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
Typo leading to confusion, point 2 above should read:
2. Continue filing as an employee, on your salary. Forget about GILTI, they will never know. Furthermore, if you are a UK citizen without any financial ties to the US (assets or income sources basically) then there’s nothing the IRS can do to you anyway – fines and penalties cannot be enforced. Not that they’d ever figure it out.
Hi Ron,
No, I have no financial ties to the US. I moved to the UK when I was 20 and had no assets etc.
This whole thing is so upsetting. Thank you so much for your replies, it makes me feel so much better to be able to ask you all these things.
Hi Ron,
I have also replied to your longer reply but it is still saying “awaiting moderation“, it was one the last page. Hopefully it will show up for you when it’s approved. I can rewrite it if there is a problem if someone lets me know.
Thanks again.
Hi Wallaby,
Just found your comment in Moderation . It’s on-line now at the bottom of the previous page of this thread.
It must’ve been some software glitch. A commenter’s first comment here goes to moderation first. Once that comment is approved, future comments should go directly on-line.
Thank you pacifica777. Hopefully Ron will see it there.
@Wallaby
I saw the longer reply on the previous page. I think you are in good shape here. If you used a UK passport for banking (and your city of birth isn’t something like Los Vegas) and neither you nor your husband recall your ever declaring US citizenship to a bank, then you are probably safe from FATCA. It doesn’t hurt that you opened the account before FATCA enforcement became stricter. If you haven’t received any form of FATCA communication, such as a request for your SSN, then I’d say the bank hasn’t a clue. I would recommend you keep it that way. If you are ever asked a question about US person status, it’s between you and your conscience how you decide to answer. (Here in Canada it’s very easy to say “no” and avoid the problem.)
You didn’t mention FBARs in your original post. Have you been filing them as well? If so, presumably only on personal accounts, not your husband’s business accounts. Also, have you ever identified your husband on a US tax return? I don’t think you need to be concerned about your name on a publicly available registry of companies. The IRS does not go looking for this sort of thing unless your name is Manafort and they are engaged in a massive international criminal investigation (and he probably would have gotten away with it if he hadn’t gone to work for you-know-who).
I would recommend two things.
One, quietly remove yourself as a signatory from the business accounts, if you can somehow do it without walking into the bank and announcing “BECAUSE I’M AMERICAN!” (Might want to check quickly with a lawyer though, as there could be good reasons for having another signatory in the event that your husband were incapacitated. Just a guess on my part, I know nothing of these matters.)
Two, don’t worry about US tax implications of your being a director. There’s more chance of your being crushed by Boris Johnson falling out of a helicopter than there is of the IRS figuring this out and attempting to collect an uncollectable penalty for your having failed to report your interest in a family business. The IRS is neither omniscient nor omnipotent, and certainly not omnicompetent. Go back to sleeping nights.
Long term you may want to stop filing US tax returns, either by renouncing or simply going dark and ceasing to mail off pointless paperwork. Your immediate concern, however, is to stop worrying about the business issue.
PS With some banks it’s possible to dig around online in your account profile or whatever to see if you have any foreign tax residency listed under CRS or FATCA. If there’s a check box for US citizenship, do NOT check it. Just go have a look-see!
Wallaby: Welcome to Brock where you get straight answers from people who have been through the process. Lack of information, confusion, worry, lack of sleep , realization and resolution.
In our case, we had a personal private medical corporation and hadn’t filed for years. Professional advice was to join the amnesty programme. Fortunately, at the last minute we realized that would be ruinous. We folded the company , waited 5 years, renounced a and only then filed 5 years of back taxes in a so called quiet disclosure. We have not heard a single word from the International Robbers Society.
Don’t blame yourself. You are the victim here. You were probably misled into starting to file.
As far as the directorship and signing authority is concerned, don’t mention them. They are not the IRS’s concern.
If I were in your position, I would renounce ASAP. The $2350 cost will relieve you of a burden for the rest of your life. You do not need a lawyer or accountant to renounce. All of the information and help you need is available here.
Then, either file one more partial year return and form 8854 or better still, don’t bother.
Nothing will happen either way. You are what we call a minnow caught in a net meant for whales. Most of the whales escape and the minnows get crushed. Don’t panic, make a plan, ask for help when you need it and you will get through this . You are among friends.
@Wallaby,
Just to give you a little bit of support, we are /were in the same boat as you, for over a year we have had sleepless nights, arguments about my wife giving up her US citizenship due to the draconian tactics employed by the IRS. It has take a toll on us both phisically and mentally, but about two weeks ago I approached the members on this very helpful site and now have a better understanding of the process and the pitfalls, luckily we have not filed, even though we have prep’d 3 years back-filing and paid the tax accountant her fees, but have not done anything more as teh ‘tax and penalties ‘ due were beyond reasonable.
As others have mentioned, take comfort in the fact that there are many of us, in the same place as you and as long as you stay under the radar it’s good, but as they know of you, give them nothing furtehr regarding personal info, oh, and don’t trust teh bank to do the honourabe thing either, they will throw you under the bus just to be in good graces with the US.
All the best.
The one addition I’d make to the fishing metaphor is that the net has very many large holes, so the only minnows who get caught are those who panic, or trust a professional tax advisor, or tend to be self-destructively law-abiding, or simply don’t know any better. Lucky for you, you found this site, so you know better.
@Wallaby
Others have covered things very well, but I’ll add $.02 worth of my experience just to reassure you. Like you, I found out about US worldwide taxation quite by accident after living in Canada for many years. I immediately panicked and back-filed 3 years of returns in an attempt to get “caught up”. After doing more research, I decided job #1 should be to finally get off my butt and apply for Canadian citizenship. (Canada will not assist the IRS in collecting a tax debt if, at the time the debt was incurred, a the person was Canadian citizen.) That’s not the main reason I became a Canadian, but it was certainly a useful byproduct. You already have this covered as I believe UK policy is the same regarding collecting for the IRS.
The citizenship process took about 2 years and while I was waiting I continued to file (but owed no tax). As soon as I was officially a Canadian (2012), I stopped filing. From the time I first started filing to the present day, the only communication I have ever received from the IRS was a $300 cheque for some sort of Bush tax credit. I presently collect a miniscule SS cheque each month from back when I worked in the US for a few years as a teenager. The filing I previously did clearly established me as a minnow and you have done the same. If the IRS wanted to find me they wouldn’t have the slightest difficulty. So far, its been nothing but crickets.
If I were in your situation I would probably just quit filing, relax, and continue to live happily ever after as a UK citizen. I might choose to officially renounce if FATCA was causing me banking issues but wouldn’t bother if there was no problem. (No problems here in Canada but I hear UK banks are a bit more sticky.)
The one thing you absolutely should not do is to ever breath one word about your corporation to the IRS. Not only is the additional reporting a nightmare, with this new GILTI the IRS will want to help itself to a portion of the retained earnings inside the company. This is actually the greatest risk you face so don’t get caught in the trap. Never tell them anything they don’t already know. Good luck.
@Wallaby
Earlier, you wrote, “I do not know if the bank knows I am American too….”
You probably can find out what your bank knows without tipping your hand, if bayour bank is like those in Canada.
In Canada, banks keep what are called AML – KYC files on their clients. AML is Anti-Money Laundering, and KYC is Know Your Client.
You should be able to go to your bank and ask to see their equivalent of your AML – KYC file. If they ask why, tell them you merely want to see that all the info they have on file for you is correct. DO NOT say you want to see if they know your full citizenship info. By reviewing their AML – KYC file yourself, you will be able to see what they know about you, including what you really want to know.
@Shovel
I would advise Wallaby to be slightly careful here. Sometimes when an existing customer opens a new account, or changes an address or anything like that, the bank uses the opportunity to “update our records” and ask the FATCA/CRS question. If the customer is not aware, or not comfortable lying, they are caught.
@maz57
I believe the UK has no collection assistance agreement whatsoever. In theory, a US citizen without UK citizenship is also safe from collection by or on behalf of the IRS. In practice, the UK government is so profoundly awful that I wouldn’t trust it an inch.
@RH
Didn’t know that. If that’s the case Wallaby is as protected as she can possibly be in that regard. The main thing is for her to avoid making a future rash move that could trigger some sort of IRS tax or penalty. The safest way to stay out of trouble is to not file anything at all. My main point was that when someone who was previously filing inexplicably ceases the IRS doesn’t seem to notice or care. They don’t really seem to be all that interested in expats but if you give them half a chance they’re happy to rob you.
The trouble with filing (even if current filings are simple and under control) is that there is no way to tell what changes to the US tax code may lie ahead. Exhibit A being the people who were cruising along quite nicely with US compliance and then suddenly, without warning, found themselves trapped by the new Repatriation Tax.
Calling it robbery is giving the IRS too much credit. It’s more like a phone scam, where victims are persuaded to part with their money. Actually it’s not even that, because the IRS doesn’t cold-call anyone.
P.S. Wallaby. Sounds to me your bank doesn’t know you have the US taint. In that case, nothing to worry about and no need to change your banking arrangements. I still think you might sleep better after renouncing but it isn’t necessary.
@ Wallaby: You have some of Brock’s best responding to you, and the same helped me enormously.
Two points based on my experience- renounced a year ago after 4 year path of panic-to-planning:
1. Your ace—the fact your bank is not recording you as a US citizen— is advantageous but could change; compliance oversight is only getting tighter. I too had that advantage, which gave me time to think. I have a close friend who is an international compliance specialist. She says that an inquiry by a customer about his KYC file would be not necessarily be accepted as client “just wanting to know if info is correct.” The banks know the likely reason. Be careful.
2. re being a minnow and therefore of no interest: I did exit 1040NR filing and the other required forms and months later, when I thought everything had passed through their system, got a low four-figure bill for a deduction they would not allow… and I was •definitely• a minnow. It is wishful thinking to count on the IRS only going after big fish, whether you are filing a normal or an exit return.
@Duchesse
“2. re being a minnow and therefore of no interest: I did exit 1040NR filing and the other required forms and months later, when I thought everything had passed through their system, got a low four-figure bill for a deduction they would not allow… and I was •definitely• a minnow. It is wishful thinking to count on the IRS only going after big fish, whether you are filing a normal or an exit return.”
Now that’s a revolting development. Just this September the IRS announced that new program for renunciants that forgives up to $25,000 (https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens). Why are they trying to squeeze you for a lessor amount now? Maybe you have some US assets they can sink their talons into? If you don’t, I certainly hope you ignored that bill.
Yet more proof that filing nothing is by far the safest course. Its practically impossible to file a US return correctly so if you give them numbers they’ll find a way to screw you. (No good deed goes unpunished seems to be their basic operating principal!) Now you are stuck with an annoying loose end.
If you had filed nothing after you renounced you would have heard nothing from them.
They will squeeze minnows who file. They will not seek or squeeze minnows who do not file.
@maz57: They notified me of the assessment before that new program was announced. (I believe the program is for those who never filed-? I had, for over 25 years.) I paid; it was worth the peace of mind to not worry every time I entered the US, and I live close to the border. You may not have; everyone acts at their level of risk and wrath.
@ Ron Henderson: I had already been filing since the 1980s- I knew of this requirement; there was never any tax owing, or any other issue—till the whole FATCA debacle.
The occasional “the IRS are overworked and understaffed and will not pay attention to minnows” comments here are IMO more wishful thinking than evidence-based. I was a minnow and they did not ignore me.
@Duchesse
“there was never any tax owing, or any other issue—till the whole FATCA debacle”
Since FATCA isn’t directly related to US tax policy per se, what was it that about your US tax situation that changed for the worse after FATCA, and is it really causation not correlation?
You were a minnow who filed; they squeezed.
Evidence supports the proposition that minnows who do not file can live a life free of squeezing.
@Duchesse
I can fully understand why you decided to pay that final assessment rather than appeal it or ignore it. I suspect that after filing for many years, then investing the $2350 plus time and travel expenses to renounce, you just wanted it to be over once and for all. That was the whole point of going through the process.
I’ve found myself in a similar position with our own CRA and decided it was easier and quicker to just pay their assessment and move on rather than appeal it even though I was convinced they were wrong. You are right, peace of mind and finality are worth a lot and dragging things out won’t achieve that goal.
Sorry to hear this happened to you.
@Ron
“Since FATCA isn’t directly related to US tax policy per se, what was it that about your US tax situation that changed for the worse after FATCA, and is it really causation not correlation?”
One thing that changed with FATCA was that the IRS created that lovely new Form 8938. I haven’t filed one of them personally but it sure looks like it would be a royal PITA. Far more time consuming and intrusive than filing an FBAR. The implementation of that form is when I decided to bail out. (They gave us all a preview when they posted the draft copy before it became official the following year. That was enough for me.)
Also, as we grow older our finances tend to get more complex and the amount of money involved tends to grow larger. It all adds up to more wasted time, more complication, more chance of errors, and more chance of getting hit with fines and penalties. All grounds for divorce, in my opinion.
Right, I had forgotten that. The 8398 is a reporting obligation though, not a change to the tax code. Not that there’s any real-world difference, any reporting form seems to have a revenue component now that the IRS hands out $10k fines like candy.