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.
Sub-threads (more will be added as they occurs):
Tax Discussion Thread. Instead of focusing on specific questions, broader ideas can be discussed on the Tax Discussion Thread.
Previous Tax thread:
US Expat Tax and FBAR discussion thread, part 1
US Expat Tax and FBAR discussion thread, part 2
@Rose
You have probably already answered truthfully, but does your passport with US birthplace have an equivalent UK city?
My dual US/UK son born in the US claimed he was born in the equivalent UK city when opening an account in the EU.
I guess those early settlers had a lack of imagination when naming their cities.
I am always up for a party, and only an hour flight from Switzerland!
“The US treasury is apparently receiving 100s of millions of FATCA reports. There is zero probability they can use them proactively to go after minnows. They are used to pile on the penalties for serious miscreants who are detected by other means. Not for you to worry about.”
Or those that employ tax condors and volunteer themselves for the slaughter .
Well, I thought I’d mention the possibility of documenting a past relinquishment but the US passport makes that near impossible. It was a nice try (on my part) but practically speaking, the only difference between a past relinquishment and a present day renunciation will be the date on the CLN. The process and the cost are the same.
Always remember that the reach of the IRS outside the US is essentially nonexistent although the condors would have you believe otherwise and try to scare you into doing something foolish. So relax, renounce, get your CLN, and forget about ever filing anything with the IRS.
If a person with an ambiguous place of birth city name on their UK passport did not wish to renounce but also wanted to stop FATCA reporting after having honestly answered a US citizenship question at their current bank, they could do the following: close their existing back accounts; open new accounts at a different bank, and when asked about place of birth show their UK passport and say “Springfield, the British one” or similar, and say no when asked if they are a US citizen. Simple enough.
Rose, I left the USA as a young adult and have spent my entire working life in the UK. I only found out about CBT in June last year, and I well remember the lost nights of sleep.
After much help from the good people here, I was able to overcome my fears and I decided not to file any US tax returns. I’d never filed one in my life and there seemed no point starting now.
I did decide to renounce because I found myself unable, due to FATCA, to open any private pensions or Unit Trust ISAs. Now that I have my CLN, banks will permit me to do so.
I also renounced because, although I am a financial minnow and the IRS isn’t interested in people like us now, I didn’t want to spend the rest of my life wondering if that might change.
@ Recent commenters, I removed Rose’s questions at her request and pass on her thanks for your answers.
FYI:
More IRS “Campaigns?! IRS Announces Six More Examination Campaigns
https://www.lexology.com/library/detail.aspx?g=6ea8dd77-8bfe-4aa1-9e92-613b8dac35ef
“Expatriation US citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.”
@Bob, thank for posting that. Unbelievable. They’re chronically short on resources but they think they can shake down even those who’ve expatriated over 10 years ago and logically outside the US reach for the most part?
“…… including outreach, soft letters, and examination.”
Sounds more like proctology than a tax collection strategy, LOL. But seriously, anyone who expatriated in the last decade almost certainly did so because of the ramping up of US CBT and has long since arranged their affairs so nothing is within the reach of the IRS. Or maybe they finally noticed that more and more people have figured out that all US tax obligations cease on the day of renunciation and are quite happy to walk away without filing anything (including the monumentally stupid Form 8854). What a clueless bureaucracy.
As someone who renounced without having filed a single US tax return in her life, and won’t be doing any now, I watch with interest.
I’ll let everyone know if I’m contacted…
In reference to Bob’s comment above which discusses the IRS’s plans to ‘address noncompliance’ of “Expatriation US citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008″:
Is there any significance in relation to that particular date? Why is the cut-off point June 17, 2008?
@ Petlover,
June 17, 2008 is the day that the current expatriation tax rules came into effect through the AJCA act. These rules have changed a few times in recent decades. There’s good details on the evolution and differences in the expatriation tax rules during recent decades in tax lawyer Michael Miller’s article,“ Expats Live in Fear of Malevolent Time Machine.” http://isaacbrocksociety.ca/2013/03/05/michael-miller-paper-on-the-exit-tax-applies-propsectively/
@pacifica777
Thank you for your response. The link to the paper ‘Expats Live in Fear of Malevolent Time Machine’ by Michael J. Miller and Ellen S. Brody was indeed helpful.
According to the paper, the AJCA was in 2004 and the significance of the June 17, 2008 date is, in fact, related to the The Heroes Earnings Assistance and Relief Tax Act of 2008.
Excerpt from the paper:
“The next major change to the expatriation rules came in 2008 with The Heroes EarningsAssistance and Relief Tax Act of 2008 P.L. 110-245 (the “2008 Act”). The 2008 Act completelyoverhauled the expatriation rules by replacing the alternative tax regime (which had been in existence insome form or other since 1966) with an exit tax, set forth in new Code Sec. 877A. Subject to importantexceptions, the new exit tax generally treats a “covered expatriate” as if he or she had sold all of his or herproperty for fair market value on the day preceding the “expatriate date.” The 2008 Act also enacted CodeSec. 2801 (imposing a transfer tax on gifts received by U.S. persons from “covered expatriates”) andrepealed Code Sec. 7701(n).19Code Sec. 877A is effective (and, pursuant to new Code Sec. 877(h), CodeSec. 877 is ineffective) for any individual whose “expatriation date” is on or after June 17, 2008.”
An imaginative solution for those who are in the system and want to get out:
Instead of renunciation, take all your accounts out of your present country. move all your assets to the US, and for 2-3 years, file only US taxes as a US resident (do not file any in the foreign country), showing no foreign income or asset. Then after 1-3 years, stop filing and disappear off the US radar. After this, if you move your assets back to the same foreign country, make sure to tell no bank or anyone you have US citizenship.
Of course, this cannot work for someone who cannot move their foreign assets, stop the flow of their foreign income, etc. but it could very well work for some people who are flexible enough.
If you stop filing as a US resident, they just assume you have no income since there is no W-2 or 1099, and as a US resident you didn’t have to file FBARs, so there won’t be any red flags for why they suddenly stopped.
This could give some a 2nd chance to take themselves out and stay out of the system.
An easier solution is to simply stop filing. Early on, I panicked and started filing but realized several years afterwards that I’d made a grave error which had the potential to wreak havoc on my finances. I never owed any US tax. Now, many years later, my address is changed, accounts have closed, others opened, names of institutions have changed, my phone number is different, etc, etc. I haven’t heard one word from the IRS during that time.
My last FBAR was before they started the electronic filing so in the unlikely event someone wanted to check they would have to sift by hand through a mountain of musty papers in a dark warehouse somewhere. I’m pretty confident I’m now out of their system. (Note that this hinges on ensuring there is zero current information going to the IRS. No US assets, and no FATCA reporting from Canadian banks.)
@maz57
you got lucky which is great for you. However, changing address/number can help someone avoid harassing letters, but it won’t change the IRS methods/outcome. If they are going to take action on someone, just sending notices to the last known address suffices. They don’t need to get hold of someone to start court proceedings. It’s not like serving a lawsuit.
I think filing, not filing, renouncing etc. are 99.9999% done to treat someone’s anxiety level, more than any possible tax issues.