that would seem to indicate that *I* am a non-resident alien and that means that I need to file too. PLEASE tell me this is not true because I would blow a blankety blank gasket if I had a foreign government dictating to me citizenship implications.
Thanks for all of your help thus far!
Interesting article you found there, Barbara. It is based on the IRS Data Book for 2014:
http://www.irs.gov/pub/irs-soi/14databk.pdf
As noted in the article, the audit rate for “International” (including US territories and military stationed abroad) individual taxpayers is 1 in 20, about 5 times that for individuals as a whole (1 in 100).
Interestingly, if you look at total “Recommended Additional Tax after Examimation” divided by total number of audits (see Table 9a), they end up demanding about the same amount of extra tax from international individuals as from all individuals, about $10,000/audit.
Further, in 2013, the audit rate for international individual taxpayers was only 1 in 50 (compared to 1 in 100 for individuals overall), with again, no greater extra tax calculated per audit for international audits as for audits as a whole:
http://www.irs.gov/pub/irs-soi/13databk.pdf
So it looks like somebody decided to dramatically ramp up the already higher-than-average audit rate of overseas taxpayers, and only overseas taxpayers, despite already having the numbers showing that there was no additional tax to be had there per audit as compared to the population as a whole.
IB You have a problem . You feel compelled to DO SOMETHING. ANYTHING! when you don’t need to and really can’t afford to. You are way ahead of yourself and your brain is spinning out of control. E.G. the house you sold has nothing to do with anything. Example 2- You ARE a non-resident alien. That means you DON’T file.
Since you are compelled, Nate could ask for an appointment to renounce and you could download 1040s from 2010- 2014 and fill them in. You just fill them in to the best of your ability. Since he won’t owe taxes, there won’t be any penalties. If you manage to file 5 yrs worth, there is no exit tax because Nate is a ‘dual at birth’ (The point is moot because you don’t have enough assets for the exit tax to apply in any case.
The only way Nate can be a covered expatriate is if he doesn’t file the 5 yrs. This is an option that you probably haven’t considered. Nate becomes a covered expat. So what? What could he then expect? A few nasty computer generated letters?
You mention the audit rate for international taxpayers. They aren’t quite dumb enough to audit Nate. There is nothing there for them.
Isabelle Brock I went back to the other thread and reread your first post.
Nate was born in Canada. Why are we even discussing this?
@Portland: Thanks for your comments. I think I remember from the other thread that you think we should just sit back and do nothing. While that is an option, I know that we just want to get this monkey off our backs. Last year Nate’s mom paid for our family to travel on a cruise. I held my breath at the border and the entire time we were travelling to and from Boston (our embarkation port). He’s not typically a worrier (he leaves that to me because I do it so well – haha) but he was very worried too. To have it hanging over our heads for who knows how long is also taxing (emotionally, if not monetarily).
I can’t do anything unilaterally anyways. This is a fact-finding mission; ultimately Nate will have to make the final decision.
We’re discussing this because Nate and I want to know what our options are and how to move forward correctly no matter which avenue he chooses. He’s not someone who wants to live his life in hiding and if there’s a way that he can come clean, that’s what he wants to do as far as he has told me.
I also think that given that we don’t have all that many assets yet, if we were to do something, now would be the time to do it because we would be sure there is little to no tax liability. The older we get, the closer he gets to a permanent teaching job, the more we will want to look at things like TFSAs and RRSPs for Nate. Filing gets more complicated at that point, doesn’t it? The other fact of the matter is that the further away we get from 2012, the harder it is to prove plausible deniability and reasonable cause.
@Isabelle Have you attended any of John Richardson’s information sessions? I think you and Nate might find it helpful. Alternatively, you could do a personal consultation with John.
Most importantly, slow down. Do not rush into anything. Because Nate was born in Canada, you are far safer than many others.
I know you are still in panic mode, but that is the worst time to make decisions that may make the situation worse instead of better.