Tax Questions Thread
Ask your questions about Tax and FBAR here.
This thread will be focused closely on tax questions and answers. If the conversation starts to ramble, those comments will be moved to another thread.
Related threads:
Tax Discussion Thread. Instead of focusing on specific questions and specific cases, broader ideas can be discussed on the Tax Discussion Thread.
Sub-threads (more will be added as they occurs):
Previous Tax thread:
US Expat Tax and FBAR discussion thread, part 1
US Expat Tax and FBAR discussion thread, part 2
@ Ron Henderson,
Thank you, I’m not sure if the SSN on the passport will have any implications or not, I think the bank reporting FATCA would be an issue, if there was one.
So far the bank have given us a mortgage, albeit on condition we fill out multiple forms attesting to the fact that my wife is also a US person. But no restrictions as such.
I am becoming more relaxed over this now that I have had replies to my initial question to not file. My wife is paranoid that she will be arrested and detained at a US point of entry when she visits for business or witht the kids on vacation, despite my reassurances that there is no valid grounds, but we all know how that works!!
She is not an accidental American, but has not lived in the US for over 20 years and not filed since 1997.
Your wife will not be arrested. Many of us have very similar circumstances, never filed or stopped decades ago after leaving the US, and go back and forth without difficulty. But it’s hard to avoid that first wave of paranoia. I don’t have time for a full explanation but basically you have to be a very, very bad person to have border issues due to taxation.
It’s unfortunate that you threw some money at a (shitty) tax advisor but no harm done if she doesn’t file the returns. Continue contributing to the pension. Otherwise just relax and mostly forget about this. Keep an eye on the bank for any bad behaviour on their part.
Right now her only surveillance concern is FATCA. If she doesn’t like the fact that year-end account balances and interest/dividend income may be sent to the US, she can renounce. Otherwise she’ll have to trust in the inefficiency of the IRS. But always remember that as a UK citizen there is simply nothing the US government can do to penalize her.
Again, thank you!
You are right, we did throw money at a crappy tax advisor, but you don’t know until you hire them.
Anyway, we will continue to get on with our lives and take your advice and my gut to keep paying into the local pension.
I will get my wife to read all the responses and ask any questions once again from this valuable forum. I feel compelled to donate to the fight in Canada, as maybe a win would cause a ripple effect for other countries, although not sure would impact our’s, as they trade in finance with the US.
Foma. Good advice from Ron H and you are on the right track. It seems a good idea for your wife to renounce ( without filing). Then she would not have a US passport. As far as we know, no one has been denied entry for having renounced. The only drawback is she would need a visa to go to the US.
I have a strong opinion based on only a few facts about FATCA. They receive hundreds of thousands of reports. What can they possibly do with them? Remember they have a limited and diminishing budget, fewer experienced personnel and outdated computer systems.
They must ignore all of the small accounts. Only multimillion dollar accounts justify further action.
I believe they primarily use FATCA date to pile the penalties on miscreants they have found by other means. Think Paul Mannafort. He had millions stashed in Cyprus. Nothing happened until he was investigated for unrelated crimes.
Minnows need not lose sleep.over this.
Renouncing will solve FATCA problems, but I increasingly question whether it’s worth bothering given the general lack of ability or interest in enforcing US tax obligations overseas.
When you fire the tax accountant, be subtle about it. Just say that you can’t afford the fees and you think you can finish the job yourself. As satisfying as it might be to walk in and yell “Uncle Sam can kiss my pale spotty British arse!” it’s probably wise not to provoke.
*Apologies if I made any assumptions about complexion.
Also, there is a UK lawsuit you can support:
https://www.crowdjustice.com/case/fatcahmrcprivacybreach
We have already told the tax advisor that we will wait to see further years local tax liabilties before we proceed with her services, I insisted we paid her for her services and will be in touch at a later date and left it at that………. nothing was signed with regards to the tax prep she did.
I am not in the least bit offended by the assumption of my complexion, as now quite tanned as spent most of the summer gardening and working on the house, albeit a farmers tan.
Thanks for the link to the UK site, at least they are more local to me in terms of continent, although I fear they will get push back by the pro-US UK government.
@Foma
One last point. There’s no such thing as non-crappy tax advisor in this situation. A “good” one might do a better job with the paperwork, but will still insist that you file. They are the reason people get sucked into needless and expensive US tax compliance, in the absence of other information.
Ultimately the underlying stupidity of US law is to blame, of course, but the tax compliance industry are greater villains than the IRS, which doesn’t actively go looking for non-resident US persons.
@ Ron Henderson,
Thank you for basically confirming my gut feeling all along about tax advisors, I always got the feeling that their agenda was; do as little, make us pay as much to the IRS, and get paid.
@foma
Just wanted to add to the excellent advice already given, that as a UK citizen your wife would not need a visa ( and interview ) to visit the US after renunciation just an ESTA . She would be allowed to visit for up to 4 months a year ( rolling average) as any other British citizen.
@Heidi,
Thank you for your input, we have been doing loads of research and came up with the same as you stated.
It was good to have lots of positive encouranging advice from members of this great site.
For those still filing, or considering filing the 3520 and 3520-A, a must-read:
https://www.taxconnections.com/taxblog/foreign-trust-irs-penalty-notices-for-late-forms-3520-a-are-scaring-innocent-taxpayers/#.XSHiENuTeEY.twitter
@badger
And the perennial reminder for those who for whatever reason do feel compelled to file US tax returns: RRSP, RDSP, RESP and TFSA accounts are not reported under FATCA rules, per the US-Canada IGA, so rather than declare them on a 3520 and risk penalties, in addition to the money and/or time wasted on those forms, just leave them off entirely. Don’t tell the IRS anything it doesn’t already know, is the rule.
Max Reed’s take on the subject.
https://skltax.com/u-s-tax-implications-canadian-registered-plans/
However, I agree with Ron Henderson. Don’t mention the TFSA, RESP, RRIF, RRSP, CPP or OAS. To include them begs for trouble.
@Ron, I agree.
Just posted for those who are choosing to continue to report or those considering it. The IRS has chosen not to issue a formal ruling one way or the other specific to RESPs, RDSPs, TFSAs, as far as I know. And Canada has still not gotten them formal US/Canada tax treaty protection for those savings vehicles as similar to RRSPs (the RRSP protection is a very long story – after years and decades(? ) of Canadian taxpayer and tax practitioner and accountant complaints, lobbying, and negative publicity over extended time – culminating in far better treatment of our RRSPs – most recent changes re reporting penalties and onerous paperwork only after the IRS Taxpayer Advocate took the IRS to task publicly over the OVDI and Streamlined maltreatment of Canadians with RRSPs inside and outside of the US).
@Portland, thanks for posting that link. At an earlier time here I was following developments re our Canadian registered savings and the 3520/A and posted info as I found it, to warn others.
Warning to others:
I myself reported my piddly TFSA using the 3520 and 3520A on the advice of a US tax lawyer in Canada
Thank fates that I didn’t have any connection to my child’s RESP. And as an executor and beneficiary with the US monkey on my back, reporting a Canadian sited estate as a ‘foreign trust’ would have been an nightmare too.
My experience with trying to comply in a conservative way using the 3520/3520 A was horrible and stressful, Canadian accountants either didn’t understand them, didn’t want to help with it, or wanted me to pay a very high fee to prepare the form/s (one wanted a retainer and for me to agree to some kind of no limit fee agreement). The reporting costs far far exceeded the tiny interest the account earned. I closed it as soon as I could and didn’t have one again until my US citizenship no longer existed.
The expensive accountant that the very costly US tax lawyer (who used to troll for clients here) retained made a stupid math error on the first form which caused me problems down the line.
The forms are ridiculously onerous and the IRS has continued to issue erroneous penalty letters based on them https://www.aicpa.org/advocacy/tax/foreign-trust-documents.html which even those in the compliance industry have noted and advocated for a remedy for in terms of complexity, expense and duplication. Ex. https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/aicpa-comments-on-simplification-of-tax-filing-obligations-for-americans-living-abroad-08-15-16.pdf
If I had it to do all over again, I’d have done what so many did – either just renounce/relinquish without filing anything, or quietly backfile and renounce or relinquish, etc. The 3520 / A and its insane complexity and its punitive potential penalty structure – was a piece of the overall US extraterritorial CBT nightmare that forced me to give up my birthright.
It still amazes me that anyone thought it was a good idea to file these things. Tax accountants can be such twats sometimes.
From a read of the article that Portland reference, it sounds like SKL Tax may have changed their tune on TFSA’s and RESP’s and RDSP’s requiring filing of 3520 and 3520A.
Needless to say, the whole foreign trust thing is totally ludicrous given these accounts are not foreign to residents of Canada. And in the case of a TFSA, not even a trust except *maybe* in some bizarre technical manner.
One thing I’ve wondered: let’s say I filed 3520 and 3520A and got one of those stupid, incorrect penalty letters. Can I at that point write to the IRS and “withdraw” the filing of those forms with a “Ooops, it turns out that a mistake was made and those accounts are not foreign trusts at all, please ignore my 3520 and 3520A and rescind the penalty” ?
BTW, I have a friend who a number of years ago was less than a week late in getting the 3520 and 3520A filed for their TFSA. They were penalized the entire 5 figure account, not just minimum $10,000 USD. It took many months with the help of a tax lawyer to get that resolved and prompted a renunciation from my then tax-compliant friend.
Re: the Canadian alphabet accounts….
I was pleasantly surprised to read SKL’s argument that such accounts don’t meet the IRS’ definition of a foreign trust and therefore they shouldn’t be reported as such. Instead, their recommendation is to report the account and income but to also include a letter with the 1040 asking the IRS for a ruling on how they are to be treated for US tax purposes. SKL’s theory is that its virtually100% certain that the IRS will accept the return as filed, will never reply to the letter, will never issue such a ruling, and the letter constitutes proof of a good faith effort to try to report correctly if there’s ever any question.
Of course, we’ve long since figured out that not complying at all is the safest by far, but no tax firm will ever recommend that.
Hello, I would very much appreciate your advice! I’m just worried sick and I don’t know what to do.
I have lived in the UK for about 20 years (my whole adult life). I am a citizen here.
I know this was likely stupid (reading other comments here) but I have filed about 5-6 years US taxes because someone told me I needed to file a few years ago to get compliant to renounce (I know, dumb. I was scared did not know better though). I was seriously thinking about renouncing so I thought I had to get on top of it (but it costs so much I haven’t renounced yet).
I only make about £12,000 a year in salary working for my husband’s small business part time. (It is a professional healthcare practice. He is the only professional, there’s 1 full time receptionist and two of us do part time office work. It’s very small.) I filed in relation to that salary I am paid.
My husband was a sole trader but maybe 5 years ago his (uk) accountant suggested making it an LLC because he was making a little more and that would work out better as tax-wise.
I was added as a director, but continuing to be a salaried employee. I did not realise this would have ramifications to my US taxes. I just continued filing based on the amount I get paid.
I recently happened to read a about GILTI and other issues and now I am freaking out. I looked into it and I technically own half my husband’s small business, but I have never reported it as I didn’t even fully understand that I did, and I was reporting my whole salary I earn anyway?! I truly didn’t realise I was meant to do any more.
I am cycling through panic that we are going to get huge fines that we could never pay and feeling ill and scared constantly. I am not sleeping. I have found the renunciation to cost too much – how would I ever afford those other penalties that various sources list as $10,000 per year people report this lasts for?
After looking through everything I can see online I don’t know what to do. Maybe I should just scrape together enough to renounce and then file my last taxes off my salary again as usual and just hope that’s the end of it?
Please can someone let me know if that’s likely the best course for me? I am losing sleep and just sick about it all. If anyone can help me with what’s best to do I’d be very grateful.
Many thanks.
Hi, Wallaby,
I can’t write much now or really read your story (I’m at work). So, I don’t want to say anything specific or substantive — others will have have plenty to say and probably will pretty soon. Just want to help allay a fear or two real fast:
(1) Re:
You are not stupid. US tax/citizenship stuff is counter-interintuitive. And there’s lots of misleading, and also false,information from supposedly reputable sources out there Probably some other reasons, too. You made the best decision you could with the info you had at the time.
I didn’t have the time to read your story carefully, but it sounds like you may have been better off not filing. That’s done now, though. So, you’re looking for more information to make sure that going forward you’re making the best possible decisions in this area.
You’re actually smart, because even though you made what may be a bad decision, something feels off to you, so you’re looking for more info. Quite a few of us have made decisions we regret when first trying to deal with this. As well as a lot of bad info out there, one tends to be in shock for sometimes months.. So, it’s not uncommon.
(2) Don’t panic. This is (or has been) disorienting/anxiety/etc for many of us worse than anything ever before in life. But once you get a grasp on what decision you’re going to make, it gets better, and people really do get their lives back. We help each other here with information and moral support.
(3) Other people will undoubtedly be along soon to write about specfiics with you. Meanwhile, here’s a few links might be of interest/use to you.
Consulate Report Directory:
Interactions Between Dept of State and IRS in Renunciation/Relinquishment
Just Saying No: Not Renouncing, Relinquishing nor Complying
Pacifica777 – thank you so much for your kind reply. Most friends/family don’t understand when I try to speak to them about this situation. I think they think I am exaggerating. No one quite believes the US is putting such confusing, crazy burdens on normal US citizens who live in other countries. It’s so nice to finally interact with someone who understands. Thank you so much.