FATCA Discussion Thread (Ask your questions) Part Two
Please ask your questions here about FATCA.
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 too large for our software to handle well. See FATCA Discussion Thread (Ask your questions) for earlier discussion.
@SylvanMoon, I’d just add to Heidi’s advice that if you decide to stay American and become compliant under Streamlined you would need to file 3 years of returns and 6 of FBARs. However, if you decide to renounce and become compliant so you can file the 8854 form to clear your US tax obligations you would need to file 2 extra back years of returns to meet the 8854 form requirement of 5 years of previous returns. Some people have done this under Streamlined and there doesn’t seem to be a problem with the IRS with them having included the 2 extra years.
@MediaFleeceStar, “I’d just add to Heidi’s advice that if you decide to stay American”
I would add and state the following;
Any US Expat who only has a US Passport absolutely should become compliant. You are a USC period……
@SylanMoon
Hopefully you are reading both the Fatca thread and Relinquishment thread as there is a lot of good advice on both.
Just to add to George’s great comments
If you decide to renounce or even get a UK passport and relinquish, or claim a past relinquishment based on a new Gov job (obtained AFTER renewing/using your US passport or US voting)’ then you should certainly become compliant. This will mean that you will not be ‘covered’ and can travel back to the US for up to 120 days/yr rolling average (over 3 years) just like any other UK/Irish/EU passport holder. As a non compliant you will be at the mercy of the border police if they and the IRS ever get their act together.
Also there are tax implications for covered expats if they leave anything to their US children, any inheritance over $13,500 will be taxed in the US at the highest rate, which I believe is 40% right now. That’s after the UK have taken their share!
Thank you both, Heidi and George. Having had a more fuller read around the issue, I think I’m going to go down the route of becoming compliant, hopefully via the streamlined route. The relinquishment seems to be just as onerous, which is my concern at the moment, as I am about to retire and so am not going to be too worried about future earnings. As a precaution, however, we’re going to transfer the ownership of the property to my partner before I file.
Note that that likely would be considered a gift. As such, depending on the value of the gift, there may be a reporting requirement. The reporting threshold for 2015 is $147,000 for a NRA spouse and $14,000 for everyone else. (I believe there is no reporting requirement for gifts to USC spouses.)
@Sylvan Moon
Read carefully, there is a limit that you can transfer to an Alien spouse without tax implications.
http://hodgen.com/income-taxation-of-property-transfers-between-spouses/
Your net worth will be calculated on 50% of your shared assets.
If you need to lower it to bring you below the $2,000,000, gifting some to US persons like children is a safer bet!
@Heidi
You’re right. I totally forgot to mention that important point. 🙁
However, if going above the limits, one can use up some of the unified gift and estate tax exclusion to avoid paying any taxes. It’s not a problem using this for gifts to NRAs – spouse or kids or whoever, I believe. If the person is renouncing, then using up some of that exclusion is basically “cost-free” (except for the additional tax form filing required). The exclusion for 2015 is $5,430,000.
@tdott
I am not sure that the unified gift and estate tax exclusion of $5,430 applies to a non resident alien spouse.
It only applies the other way around. I think NRA spouse can only receive $60,000 from a US spouse.
Read this
http://geygan.net/general-estate-planning-information-that-all-non-citizens-should-know/
“Non-resident aliens like resident aliens are subject to the Restricted Marital Deduction but they are not entitled to the federal estate tax exemption like resident aliens. Non-resident aliens are limited to a federal estate tax exemption in the amount of $60,000 compared to the $5 million exemption available for resident aliens in 2012. ”
Am I misunderstanding this?
@Heidi
I believe the quoted paragraph is referring to the estates of NRAs, which is different from the estates of USCs. I.e., a USC gets the $5.43M exclusion (regardless of actual residence). It may seem odd to be talking about estate tax w.r.t. to NRAs, but apparently if an NRA has US situated assets (e.g. US securities!), he is subject to the US estate tax.
FWIW, I believe the Canada-US tax treaty gives NRAs in Canada the same $5.43M exclusion as USCs get.
At least, that’s my understanding of it.
See: http://www.irs.gov/Individuals/International-Taxpayers/Some-Nonresidents-with-U.S.-Assets-Must-File-Estate-Tax-Returns
Courtesy of Victoria, an update on FATCA in France;
http://thefranco-americanflophouse.blogspot.ca/2015/01/fatca-in-france.html
http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000030024817&dateTexte&categorieLien=id
Don’t know the significance of this, but posting it just in case someone more knowledgeable does:
http://lawprofessors.typepad.com/trusts_estates_prof/2015/01/fatca-issue-added-to-irs-no-rulings-list.html
Monday, January 5, 2015
‘FATCA Issue Added to IRS No Rulings List’
By Gerry W. Beyer
FATCA and the insurance sector:
http://www.jdsupra.com/legalnews/new-fatca-requirements-apply-to-us-and-34402/
It means that the IRS will not render an opinion on a specific perception of what the provisions mean.
http://www.irs.gov/irb/2015-1_IRB/ar13.html#d0e16279
“In the interest of sound tax administration, the Service answers inquiries from individuals and organizations regarding their status for tax purposes and the tax effects of their acts or transactions before the filing of returns or reports that are required by the Internal Revenue Code. There are, however, areas where the Service will not issue letter rulings or determination letters, either because the issues are inherently factual or for other reasons.”
However, the law professor link claims FATCA has been added to the no ruling list but the IRS site says they will not normally consider giving an opinion, which leaves it open, at least under whatever circumstamnces they deem reasonable.
SECTION 4. AREAS IN WHICH RULING OR DETERMINATION LETTERS WILL NOT ORDINARILY BE ISSUED
.01 Specific Questions and Problems
27) Sections 1471, 1472, 1473, and 1474—Taxes to Enforce Reporting on Certain Foreign Accounts.—Whether a taxpayer, withholding agent, or intermediary has properly applied the requirements of chapter 4 of the Internal Revenue Code (sections 1471 through 1474, also known as “FATCA”) or of an applicable intergovernmental agreement to implement FATCA.
http://law.justia.com/codes/us/2011/title-26/subtitle-a/chapter-4
Section 1471 – Withholdable payments to foreign financial institutions
Section 1472 – Withholdable payments to other foreign entities
Section 1473 – Definitions
Section 1474 – Special rules
@Tricia
Put simply then, the IRS will not (or is intellectually unable to) state the rules for FATCA, yet reserves the right to punish by fines or incarceration anyone who it decides post hoc has contravened these undefined rules?
Hardly a system of justice you’d want to live in, is it?
Hi Administrator
Posted a comment twice and it hasn’t appeared?
@ Heidi,
I’m sorry your comments didn’t appear.
I looked in Spam in case your comments accidentally went there (that happens occasionally – don’t know why), but I didn’t see them there. They may have been there before the spam was emptied. It’s emptied several times a day because we get around 20,000 spam per day.
It has happened a couple of times before that someone’s been posting regularly (as you do, including several times yesterday), then suddenly a comment or two of theirs inexplicably gets caught by the spam filter, and then the problem stopped as suddenly as it started.
Would you like to post your missing comment again? Or even just post “test comment?”
I’ll suggest to the mods that we scan the spam for the word “Heidi” before emptying it, until we straighten this out, so if a comment of yours goes there, we’ll catch it.
I haven’t used my French from school for 30 years. Did my translation of Victoria’s post correctly read as France has signed FATCA?
Thanks everyone for the advice. Unfortunately there are no children and so the asset transfer will have to be a gift to my NRA spouse. The property isn’t worth more than £200,000, so I’ll just have to suffer that. But I’ve more questions as I’m getting ready to sort it out:
A) Now, if I am to go down the streamlined compliant route, do I need to file returns from 2011 through to 2014 or from 2012?
B) And do I simply file the returns and the FBARS and hope for the best, or is there some form I need to request that they approve me as not having deliberately avoided paying taxes?
C) And which tax form do I actually fill in (I’m going to use TurboTax)? On the IRS website and on Turbotax’s site, it seems to indicate that I should be using Form 1040. Do I also need to fill in a declaration of foreign earned income on Form 2555?
D) And, if I’m using Turbotax, they say that you can carry over the last year’s data into the next year. So by that logic, would I be best starting from the earliest year and working forward or starting with this year’s and work backwards?
Thanks so much for all your helpful advice.
@ SylvanMoon @Tdott
I am not sure about your gift of half the house to your NRA spouse, as I believe it would have a gift tax implication. Research carefully first
Look at the Renunciation guide on this website
http://renunciationguide.com/expatriation-and-tax-details-of-current-law/residents-non-resident-citizens-and-non-citizens/
Under the column US citizen residing outside the US, Estate Tax on death,
“Fully taxed. (Until the end of 2012, the rate is 35% of any amount above $5 million for an individual / $10 million for a couple). [Note that while transfers to a U.S.-citizen surviving spouse are tax-free, transfers to a non-U.S. citizen spouse are subject to estate tax].” I think this would also apply to the ‘unified gift and estate tax exclusion” while you are still alive.
Also read
http://geygan.net/general-estate-planning-information-that-all-non-citizens-should-know/
“Non-resident aliens like resident aliens are subject to the Restricted Marital Deduction but they are not entitled to the federal estate tax exemption like resident aliens. Non-resident aliens are limited to a federal estate tax exemption in the amount of $60,000 compared to the $5 million exemption available for resident aliens in 2012. ”
Hi Pacifica
Have posted 4 times now and spammed again?
Hi Heidi,
Tricia found your 12:54 comment in spam, so it’s on the thread now. We’re trying to figure out what’s going wrong. Really sorry about this — we appreciate your commenting!
@George. I have both an Irish passport and US passport, so do have the option of relinquishing my US passport. But I think I’ll hold my nose and go down the streamlined route for a variety of reasons.
@SylvanMoon,
I believe you said that have used your US passport after obtaining an Irish one and also voted in a US election, so that would prevent you from Relinquishing, UNLESS you can apply for a UK one with the INTENT to relinquish your US one.
Heidi@ I read that Hodgen link you posted, and from what I could garner, I’m not sure the property transfer should affect anything, as he said: “The IRS cannot touch transactions between nonresidents involving non-U.S. property.” We are living in the UK and my spouse is a British citizen. Am I reading that right?
@Sylvan Moon
Tdott seems to think so but I am not sure. If you do not need to get get below $2,000,000 in assets then why do the transfer? It will cost you a couple of thousand in solicitors fees.
A. To become compliant and NOT be classified as a covered expatriate, you should do 5 yrs of back returns (not 3) and 6 yrs of FBARS. You also have to fill in form 8854 to check out of the US system and on that you have to state that you have fulfilled your tax filings for the 5 yrs prior to renouncing.
3 yrs are really for persons who want to become compliant and stay American.