Tax Questions
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.
Tax Compliance (or not) 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
@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.
Maybe you should change your name to Captain Obvious.
To BirdPerson, or anyone else with this knowledge, I have a many questions, but I’ll ask one for now.
I am enquiring on behalf of my wife, who is a UK/US citizen and like many people, found out that she must file US tax returns.
She has now decided that she wants to renounce and although started a tax filing process with an accountant has yet to submit, I suggested she dow not start now, just renounce.
Question: can she renounce complete form 8854 as non-compliant (failure to file), anyone done this and / or waiting for outcome?
I have read and spoken to tax accountants and they all say with dire warnings that you should never do that, the world will stop rotating and we will all blast off into space…….
And info would be great. Just to calm her sleepness nights and mine.
Financially we are now in a position whereby we can have a pension, have a slighlty better life, but the onset of US tax filing would scupper all of that.
ps, I am not a US citizen, nor ever planning on becoming one so have no time for the constant over-reach and bullying tactics of the US government and it’s tax dept.
@ Foma,
One can also renounce and not file any tax forms, including the 8854. Some people choose to not file, if they have no financial connections to the US or especially if they’ve never even been in the US tax system. The citizenship itself (or lack of it) is not dependent one’s tax status. You don’t have to be tax compliant at time of renunciation. And if one never files, the loss of citizenship, and the CLN attesting to it, remain valid. There’s more detail on this, with source links at Renunciation/Relinquishment: Interactions between Department of State and Internal Revenue Service.
If she chooses to file, she has until she files the 8854 (June 15th of the year after renunciation) to file for the five past tax years.
I would not file a 8854 without doing the previous years as well, providing I was required to file the previous years, or I might not file anything at all. But if she decides to file, the requirement re compliance is that you sign on the 8854 that you’re in compliance for the previous five years (I forget the exact wording, but the thrust is you have til you sign the 8854 to fulfil that requirement).
Quite a few people have chosen the option to not file and so far (Brock is going on 8 years) none have reported problems. The main thing is to do what one feels would work best for them, given their own particular situation.
Also, for stories of people’s experiences with renouncing, see the Consulate Report Directory, currently 275 pages of reports, arranged by location. London rates very well with Brockers, btw 🙂
@Foma
It’s probably a better idea to file nothing at all than to file only an 8854 that affirms non-compliance. That would be sufficiently unusual that someone at the IRS might actually notice, not that there’s anything they could do about it.
On another forum I did hear of someone in the UK who renounced and filed only an 8854 with no returns, but claimed to be in compliance. (They has a funny argument that UK income was not reportable per the tax treaty and therefore they never met the minimum filing threshold for the US.) Needless to say, they never heard a word in response.
Frankly it probably doesn’t matter what your wife does, but the simplest and certainly cheapest approach would be to file nothing. Does she even need to renounce? If she hasn’t had problems with access to banking services, maybe it’s not necessary. US tax obligations can be safely ignored.
Foma. It would be a good idea to change the way you pose the question in your own minds.
Your wife didn’t find out that she must file US tax returns. She found out that she was supposed to have filed US returns according to US overreach.
Our advice is to define and understand the issues. There are tens of thousands of accidental Americans who have never filed and don’t need to start.
What caused the issue to arise? Is it a problem? Was it your bank?
As you probably know, Bird Person renounced and didn’t file. This is the preferred option for most minnows. Please don’t pay much attention to the compliance condors. Most of them seem to have their own financial interests and the IRS’s interests ahead of their clients.
We aren’t aware of anyone filing 8854 without 5 years of returns. That would classify your wife as a covered expatriate. Better to not file anything. A good rule of thumb is ‘don’t tell them anything they don’t already know’
@Foma
The above is very good advice. What is the actual problem that needs to be solved?
Having US tax obligations is in itself not a problem that demands a response, because the IRS can be ignored without fear of retribution. If your wife has UK citizenship and no US assets, there is literally nothing the US government can do to hurt her. (Only about 15 percent of non-resident US citizens actually file returns, if that’s a comfort.)
FATCA can be a reason to renounce if your wife is being denied banking services due to her US birthplace. If it hasn’t already happened, at some point the bank will ask or figure out that she is a US citizen, and then it’s possible that her account information will be reported to the IRS (and yours, for any joint accounts). This doesn’t necessarily mean one needs to renounce or come into tax compliance, but it is a very unpleasant violation of her (and possibly your) privacy.
Dear all, thank you for taking the time and responding.
So, background, my wife works, I do not (moved for work from UK and I took the mantle to care for our children nine years ago). Near the end of last year she needed to renew her US passport, we noticed that they now require SSN, which after a little researce saw that the DoS sends this info to IRS, so I dug, as you do and discovered that she, is required to file US taxes. That was a gut punch to me, as 2017 was the first time after years of ‘getting by’ on a below to local average salary we finally were able to get ahead (she lost her job but found another with a local company with decent pay). So we thought ok, no big deal right? We pay loads of taxes as UK expats and US taxes are lower……. not so, they (IRS) do not consider pensions or other deductions and the Streamlined route we were advised to take was going to cost us $10-12k per year (we think the tax accountant did not use all the deductions she could have). So, then discover that paying into the local pension was our downfall and that we should not have one as the US does not recognise it. It gets worse and worse, just as we think we are climbing out of the ditch. And here we are, I will not paying into a system that we will never use or believe to be morally bankrupt. She has no assets in the US, we live here, no plans to ever move to the US, ever and once the parents have passed on, then perhaps the odd vacation, but that is it. Then her bank almost at the same time raised the ‘are you a US person’ question when we decided to buy a house and make this our home, permanantly. I personally am angry and outraged by this, the personal data that is given to the IRS, throwing our private citizens privacy rights down the toilet. We are in limbo, she has an emotional tie, I do not, by keeping the citizenship and with the knowledge that the banks are passing our info to the IRS it will only be a matter of time (perhaps), but not being able to contribute into the local pension and so compromising our future because of the IRS……….
Sorry for the long-winded story, but that’s where we find ourselves right now. Hence the question as to file or not. And Judging from the replies it would be best not to, I had my suspicions that our tax account was not working in our best interest as she is accredited by the IRS to perform outside of the US and the fact that she kept saying we should invest in a US based IRA??!!, even though we kept telling her that we had no plans of ever living there………
The quick answer, you’ll be unhappy to hear, is that an SSN is not needed to renew a US passport. Your wife can simply write “NONE”, previously she could have entered all zeroes.
I would immediately cease all communication with the tax accountant. Don’t throw good money after bad. Tell her you’ll finish the job yourself (in case they have incentives to report people – but I have no idea if that happens) then do nothing further. (By the way, that accountant sounds useless.)
Your wife has no reason to file or pay US taxes. It’s ridiculous. Don’t even consider filing the returns. Continue contributing to the pension.
FATCA is another issue. If banks are not denying her certain specific services, she can at least continue to live a normal life. The will send some personal financial information to the IRS (where presumably it will gather dust) if it confirms that she’s a US person. The only way for her to stop that is to renounce. And she can renounce without filing any tax forms.
Perhaps I misunderstood… If your wife already had an SSN, she’d be required to put that on the passport application. If she doesn’t have one – which is the case with many “accidental” US citizens – then she can apply without one.
Otherwise, yes, apparently the IRS does get sent a list of all passport renewals, but there’s no evidence that it does anything with that information. So go ahead and apply for a passport if it’s really necessary (and don’t if it’s not – you said that your wife is also a UK citizen). She is likely to be reported under FATCA anyway, so she can’t stay fully off the radar. But the IRS doesn’t seem capable of doing anything with this flood of data, would have no means to penalize her for not filing, and frankly does not care about non-residents of ordinary means. They’ll cash the cheque if someone decides to start paying taxes, but they won’t come looking for those who don’t.