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Please ask your questions here about US Expat tax and FBAR.
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Peter, This a really great idea!! I am sure this is going to be great help.. Thank you!!
Wonderful, along with the rules and the disclaimer.
Thanks so much, Peter.
“Participants will need to provide their e-mail address (which will remain confidential) and an alias.”
Peter, can there be a link there to the place where the “newcomer” would sign-up to WordPress.com, The Isaac Brock Society Blog?
I tried myself to see how this would work for a new person (since you did all the work for me originally, I didn’t learn). Just want to make it as easy as possible for a newcomer to join sthe Issac Brock Society Blog (on WordPress.com) and ask their questions, so they don’t give up and go away from this valuable resource for them.
Thanks once again (even though I don’t want your valuable time being taken for administrative duties).
Hi Peter:
Does anyone know how dividend income works. I have read many times that there will be no penalties for those that owe no tax. I have also read that dividend income from Professional Corporations is not treated the same in the U.S. and therefore I would owe taxes as dividends in Canada are used to decrease the amount of tax one would owe and is very low. At this time I plan to lay low and not comply but just in case I want to fully understand all the tax rules so I don’t get trapped into owing taxes on my dividend income and then penalties on top of that if I ever where forced to comply.
Thanks for seeting this up, Peter.
Below is a very well written comment on this morning’s WSJ article “Reform the U.S. Expat Tax” posted by Martin Van Horn. I think he really hit the nail on the head. Its long but definitely worth reading:
Sadly, I must say, US citizenship and the policies that arise from it, have become a real liability these days if you live overseas. We should join other OCED countries and have a territorial taxation system to replace the one we currently have. One could write reams about the unintended consequences that arise from this misplaced focus on citizenship taxation. Many homeland Americans probably wouldn’t read it, or just don’t care. They should.
The issue of offshore taxation is a complex one and requires thoughtful analysis. If you live in Kansas, offshore sounds exotic or non patriotic, and so there is little sympathy for an outcry coming from a ever decreasing Expat Diaspora around the world. Just lump them together as criminals with Homeland tax cheats who hide funds off shore, and go after them to raise more revenues for America!
That has been the tactic so far with IRS. Congress has piled on with the FATCA statute which attempts to get all financial institutions in the world to collect data on “US Persons” (not just citizens) and report it back to the IRS.
So, what is the impact?
Well, US jobs are lost in the export sector. We can’t compete because we don’t seem to understand that having a large US sales force around the world creates jobs back in the homeland. We should be making it easier for this to happen, not harder with ever increasing tax compliance complexity.
If you don’t understand this, ask the Indian or Chinese immigrant in your workplace if they have to file reports and pay taxes back to China and India for their efforts in America, and you might get the point. Now recognizing that it costs US business many times more to employ a US citizen aboard vs local resident to sell it’s products (due to US taxation and reporting requirements), why would they do it?
What Americans in the homeland should want is an army of its Citizens spreading around the world with Purchase Orders in brief cases rather than guns on top of tanks. This would do more to create US export jobs at home, and add to homeland security, than any war we have recently undertaken. And cheaper too!
Secondly, this citizenship taxation issue impacts more than just citizens. It impacts “US Persons.” A concept many readers may not be aware of, but that can include Green Card holders, foreign spouses whose financial lives are intertwined with US citizens, Dual citizens, and accidental Americans who by birth have discovered that even though they have never set foot in America, they are Americans too. “US Persons” are required, legally to comply with IRS FBARS filings on their home country bank accounts, File 1040s even if they owe no US taxes, and now, with FATCA, have their bank account activity reported back to the IRS.
This has a lot of new immigrants reconsidering whether or not they want to come under such a “US Person” regime. As the Economist said in a recent article called “Dutchman Trapped,” “America’s unusual requirement that its passport-holders pay it tax no matter where they live gives many qualifying residents good reason not to apply.”
Good “reason not to apply”, indeed!
The other unintended consequence and maybe more pervasive is the accidental negative marketing campaign that is now happening around the world. Look at it as a customer bad mouthing a company due to a poor customer service experience. These activities arise spontaneously and go viral, and are very hard for a Company to reverse. You now have expats like me, combining voices with “US Persons” in a duet chorus of warnings to new aspiring skilled immigrants, “Don’t do it! Don’t take any action (immigration, marriage, adoption, or US investment) that could trap you into becoming a “US person”. The cost is just too great!”
Is that the message Congress, Obama and Homeland Americans want?
I’ve emailed Peter to see if he can redirect links from his hosting account so I can create a forum for issacbrock.com. That would make it (I think) a little easier to sign up, and it would keep things organised. People commenting to these threads is going to turn problematic. People may ask a question, but it’s very easy to miss it.
Increasing demand for information about this from US expats and from potential new immigrants to the US will be satisfied by more sites providing such information. Bob Sheth’s actions in shutting down the US tax subforum will cause blowback when people look for that info on the expat forum, see it’s been shut down and wonder why. I think they are in the process also of deleting all posts that list the Isaac Brock Society. Shooting themselves in the foot. They should have looked at it positively and seen how it could actually attract more traffic to their forum. Too bad for them.
Hi Accidental,
You are correct; it has been the standard policy of the IRS all along that one is not penalized for filing income taxes late where no tax is owed. The sticky issue is the FBAR’s; are you aware of these and if so, have you filed them?
I do not understand your comment about dividends in Canada being used to decrease the amount of taxed owed. Could you kindly describe more fully, what you mean by this?
Laying low might be okay for now, depending upon things such as, do you have a Social Security number, a US passport, ever lived there, etc. If you are a Canadian citizen, the Canadian government/CRA will NOT collect FBAR fines, nor will they collect taxes for the IRS if the person was Canadian at the time the tax was levied.
I am wondering by your username, if you are an Accidental American?
Hi Nobledreamer: I hope I am replying in the right place but I can’t find anywhere else to respond to you.
I was born in the U.S. but only lived there for 6 months and my parents where Canadian therefore I consider myself as accidental as those born in Canada to U.S. parents. I have very little to do with U.S. beyond travel and have never had a S.S.N. but I did have a passport once that expired 12 years ago. I do know about FBAR and have large amounts of RRSP’s in my name. I have not complyed in any way so far. The way dividends work is that if your spouse sets up a Professional Corporation because he is a lawayer or a doctor; you can become a shareholder and get paid dividends from the Corporation which is essentially like income splitting but also dividends are taxed at a lower rate then a regular income. It is one of the benefits of a professional incorporating. You can also use your kids once they turn 18 and it works well when they stil have a low personal income. Anyway this benefit is aloud in Canada but I believe it is not recognized the same way under U.S. tax laws and therefor I would actually have a tax liability if I filed I think but I was wanting to confirm that fact if anyone new. The amount of tax I could owe in my estimate is a lot as dividends average out to about 15% tax rate which is substantially lower then regular income tax rate.
My understanding is that Canadian eligible dividends are paid out of profits which are subject to tax at the corporate level. At the personally level, they are subjected to a lower tax rate than earned income. This is not just a problem for people who have their own professional corporations but for anyone who receives Canadian eligible dividends from publicly traded companies, as they would be subjected to a higher tax rate in the United States than in Canada.
You may owe less tax than you think. Your Professional Corporation is probably a “qualified foreign corporation” for purposes of U.S. dividend taxation. If you’ve had the PC for years you definitely meet the holding period requirement (60 days before every dividend payment). Meaning you could get the US “qualified dividend” rate (0% or 15%) for tax years 2003-2012.
Separate from that is the paperwork issue. The biggest problem is Form 5471, which is not cheap to get prepared. Americans who own big chunks of foreign corporations are supposed to file this form. If you own 100% of that Professional Corporation, then it’s a Controlled Foreign Corporation (CFC) and you owe Form 5471 for every year. If you and your wife own 50% and you are totally sure your wife isn’t a US person, it’s NOT a CFC but you may owe a Form 5471 for the year of incorporation. You’re better off not giving any of the corporation to your kids until you’re absolutely clear on their nationality issues — if by some chance the IRS considers them US persons, then shares they own are treated as if you owned them (“attribution rules” of Internal Revenue Code Section 958(a)) and then you’d be right back in CFC territory.
The other caveat is that if your corporation owned lots of “passive” assets (like a building which you use as an office, or it kept lots of free cash in the bank) and was not a CFC, it could end up classified as a Passive Foreign Investment Company (PFIC) instead, meaning you’d owe a bunch of Form 8621s. I don’t know enough about this problem to say anything intelligent except that it makes Form 5471 look like a walk in the park.
I would like to get an idea of how much it should cost to have a professional prepare my taxes for this year in the following circumstances. I believe them to be simple but you never know!
1) I have never earned more than 9,000 dollars a year so my understanding is that I have no liability to file a 1040.
2) My non-US bank accounts have remained under 10,000 dollars until now. Shortly I will be closing my last savings accounts there and then transferring them here. I am considering transferring everything into a checking account because I have heard that otherwise I would need to report the interest accumulated as well. Is this true?
Furthermore, I believe that I will then have to file an FBAR and then form 8938. Isn’t there also a form in-between for accounts over 50,000 dollars that I would have to file as well? I can’t remember what its called.
3) To complete my renunciation I will have to file form 8854.
I have no investments, shares, nothing, etc. Literally just checking accounts. I have seen some crazy numbers be thrown around like 1,000 US dollars per form. In this case then I would have to pay 5,000 dollars to legally complete my renunciation. Does this sound correct? Just trying to sound reasonably informed before I contact a professional to do these forms for me.
Kind Regards
Another question – How exactly does one locate a tax specialist who can handle these forms? I have checked the websites of KPMG, Deloitte, etc, but they all seem to be exclusively for multinational companies. I am looking for some huge tax company to do this for me since I can’t be sure that random accountant X has ever dealt with a renunciation before and I want to be sure that it is done correctly. Can anyone recommend some of the big names for me or suggest how to locate the right people? Do the larger firms not handle individual forms? I live in Belgium.
Thanks Again 🙂
Don,
I did mine with Tubotax downloaded from the internet (not the online version). I was able to get the back years of the program to 2007. Your situation sounds so simple, I think you could do it yourself. $1000/return for your situation sounds unreasonable.
@iamquincy
I want to thank you for this most excellent find! I don’t know why, but using something like Turbotax never occured to me. I was terrified of doing them myself with no knowledge of the US tax system so I had resigned myself to paying out my yearly salary to get them done…It seems to have everything that I need:
-1040 (Maybe I’ll file it anyway just so they don’t ask why I didn’t file it)
-Form TD F 90-22.1 (FBAR)
-Form 8938
Not surprising of course that it doesn’t have the expatriation form 8854, but hopefully after fiddling around with this I might be able to figure it out on my own. I’ll just assume anything that I have no idea what it means like “Eligible compensation deferred items” and “Non-regulator trusts” are too complicated to apply to me….Couple of other questions that just occurred to me though:
1) Can we “e-file” even if abroad?
2) What exchange rate am I supposed to use?
3) If I renounce in the middle of this year, when should I file everything? Can I file right after my appointment, or should I wait for the CLN? Or do I have to wait until 2012 in case they use a yearly exchange rate? I think this info was somewhere on the expat forum, but the relevant thread was nuked of course.
4) I hadn’t even thought about “state returns”. Do I need to do that as well or is the Federal product good enough? Is there also a tax liability with the last state of residence? I have never heard this mentioned before but figured that I should ask.
Kind Regards
I don’t know the answers to all of your questions but I am pretty sure, from what you describe, that you would not have to file an 8938. The $50k amount refers to people in the US. For a single filer who is out of the US, the threshold is $200k at the end of the year or more than $300k at any time during the year. It doesn’t sound like this would apply to you. Also, 8938 is not required if there is no income tax filing requirement.
http://www.irs.gov/businesses/corporations/article/0,,id=251217,00.html
I have heard FBARs can now be filed online but to the best of my knowledge, you cannot file 1040’s etc, from abroad. I am relatively sure I have read on the IRS site that they ask for the rate in place at the end of the year and you can use any of the sources listed here:
http://www.irs.gov/faqs/faq/0,,id=199668,00.html
People seem to have different strategies regarding when to file. Some are filing just before they renounce, some just after. People from the forum who have done this seem not to be waiting to receive their CLN.
I sent 4 years of returns/FBARs in mid-December and 2011 will make the 5th year. I am renouncing Jan 20 (2nd appt) so I will have to file a 1040NR for Jan 1-19 and then the 8854. I am not exactly sure when to send it, I guess I have to at least wait until 2011 is filed.
Some states do have requirements to file but I know very little about this. Nor have I heard that anyone else is even bothering with it.
Hope this is helpful.
Form 8854 doesn’t look too complicated. I filled it out until I got to the last page, and said, what the f… I am not going to fill out a form for the IRS that enumerates my assets for them. But then, if I take this stance, the relentless police state of the USA will never leave me alone. I have lost my right to expatriate. Oh well. So much for the Constitution, the Declaration of Independence, the 1868 Exptriation act, and the United Nations Declaration of Human Rights.
Hi Don,
1,You can’t e-file.
2. I used the annual average exchange rate from the Bank of Canada website.
3.I had no professional advice, but filed my 5 years of back taxes after I relinquished (in December). I’m not sure if I file a 1040 or 1040NR for 2011 but I’m hoping I have my CLN before it is due.
4. I didn’t do state returns
Just remember, I had no professional advice.
US citizens abroad are treated as residents of Washington DC. No states taxes apply. Presumably with Turbo Tax you can print out your return and send a hard copy. Or?
Where do you find expatriation form 8854? Is there somewhere online where you can print it off? I have been searching the consulate websites but all they say is that you should request the forms by mail or e-mail. My apologies if this info is already on this site somewhere and I missed it. By the way this site is a great resource. I have an appointment with a an expensive tax lawyer this morning and have been compiling questions for him with the info I’ve found here. I’m having a one hour consultation and then filing on my own.
I want to thank you all again for kindly taking the time to answer my questions. I think I can print off the completed forms from Turbotax and send them in the post with a courrier. I will use the official Euro-Dollar exchange rate from the European Central Bank and ignore the state returns. It should be pretty easy since I would only need to file for this year since I have no previous tax liability or even liability to file whilst outside the US.
@nobledreamer
I think that I fall into the unusual category of someone who has never earned over the 9,000 dollar threshold but who actually does have a significant amount in savings (gifted by my grandparents), so I think I still have to file the 8938. When it comes to these US tax forms I am taking the attitude that overfiling is better to be on the safe side to avoid needless penalties for missing “Obscure Reporting Form XYZ Number 27.8, etc”. They would know the amount in my bank accounts from the FBARs anyway, so its not like I would be revealing more info than beforehand.
@somerfugl
Do a Google search for “8854 irs”. The form itself is the first hit and the instructions are the second. Sorry about not providing the direct link, but I don’t want to post the direct link to a US government website here you understand 🙂
Its the form for 2011 though. I imagine that the 2012 form will be released soon. The legislation hasn’t changed though so it should be identicial. Just replace in your head everything that says 2011 with 2012 if you want to get an idea of what it looks like.
Hope this helps!
Thanks DonPomodoro for the info. I just printed off the form.
This is not a question. It is just information sharing.
I am posting this for those that are either in the OVDI, or contemplating entering,(or not!) and struggling with what is “reasonable cause”, and what is “non willful” vs “willful” vs “willful blindness” as it relates to that darn FBAR filing requirement!
What you consider “willful”, what the IRS considers “willful”, and what the Courts are determining “willful” to be, span a wide spectrum. It is a key issue that a lot of OVDI “Opt Out” decisions rest on, and frankly is probably keeping a lot of folks from “Opting In”, in the first place. IE, it is having a negative impact on compliance objectives, which Shulman states is his goal, but the OVDI drives folks in the opposite direction due to the Draconian penalties imposed in this amnesty.
As we know, the IRS’s “so called” VDP Amnesty is nothing like it is characterized, or how you would be treated if you were doing this in Canada. Willful or “non willful”, it wouldn’t matter. You would just pay up taxes and interest without fear of other penalties or prosecution.
At least that is what it says here.
http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html
I draw your attention to this recent post over at Jack Townsend’s blog. Many may have already seen it, but for those of you who have not, it involves the William’s case, which has been working it’s way through the Courts. Jack has blogged on it several times, and frankly it was the hook that got me reading and commenting there in the first place.
I would stay abreast of developments in this regard, and I think you can depend on Jack to keep you up to date on the issue.
Here is the link…
NTA Discussion of the Williams Case (1/12/12)
http://federaltaxcrimes.blogspot.com/2012/01/nta-discussion-of-williams-case-11212.html?
I would say, happy reading, but upon reflection, none of this is happy reading! 🙂