Americans in Sweden suffer US tax crackdown
Like Canada, Sweden is definitely not a tax haven. Expat4ever posted a link to an article about Americans in Sweden facing the wrath of the IRS. One woman, who has been filing with IRS every year for 25 years was told by IRS she owed over $1 million for failure to file FBARs (which she, like others, didn’t know about).
I’m moving the link to the article here so it has its own thread. I have posted a comment on the Swedish website inviting folks in Sweden to join with us here at Isaac Brock.
Really, it’s getting to the point where no sane US expat living abroad would want to keep such a highly toxic citizenship. And as was pointed out in the story, there’s every likelihood that things are going to get worse before they get better, and that has a big “if” attached to it.
How many of these horror stories will it take to wake up the US media to the fact that US tax policy and FATCA combined are destroying ordinary people’s lives.
After reading the article, I got the distinct impression that she received bad advice and was ripped off by her US attorney. Some are taking advantage, that’s for sure! It makes me so angry how they will prey on people’s vulnerability. Looks like she was unlucky. It’s such a lottery.
19 Signs That America Has Become A Crazy Control Freak Nation Where Almost Everything Is Illegal:
http://endoftheamericandream.com/archives/19-signs-that-america-has-become-a-crazy-control-freak-nation-where-almost-everything-is-illegal
Try this link to the article “Americans in Sweden suffer US tax crackdown”
http://www.thelocal.se/39522/20120306/
Before we all go off half cocked….it seems to me anyone that is going to pay 40k in lawyer/Accountant fees might have been enjoying some undeclared money.
There is always two side to a story.
Perhaps she had assumed she didn’t need to declare her already taxed Swedish investment income to the US because she may have assumed she was covered by tax treaties.
@Mach7
Undeclared to whom — Sweden, Canada, any other country we live in? Or, undeclared to the US?
My accounting fees and lawyer fees are adding up substantially, but I for one have to do it this way, not for myself so much as for my developmentally delayed son (and, hopefully, by extension to others who need advocacy) and for whatever an executor has to carry on after I’m gone. I’m doing it because I do not feel that I can leave a burden that I created (some way???) to my kids. I am using my retirement savings and I’m lucky that I have that to fall back on. Nothing that I have in my retirement investments, work pension, etc. has been undeclared to Canada.
Please — I don’t need any added guilt for what I have done. I’m trying to get it all straightened out the best way I can — and for me, that is with professional assistance with someone I think I can trust (trust from me being in very short supply these days).
@ mach7 : Pamela says she could be facing a seven figure fine. I.e. 1 million or more. How much would you need? Since the fine would be 50% of account balance per annum for six years, all she needs is $333,333 dollars in the bank. After $40,000 in fees, she still has at least $293,333. She is not my definition of rich.
@mach7 – lawyers and accountants (especially those who do cross-border work) do not come cheap. Just ask Calgary411. It would not take alot of “professional hours” to get to $40,000.
@mach, petros: She could actually have far less than that. As I understand it, each time you renew an investment, i.e. a GIC, IRS counts it as a new account. So one sum of $10,000 could be counted twice in the same year to be $20,000 in two separate penalties..
According to the article, Pamela had several investments like that because of the way Swedish financial institutions process savings and investments. She also said her car and apartment were included in the calculations–even though she still has a mortgage on the apartment. In addition, Pamela’s retirement accounts are included. If Pamela has been saving for her retirement for the 25 years she has been in Sweden, she could have significant savings there–as many of us here do.
Even in calculating Pamela’s reduced penalty, IRS used the full value of her apartment, without subtracting the amount owing on her mortgage.
The amount Pamela owes are related to not filing FBARs, not for failing to file her returns each year.
Pamela said “Because I am fully integrated into Swedish society,” she thought reporting to IRS through voluntary disclosure would be “an opportunity to explain my situation.” Pamela made the same mistake Just Me did. She thought she was going to deal with logic, reason and fairness at IRS. Instead, “I was treated like a criminal.”
A British father living in Stockholm with two children born in US cannot believe what his children may face in the future “I really can’t believe it. The nice country that I respect–Have they gone mad?”
We know the answer to that question. It seems he and Pamela are just learning it. I hope some of them will see my invitation on the Swedish website and join us here.
@Blaze — thanks for inviting those on the Swedish site here!! Good on you.
I was telling a middle aged Brazilian woman today about how the US charges a whopping $450 to renounce, the highest fee that I know of any country to renounce. She asked me “Does that money go to the government here, or there?” I said “There!.. it all goes there.” She seemed somewhat peeved that the US would get a fee when I’ve been living here all this time. This woman is not related to me, but even she said to get rid of connections to that place before they “call me back there.” Interesting isn’t it? Someone who knows nothing of the situation can see that the US doesn’t want productive people living abroad.
The US can dream up whatever scare tactics they want to to suck $450 out of people to renounce. Lalalalalala– I pay OUTRAGEOUS taxes and fees here, but I accept this treatment because it’s my choice to live here. When was the last time you heard of the US going after “the average dual-citizen Canadian/American?”. Going after with force.. never.
They know what they are doing is wrong, and even they know what they are doing has limits.
For me, the US can “tomar no ** “. I’m so tempted to wait an extra year to relinquish instead of renouncing to save them their beloved $450 fee.
Having been a victim myself, USD 40k in lawyers fees for an overseas resident in OVDP or OVDI is easy to understand. I also agree that Pamela has been ripped off and is just another victim of the practices in place in the current OVD industry.
Think of it like this:
1) Accounting Fees – most overseas accountants who can do US taxes charge between USD 1000 and USD 2000 for doing a simple US tax return. They are considered specialized and not very prevalent in most foreign countries so they can charge these rates. Even taking an accountant in the States will only put you at the lower end of these charges due to the “specialized” nature of the returns.
An accountant is likely needed if you have any mutual funds which are considered to be PFICs. This is more common than you would think as many foreign retirement plans are mutual funds which need to be declared according to the bizarre and complicated PFIC way of calculation.
Also if you take a Foreign Tax Credit, this automatically triggers the Alternative Minimum Tax, both of which have their own peculiarities as to how they are calculated, which may increase the price of the return.
So assuming an average of USD 1500 per return, for the 8 years of OVDI that amounts to USD 12k in accounting fees.
2) Where costs really add up are with the lawyers. Here are tricks that they often use that one should watch out for:
a. Partners will bring you in. They will tell what the retainer is and that may seem reasonable. They will say it covers everything, but often times it does not and once you are locked in, it is difficult to change lawyers. You would have to re-pay the same initial hours to get the new lawyer familiar with your case.
b. Many Partners in tax law firms have rates around USD 600-700 per hour. They will tell you that to save you money they will let an associate lawyer do the work. They assign work to associates that could have been done by an accountant. This way they keep the work-in house at much higher billing rates. What one will find is that an associate has checked all your bank statements and FBARs and billed you for this at rates of USD 300-400 per hour. Associates will also do what is pretty much secretarial work like writing the OVDI letters and filling in the forms and charge you full rates for this. They will charge you for any time they spend consulting with the partner at the associate’s rate and the partner’s rate.
c. They will cite the Kovel agreement that is in place with the accountant as protecting your rights even and refuse to let you talk to the accountant without being present. So you get involved in a game of telephone that costs lots of money if the accountant has any questions about your statements and foreign tax returns that are in a foreign language even if you have already translated them.
Given the above, at an average associate rate of USD 350 per hour, you only need two weeks worth of work to run up a tab of USD 28,000.
So legal and accounting fees of USD 40k are easy to understand. A lot of the work is done and you only get your bill at the end of the month and are shocked at what has happened. At that point it is too late. Your only remedy is to set limits on future work.
As Calgary 411 has said, all of us have our own reasons for initially wanting to rely on a lawyer. It could be fear, illness, work and family requirements, whatever. Most expats who are in OVDI have probably had little to do with lawyers in their lives and therefore they can easily be taken advantage of by lawyers and associates who are eager to bill them for their time.
I am not saying that the lawyer’s work is not good and thorough, but unless you set limits, which due to lack of experience you may not know to do, the fees can mount up.
I hope this will help anyone reading this who is contemplating using a lawyer for anything related to tax compliance in the current environment.
You guys seems to be very experienced in these stuff. I was shocked by reading this today at Swedish newspaper. I have got green card for US last year and visited back and forth but now we are planning to move to US permanently.
I had around 60 000 SEK (around $8500) in my Swedish account and last week my transferred 16 000 SEK (around $2200) in my account. For the reason that I am going back to Sweden in the middle of the month to close all our accounts etc. But now as it exceeds the magic number ($10 000), what should I do?
I am working in US now and even did my tax return for last year. I am really stressed since the time I read this news in the morning. Your advise is really appreciated.
… my “wife” transferred 16 000…
I have all the documents proving that.
If your Swedish accounts just went above USD 10k this year, then you have until 30 June to file the FBAR form for 2011 and you will be compliant.
Correction of my previous post. If the highest balance in your Swedish accounts just reached USD 10k in 2012, then you have until 30 June 2013 to file the FBAR form TDF 90-22.1. If your Swedish accounts were not at USD 10k or above in 2011, then you do not have to file the FBAR for 2011. If the highest balance was at the USD 10k threshhold in 2011, then you have until 30 June this year to file the FBAR for 2011.
In your situation, do not panic. You have found out about the requirement early enough so that you should not be affected and you can comply.
However, should you go back to Sweden to live, make sure you understand the impact keeping the Green Card will mean. It will ruin your financial planning in Sweden as the US does not recognize foreign pension plans and tax-free retirement savings plans and taxes them all. Swedish mutual funds are taxed in a highly punitive way by the US. If you buy a house in Sweden and pay SEK and sell it you will be taxed by the US at the profit in USD based on the value of the USD at the time you bought the house and the value of the USD you sold it. For those people who bought houses when the USD was higher and are selling them now, when the dollar is low, they are often surprised when they see that they owe more tax to the US on the house than they expected.
You will be expected to pay estate taxes to the US that are quite high if you leave any money to anyone who is not a US citizen or Green Card holder.
Remember, if and when you want to give up your Green Card, you will have lots of paperwork to fill out. You will not be free of American tax requirements until this is done.
@AnotherVictim Thank you so much for clarifying and made it easier for me. Earlier I was thinking to live in Sweden in some time of life but after learning about it I am planning to close everything from Sweden (I had PR there (not citizen)).
Now two things bug me, 1. Pension plan in Sweden. 2. Swedish income for 2011.
1. I dont know much about pension part in Sweden but I need to find out what type of information US needs for that. As I am not planning to stay in Sweden, should I keep reporting pension amount each year? If I close all my accounts in Sweden and tell them that I don’t live here anymore, my visa will be cancelled and I wont be able to go back to collect any further documentation for US authorities. Any advise on this?
2. I worked till september 2011 in Sweden and my income was around USD 18 000. Do you think I need to declare that too?
I am really down today 🙁
God bless you guys!
@HQ – Yeah, the way the US treats expatriates and its people living outside of its borders is a real downer. You are not alone. The lack of information available for expats and new immigrants to America is also depressing. The good thing about the article in The Local and its republishing here is that it made you aware. Many new immigrants to America were not ever advised of these potential pitfalls and are now suffering and have to pay huge penalties because of the lack of information
As for your pension accounts, I can’t say much. You must declare them on the FBAR if you are the owner of the accounts. As for the contributions to the pension plans and any income you might get from them, you might want to talk to a US accountant to see how to handle those.
As for the visa situation, check with Migrationsverket in Sweden what you need to do to keep the PR active and if you need to keep a bank account or not.
Finally, and I am not expert here so check everything I say with others, I would imagine that you need to declare any income you earned in Sweden to the US from the date you got your Green Card.
In Switzerland, banks tell you that the capital in a pension plan must not be declared (because the bank charges you local tax when you exit the plan at age 65). Furthermore, everyone is required to participate in company pension schemes (there are minimum requirements). US persons who are forced to participate in Switzerland have negative returns on their forced investments in Switzerland (if they are US tax compliant). This in itself is a defense to violate FBAR and double-taxation requirements (which are unconstitutional anyway).
@Jefferson D. Tomas
You seem to be pretty read-up on the situation for US citizens in Switzerland, I therefore assume you are livingand possibly working in CH. Do you know anything about if the balance of 2nd pillar retirement accounts that you and you employer are obligated to contribute to are included in calculating the 200K threshold for having to file the new 8938 form this year. My company just stated that they will only be sending 2nd pillar balance statements for 2011 this September.
I have a Freizuegigkeitskonto which is what your 2nd pillar turns into after you leave your job. It is slightly different as I am the sole owner of that account. We included it on Form 8938. It is not in control of the company anymore and it does produce income, e.g. interest (even if I cannot take the money out), so I have to declare it.
As one can normally access 2nd pillar funds under certain circumstances it might be good to disclose it as one is supposed to report accounts that produce income and there probably is interest or dividends being paid on your contributions to the account so that makes it an income producing account.
My accountant figures it is best to include everything since this is the first year of the 8938 and it is better to disclose than to be caught out by not disclosing.
You might want to file a Form 4898 for an extension on filing your taxes. That will give you to October 17 to file your forms as Form 4898 gives you an automatic 4 month extension. Just be sure to pay any tax you might owe by 17 April to avoid having to pay interest.
@Uncle Tell I just thought of something else that is could be of more value to you in declaring your 2nd pillar on Form 8938. For me it is different, because I own my 2nd pillar now and know the value.
What could likely apply to you are the instructions in the first column at the top of page 6 in the instructions for Form 8938. As the 2nd pillar is a foreign pension plan and you have received no distributions during the year and you do not know the FMV of your beneficial interest in your plan as of the last day of the tax year you should put an FMV of zero.
The question for you is if it makes sense to do that, or take an extension until October and then put the value of the account on Form 8938 and send it. Both cases seem to me to be applicable for your situation however, I am not an accountant and my situation is slightly different so check everything I say.
@Lisa
Thanks for the info. I have an Enrolled Agent that does the returns for me and I filed for the first time last year. As far as I know the 2nd pillar; since i’m working, isn’t required on the FBAR as long as it’s not converted into a “Freizuegigkeitskonto” like you said. I’m also happy as hell that my two 3a accounts are cash accounts and not “Fonds” otherwise i’d have a sh….. load more of forms to fill out 🙂 It’s bad enough that the money I put into them and the interest on them count as income. How can we save for retirement??? The money you put into a swiss 3a and 2nd pillar is taxed in the US and the money you put into an IRA is taxed here in CH, so there’s now way to be able to do any tax deferred saving for your retirement :-). Did I understand correctly that you’re not working right now and therefore have a “Freizuegigkeitskonto” in your name that you put on the 8938? I’m not sure if a 2nd pillar that is not in my name, because i’m working, needs to be on the 8938. The problem is without it i’m under 200K, but with it i’m most likely over 200K :-). How about a house that you own and are living in. My Enrolled Agent is pretty busy right now and my appointment in in 2 weeks, he’ll probably tell me then, but i’m just wondering if you might have that info already. Kinda like to give me some possible ease of mind in advance 🙂
@Uncle Tell – The house definitely does not need to be declared. The IRS wants to know about financial assets, not physical assets. As I understand even your loan account does not need to be declared as it does not produce income.
The reason I think that the 2nd pillar needs to be declared even if the account is not in your name is because the IRS want to know about foreign pension PLANS you have. Read the instructions to the Form 8938, top of page 5, first column. They want to be sure they don’t miss a cent from you even if it will come in future years. You are leaving a trail.
Let us know what your enrolled agent thinks.