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@ Don, I know what you mean about the overfiling, it’s just that the penalties for mistakes on 8938 are high and the form is a bear. I am just thinking that if you really are not required to do it, it may be wise not to take a chance. Regardless, just thought I would pass it on………
Here is the quote from the IRS site that I am referring to:
“If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.”
http://www.irs.gov/businesses/corporations/article/0,,id=251217,00.html
“Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.”
“Form 8938 is not required of individuals who do not have an income tax return filing requirement.”
http://www.irs.gov/irs/article/0,,id=251216,00.html
I don’t know if anyone can help me, but I have my final renunciation appointment at the end of this month. Can I safely assume that anything that I do or have financially after that date will be of no concern whatsoever to the IRS? ie: not reportable on either a tax return or FBAR. (I would actually like to purchase a small business here in the UK, but only after my expatriation) Or would it be prudent to not make any assumptions and wait for my CLN to arrive, however long that may take? Thanks.
@Ken After renunciation the IRS expects you to do the final tax forms to check out of the Hotel California: Form 8854 and 5 years of tax returns. I believe this is a violation of the right to expatriate.
I set up my corporation after my relinquishment of US citizenship. I am now under the Tony Soprano here in Canada (i.e., CRA). You were right to wait until after renunciation to set up a company. No American can own a small business outside the US and keep up with the filing requirements of the United States. You cannot do it without first being free of their slavery.
Thanks Petros. I am up to date with with my tax returns. And have no problem filing 8854 after my renunciation. Would not be considered ‘covered’ either. Just wondered if it would be best to wait until I have the Cert of Loss of Nationality in my hands (and thus certain the shackles have been removed) before I do anything further. And I assume once I do have the CLN, anything from my renunciation date onwards would not be reportable in any way. Sorry… but all of this is obviously nothing I’ve ever had to worry about before.
@Ken I don’t see why. The CLN is a piece of paper on which State acknowledges that you have exercised your right to expatriate. Nothing legal can go wrong, unless you do some of the things that could show that your expatriation was not sincere or was against your will. See this post.
Just make sure that you do none of the wrong things after, like vote, move back to the states without the proper paper work, or travel on a US passport. Remember, don’t act like they can take your expatriation away from you. They are trying to keep everyone in the Hotel California. They don’t have that right. Once you renounce, you are free.
Just had a look at the other post as well. Thanks Petros!
Can anyone tell me the name of the reporting form for financial accounts with a value over 50,000 dollars? I know that this exists but I can’t locate it anymore. I’ve calculated, like nobledreamer said, that I thankfully don’t have to file the 8938. I think I just have to file two FBARs (Its one per account right?), the 50,000 dollar form and then the renunciation form. I might still file a 1040 showing under 9.500 dollars in income just to be safe. That should be everything.
Thanks everyone!
For those coming here for answers to questions, I would remind them to stay up with Jack Townsend’s blog too, as he has been posting some very specific information lately here… I have also answered some questions from Anons on what to expect.
http://federaltaxcrimes.blogspot.com/2012/01/irs-re-opens-offshore-voluntary.html?
Here is a recent example:
MJan 19, 2012 10:22 AM
Dear Prof Townsend,
In a case where the filer discloses FBAR assets for 2011, but did not do so for 2010 and 2009.
I would think the recent disclosure would cover prior years as well. Disclosure is disclosure. The IRS/Treasury knows about the assets.
They would have to make the argument that the country was somewhat harmed that it did not know of those assets in 2010. Since the FBAR is some kind of terrorist protection, and there were no terrorist acts that could have been prevented as result of the Treasury knowing about these assets, it would be a thin argument.
Furthermore, as immigrants, (because I cannot see the IRS charging expats, they would not come back), the filers can say that they just learned about the law, just started filing, and have complied when they found out.
They would show knowledge of the law and compliance with the law.
Do you know of any cases where charges were filed in such circumstances?
Even in solely domestic tax-evasion situations, I cannot imagine the IRS bringing criminal charges for past years if the taxpayer is in compliance for the last year.
I would be curious if you know of such cases.
Another major issue, is that as immigrants they are dual residents and they always have the option of going back to their native country.
If they are professionals (ie engineers), they also have the option of working in several countries with the need for their profession.
So their relationship with IRS/DOJ would inform their decision whether to settle in the US or keep looking for a better place.
These tax-related arguments and regulations (and even a jail sentence) are “grist for the mill” in their overall life decisions and direction.
Mobility and flexibility allow people to avoid jurisdictions with onerous and unjust laws.
Jack TownsendJan 19, 2012 11:03 AM
To M @ Jan 19, 2012 10:22 AM
Just a few comments:
1. Disclosure for one year is not effective disclosure for other years (earlier years in your example). The subsequent year disclosure might mitigate the problem, but other factors could override it to give the IRS the incentive to go full bore on civil and, possibly, criminal penalties. Just depends on all the facts and circumstances — at least as they become known to the IRS.
2. For a similar reason, the IRS may and will, depending on facts, prosecute years earlier regardless of intervening year(s) of compliance. The IRS will certainly consider the intervening compliant years in the overall mix, but then will prosecute consistent with its tax enforcement priorities. Intervening year compliance is not voluntary disclosure or amnesty for past sins.
3. The FBAR requirement is not solely about terrorist protection. Indeed, I think one of the principal goals was the war on organized crime (using the term loosely), but the Committee Report also say that the reports are useful in tax enforcement.
4. In my opinion, IRS will charge ex pats in appropriate cases. The IRS cannot afford a message that ex pats will not be prosecuted and certainly would not selectively prosecute immigrants over ex pats.
Best,
Jack Townsend
Hello friends! Forgive me if this has been asked before… I have a hypothetical scenario to propose to all of you. What if someone moved to another country and didn’t file to the IRS for several years, then began filing their back returns. If that person doesn’t file FBARs, regardless of whether or not they meet the threshold, how would the IRS/US treasury know whether that person needs to file an FBAR? Does the IRS or treasury actively try to find that information out? And if someone is renouncing before FATCA is implemented, would it even be necessary to ever file an FBAR if all the other requirements are met?
@z There is the line in the 1040 that asks if you have foreign bank accounts. How do you answer that question? Also, you may have RRSP, but you are supposed to claim in your tax return as well. So now, before FATCA is implemented, they only know what you tell them.
I consider renunciation the absolute right to free oneself from duties as citizen. But the US tax code requires the exit process, form 8854 and the last years of filing to be accomplished before they release you. It is contradictory, unreasonable, and sucks, but it is what they require. So that you enter a limbo of having lost your citizenship but still being a person subject to IRS until you finish the exiting paper work to their satisfaction.
@Petros Thanks very much for the reply. That’s pretty much what I thought but wanted to verify.
Hi all,
I must confess to not having looked in detail at all the questions and answers above, but a quick scan didn’t seem to address my situation.
American Mother, Canadian Father. Born in Canada and have always lived in Canada (save one year overseas). Mother registered my birth with U.S., Mother applied for me to get a U.S. Social Security Number, Mother applied for passport for me. I have both Canadian and U.S. Citizenship. When I was around 27 I renewed my U.S. passport, but never traveled on it (presently age 40). That was the only affirmative action I have personally taken vis a vis U.S. citizenship. No bank knows of my dual citizenship status.
I have never filed a U.S. tax return – I have always filed my Canadian tax returns. I don’t earn over the net yearly income amounts that would trigger U.S. tax. I own a home jointly with my wife. My total net worth on a deemed disposition of all my assets (including 1/2 interest in my home is about $400,000.00.)
What should I do? Lay low and hope they won’t find me? (I have moved since my age 27 passport renewal – so they don’t have my current address); catch up on filing and hope I don’t get nailed with penalites? Catch up on filing and relinquish citizenship before my net worth breaches the $600k threshold? Another consideration is to save my kids from the potential estate tax headaches (My kids may face problems because by the time I pass, my assets may breach the estate tax thresholds due to inheritances).
I’ve been worried sick about this and the CA I spoke to didn’t seem to have a clear idea as to what approach I should take.
@barney
Your response depends partly on your need or desire to travel or work in the United States. Compliance should be a matter of simply filing back tax returns and FBARs, with an accompanying letter saying that you were unaware of the filing requirements.
Or if you have no desire to retain citizenship, you could renounce it and be clear of the problem.
But there is no need to fear a confiscation of your wealth, because the IRS has no access to your Canadian accounts and no ability to put liens, holds or seizures (provided they are all in Canada and you have no assets in the United States). So relax, you have time to decide what to do. Your wealth is not in danger. Canada has said it will not enforce FBAR for the United States. Neither will Canada collect any taxes for the United States from a Canadian citizen. The only actual leverage that the United States has over you is access to the United States.
@Barney, just remember too that your kids are US Citizens by virture of you being American. That is, in the eyes of the IRS.
@Barney
CRA has already put out a statement that they will not collect US penalties(filing or FBAR) on Canadian citizens. I’ll try to repost a link to it.
This is what the CDN govt was saying as of October.
@geeeez I think there may be residency requirements to bestow citizenship automatically to children (i.e., parent would have had to lived a in the United States for a certain amount of time). Victoria, our resident expert, could probably answer that question. The grandparent could bestow citizenship if it is asked for, but it is not automatic.
Thank-you Petros. Have you heard of any instances of how the U.S. treats former citizens who renounce/relinquish citizenship who attempt to enter for short holidays?
If I do try to catch up and comply am I guaranteed to get hit with the 27.5% penalty? I may be conflating or confusing issues here…
@geeeez: If he’s never been a US resident, then his kids aren’t American.
@barney 27.5% applies to OVD programs. Don’t enter that unless you are a tax cheat hiding millions in Swiss bank accounts (or the like).
If you want to comply, you do the FBARs with a letter explaining why you didn’t do them in the past (called, “reasonable cause”) and there should be no fine. But “reasonable cause” is not defined by the IRS, and I don’t trust them. That is one reason why I will never do an FBAR.
I immigrated to Canada from the U.S in 1948,was married to a Canadian and have lived in Canada since then. I applied for Canadian citizenship and received it on Feb.5,1963. At the time of my birth in U.S. my father was a Canadian. I use a Canadian passport and have never had a U.S. passport. I last filed U.S. income tax about 1949. Was out of the paid work force until 1985 when I began filing Canadian tax forms. Can I be considered as having relinquished my U.S. citizenship? How could I ascertain this?
stressed grandmother
Does anyone know if North Shore Credit Union, or Vancity Credit Union has assets in the “Excited States of America”, or legally connected to any company that does? How about the CCEC in Vancouver, a cooperative which looks interesting?? The Bird
@ Stressed Grandmother
I would suggest you read the many comments under “Relinquishment and Renunciation of U.S. Citizenship” on another section of this blog.
When you took out Canadian citizenship in 1948, the oath of allegiance to Canada also included a “Declaration of Renunciation” to any foreign sovereign. So the answer is yes, you would be considered to have performed an expatriating act and relinquishing your U.S. citizenship.
If your financial institutions require proof of this, you might need to obtain a copy of your oath and also you might eventually need to obtain from the U.S. Department of State a “Certificate of Loss of Nationality” or CLN.
My situation is not unlike yours and I plan to “get my ducks in a row” and get a copy of my oath through Citizenship and Immigration Canada and the Access to Information Department. I would then be prepared to go to the U.S. Consulate and apply for a back-dated CLN.
Whatever you do, do not file any U.S. tax returns or FBARs as that would be enough to indicate that you did not “intend” to relinquish your U.S. citizenship.
@A broken man on a Halifax pier, @Petros, @Victoria, @Barney
It appears as though he didn’t meet residency requirement, it seems. Let’s hope they never start using grandparents– it’s already a big enough mess.
An American parent automatically passes citizenship to their children, as in Victoria’s case and my case. It’s kind of hard to believe they do this, even if you don’t want it.
HI,
I was born in the USA in 1962. Moved to canada in 1963. Never lived in the USA since. Had 2 driver’s licences and registered 2 cars in the us using my grandmother’s address. Never worked in the us. Never had a bank account. Never filed a USA tax return. Never had a US passport. Have been traveling to the US several times per year for a few days at a time.
2 questions:
Do I need to file US tax returns?
Should I stop visiting the US?
Thanks very much.
Billy
I know you are wanting a quick answer, but I am not the one to supply it to you. There maybe some others here who will just give you quick yes or no.
However, you are reading in the right spot to work out for yourself what is the best course of action….
In theory, you are a US citizen, and so you are required to file tax returns and submit FBARs if you meet certain criteria.
Should you do it now, well some would say no, and some would say it ‘all depends’.
Should you stop visiting the US, well the longer time passes, and the more the IRS and Immigration begin to focus on US Citizens traveling on other passports, then your risk does go up.
Ultimately, anything you do, or any decision you take is based upon your own personal risk tolerances, and whether or not you want to be compliant with the consequences of being a US citizen. Some would say, why do you want to be a US citizen anymore anyway, if you have been in Canada since 1963? However, renouncing that citizenship isn’t so easy either, so maybe you see why I am staying away from black and white yes or no answers.
May I suggest, that you might want to check out this section of this blog, and start there…
http://isaacbrocksociety.com/2012/01/28/the-ovdi-drudgery-for-minnows/
Also, maybe some other Canadians (I am not one) will share with you what actions they are taking and why.
At some point, after you educate yourself some more, you may need good legal advice, but not yet!! Now is the time for the drudgery.