[This is from the September 14 2015 Tax Blog on www.taxconnections.com]
“How To Live Outside The United States In An FBAR And FATCA World” by John Richardson
“When in Rome, live as a Homelander” does, when elsewhere, live as they live elsewhere.
Americans abroad are constantly told that they should “come clean”. They should file their U.S. taxes. This assumes that they are somehow “unclean” or perhaps “dirty”. The life of an “American abroad” is about three things:
1. “Thinking Clean” – The importance of “thinking clean” while living abroad.
2. “Coming Clean” – Atoning for the sins of “living abroad” and entering the U.S. tax system; and
3. “Living Clean” – Living as a Homeland American outside the United States
“Living clean” for Americans abroad
A supporter of “citizenship taxation” is a person who thinks about “citizenship taxation”.
An opponent of “citizenship taxation” is a “U.S. tax compliant” American abroad who understands what it’s like to live under “citizenship taxation”.
There are rumored to be “millions” of people with a U.S. birthplace who live outside the United States.
The Good News:
According to the constitution of the United States, those people began life as U.S. citizens. If they have NOT committed a “relinquishing act” they are still considered by the U.S. to be U.S. citizens.
The Bad News:
According to the constitution of the United States, those people began life as U.S. citizens. If they have NOT committed a “relinquishing act” they are still considered by the U.S. to be U.S. citizens.
No, that’s not a mistake. The “Good News” is the same as the “Bad News”. Let me explain. The United States imposes taxes based on citizenship NOT residence. When it comes to U.S. taxation, the issue is NOT where you live or where your assets are located. The issue is who you are and WHERE you were born.
Now, you are probably thinking – so far, so good. I already pay taxes in my country of residence, surely I don’t have to pay U.S. taxes. Wrong, you are required to pay U.S. taxes. It is a myth that Americans abroad do NOT owe taxes to the IRS. Some do and some don’t. For those who do owe U.S. taxes, the amounts are likely to be significant.
In addition to the chances that you will owe U.S. taxes, the U.S. is now using FATCA (“The Foreign Account Tax Compliance Act”) as a mechanism to locate you and then collect from you.
So, what’s a person who was born in the U.S. to do? Many people think, OKAY, no problem, I will file a few years of “back tax returns” and enter the U.S. tax system. I have heard of “Streamlined Compliance” or maybe I will just “obey the law” and file my taxes. Maybe I will just start filing U.S. tax returns.
Once I file my taxes, I will be back in the good graces of the U.S. government (Hell, I didn’t even know I was a U.S. citizen, let alone liable for taxes). Once, I come into compliance my problems will be solved!
Wrong! Wrong! Wrong!
Out of the frying pan and into the fire!
Your problems are just beginning. What few people realize is that:
• Your problem is NOT that you have not been filing U.S. tax returns. That problem can be easily solved. You just enter the U.S. tax system (using whatever method of filing taxes and FBARs that makes sense for you).
• Your problem IS actually attempting to live as a “tax compliant” U.S. citizen outside the United States. It’s easy to live as a U.S. citizen abroad who is NOT “U.S. tax compliant”. What is very difficult is to live as a “U.S. citizen abroad” who IS “U.S. tax compliant”.
Let me explain why.
Part A – What are the tax rules that apply to “U.S. citizens abroad?”
All U.S. citizens, regardless of where they live in the world, are subject to exactly the same provisions of the Internal Revenue Code. At first blush you might think this is fair. No. The problem is that the U.S. tax code imposes punitive taxes and reporting requirements on “all things foreign to the U.S.”. As a U.S. citizen abroad, your life is completely “foreign to the U.S.”. Therefore, your life will be subject to punitive taxes and reporting requirements. You will learn this as you become more and more U.S. tax compliant.
The rules of taxation are designed to influence and control the way people live. This means that “U.S. citizens abroad”, (who live outside the United States), must live under a tax regime that requires them to live like a “homelander” when they actually live outside the United States.
Tax compliant “U.S. citizens abroad” are not permitted the attitude:
“When in Rome, live as the Romans do.”
Rather U.S. citizens abroad are required to live according to the principle of:
“When in Rome, live as a Homelander” does, when elsewhere, live as they live elsewhere.
Part B – What does it mean to live like a “Homelander” outside the “Homeland”?
Where do we look to find the answer to this question? Is choice of life style an issue? What about the philosophy of the ancient Greeks? Sociology? Ethics? Absolutely not. We look to the Bible of American life. The Bible of American life and source of income for a large number of “compliance condors” (the world over) is:
“The Internal Revenue Code of the United States of America” – Title 26
The beauty, genius and timeless wisdom found in the Internal Revenue Code include the principle that:
“The Internal Revenue Code in its majestic equality punishes both Homelanders and Americans abroad for having financial assets and accounts outside the United States.”
Part C – What does it mean to be a U.S. citizen abroad?
1. All U.S. citizens abroad live outside the United States. Therefore, they live in “Foreign” countries. They will have bank accounts and retirement accounts that (although local to them) are “Foreign” to the United States. A FATCANatic (true believer in FATCA) would refer to your bank accounts as being “offshore”.
2. Most U.S. citizens abroad (who are just regular folks) are required to BOTH earn a living and invest for retirement. To this end they may have a pension from their place of employment (“foreign”). They may invest in mutual funds in their country of residence (foreign – PFIC). They may invest in retirement planning vehicles that are appropriate in their country of residence (foreign – PFIC). If you own an investment vehicle that is a PFIC, you should avoid either buying or selling without getting specialized counseling.
3. All U.S. citizens abroad are required to pay taxes in their country of residence. This point is neither understood nor acknowledged in the United States. Yes, it’s true (I can personally confirm this) that U.S. citizens abroad are required to pay taxes to their country of residence. Furthermore, (to add insult to injury), they are often required to pay VAT (value added taxes) in their country of residence. These VAT taxes are significant. In Canada they are 13%. In some European countries they are 20%. The point is that U.S. citizens abroad may pay significant taxes of a kind that often don’t exist in the United States. (Therefore, for purposes of “foreign tax credits”, the U.S. doesn’t regard them as real taxes.) In addition, they pay (usually at a higher rate) the usual income and property taxes that Americans understand.
4. U.S. citizens abroad may have “non-U.S. citizen spouses”. It is true that there are many unmarried U.S. citizens living in the United States. Nevertheless, it’s common for a U.S. citizen abroad to enter into a marital relationship with a non-U.S. citizen (AKA an “alien”). It is NOT common for a U.S. citizen abroad to return to the United States to seek a spouse. U.S. law is premised on the assumption that a marriage between a “U.S. citizen” and an “alien” is for the purpose of tax evasion. This is reflected in punitive taxation (see below) and requirements that a U.S. citizen who shares a financial account with an “alien” spouse is required to report those accounts to the IRS. It is no surprise that “U.S. citizenship” is the only citizenship in the world that is becoming grounds for divorce. On the other hand, the “alien spouse” does present some possible U.S. tax planning opportunities.
5. U.S. citizens abroad may start and develop businesses. In addition to marrying “aliens”, many U.S. citizens abroad enter into other forms of “business relationships” with other “aliens”. This is clearly subversive and is required to be reported to the Internal Revenue Service. In addition, if the form of the business is a “Foreign (non-U.S.) Corporation” extremely punitive tax and reporting rules apply.
6. U.S. citizens abroad may be “self-employed”. In the absence of a “totalization agreement” (fortunately, Canada has one) U.S. citizens abroad will be liable for “self employment taxes” to the U.S. government.
So far it appears that it would be prudent for a U.S. citizen abroad to NOT marry, not have an income, not create businesses or engage in self-employment.
But, let’s imagine that a U.S. citizen abroad does one or more of these things. What does it mean? How will it affect his life? “Tax compliant” U.S. citizens abroad are required to consider how the “Bible of the Homelander” (the Internal Revenue Code) impacts these relationships. Once the principles of the “Bible of the Homelander” are understood, one will understand what one is NOT permitted to do, and the draconian penalties associated with doing so.
The “Bible of the Homelander is based on two basic principles:
Principle 1: The “Bible of the Homelander” hates anything that is foreign. In fact, if the word “Foreign” appears in the “Bible”, the word “penalty” (generally starting at $10,000) is sure to follow.
Principle 2: The “Bible” is designed to punish all forms of “tax deferral” that are not “Homelander Permitted (think IRA) Tax Deferral”.
Now, from these two great principles, we will develop the “Ten Commandments” of living a clean American life outside the United States.
“Living Clean” – The Life of a U.S. citizen abroad
Here are the ten commandments of “Living Clean” that apply to U.S. citizens abroad. They are designed to ensure that:
if a U.S. citizen lives outside the United States that he lives according to the principle that:
“When in Rome, live as a Homelander” does, when elsewhere, live as they live elsewhere.
1. Thou shalt NOT have a bank or brokerage account outside the United States. If you do so, it must be reported to U.S. Financial Crimes on an annual basis. Failure to disclose is “Form Crime”. You may be fined an amount that is more than 300% of the value of the account.
2. Thou shalt NOT marry an “alien”. If you do so, you will have difficulty leaving your estate to him or her. Better to return to the Homeland to search for a suitable spouse.
3. Thou shalt ensure that your “alien” spouse agrees to be a U.S. taxpayer. Failure to do so, will result in your having the punitive filing status of “married filing separately”. This will guarantee greater exposure to the Alternative Minimum Tax, the new 3.8% Obamacare surtax, higher tax brackets and lower thresholds for reporting (including FATCA Form 8938) requirements.
4. Thou shalt NOT believe that the sale of your principal residence is a “tax free capital gain”. In fact, the sale of your principal residence will trigger a 23.8% capital gain which means that your house cannot be used as a retirement investment.
5. Thou shalt NOT buy non-U.S. mutual funds. If you do, you will have your gains confiscated in the form of an “Excess Distribution” Tax. Buy American. Buy U.S. mutual funds.
6. Thou shalt buy ONLY “term insurance”. Any other form of “insurance that has cash value” will be treated as a sacred instrument of tax evasion. Furthermore, if you purchase a “foreign insurance policy” thou shalt pay a special excise tax.
7. Thou shalt NOT buy or participate in an RESP, RDSP, employer pension plan, or any other kind of retirement planning vehicle which will be considered to be a TAXABLE “Foreign Trust” (with all the attendant penalty laden reporting requirements).
8. Thou shalt neither be self-employed NOR carry on business through a non-U.S. (AKA “Foreign”) corporation. If you do, punitive taxes, deemed income, and expensive reporting requirements will descend on you.
9. Thou shalt NOT relinquish U.S. citizenship. In the event that you do, you may be subjected to an “Exit Tax” which applies to your “non-U.S.” pension, “non-U.S.” assets, and assets that accumulated after you ceased to live in the United States. In addition, there are certain “Form People” who claim that you may be banished from the Homeland forever.
10. Thou shalt file, every year, file the following forms with the IRS: 1040 and all required schedules, FBAR, FATCA, 8938, 8965, 3520, 3520A, 709 (up to a maximum of up to about 45 forms). Understand that this will cost you thousands of dollars.
And this ladies and gentlemen, is why your problem is NOT “coming into U.S. tax compliance”. Your problem is “living as a tax compliant U.S. citizen abroad”. It really can’t be done (if you want any kind of life).
What does all of this mean practically?
Punitive Taxation – Think PFIC and Foreign Investments
U.S. citizens abroad also are subjected to the most punitive aspects of both the U.S. tax system and the tax system of their country of residence. In other words, it is NOT possible for them to get a “tax break”.
• double taxation (example Obamacare 3.8% surtax)
• tax payable to the U.S. that is not payable in Canada (sale of principal residence or TFSA)
• deemed income that you haven’t received (Avoid Canadian controlled private corporations)
• payment of taxes in Canada that are not available as tax credits in the U.S (think HST)
• taxation of currency exchange rate based gains
Intrusive Reporting Requirements – All of your life is reportable – There is NO financial (or any other kind of) privacy for Americans
U.S. citizens abroad are required, under threats of draconian penalties, to disclose almost every aspect of their financial lives to the IRS annually.
FATCA and Banking Restrictions – Many U.S. citizens are being dropped from their banks and brokerage accounts because they are U.S. citizens. It’s simply too expensive and dangerous for some financial institutions to have “U.S. person” clients.
FBAR – Including children – The simple fact is that, by April 15 (as of 2016) of each calendar, EVERY “U.S. person” (citizen or resident), to the extent that he or she has “foreign financial accounts” (including but NOT limited to bank and brokerage accounts), which (in aggregate) have a highest balance exceeding $10,000 USD, is required to report those financial accounts to the U.S. Financial Crimes (FINCEN). Incredibly, as a recent post describes, this requirement applies to children as well. In fact, the filing of “Your First FBAR” is a right of passage for American citizens abroad. Yup, it’s true. (I won’t get into the draconian penalties for failure to file in this post.) That said, the problem is serious. In fact, an adoption agency in British Columbia has publicly warned people of the dangers of adopting U.S. born children because of the problems of FBAR and citizenship taxation. To learn more: Google “FBAR”.
and more …
The preceding includes “some examples” of why, for U.S. citizens abroad:
The problem is NOT coming into “U.S. tax compliance”.
The problem IS living as a “U.S. tax compliant person”.
Conclusion and the message for Americans abroad:
“Life should be like hockey… when someone pisses you off, you just beat the s**t out of them and then sit in the penalty box for 5 minutes!” [unknown]
“Tax compliant U.S. citizens abroad” will live their whole life in the “penalty box” – starting at $10,000 a penalty. As long as they have paid their penalties they will be released to continue to experience the profound injustice of “double taxation”.
You have been warned!
P.S. The Foreign Earned Income Exclusion (Form 2555) and the Foreign Tax Credit (Form 1116) do NOT and are not intended to eliminate all of the problems. They apply to narrow classes of income.
P.P.S. Some Americans abroad mistakenly believe that the tax treaties protect them from U.S. double taxation. This is incorrect. U.S. tax treaties contain a “savings clause”. The purpose of the “savings clause” is to obtain the agreement of other countries that the U.S. can tax it’s property citizens while they are resident in that other country.
And finally …
This post has focused on the taxation of U.S. citizens abroad while they are alive. Did you know that U.S. citizens abroad, (like Homelanders) die? Did you know that when they die they may be subject to the U.S. Estate Tax? Yup, it’s true.
Original Post By: John Richardson – Citizenship Solutions
Watch John Richardson’s Presentations at the Internet Tax Summit [on TaxConnections] on Monday, September 21st.
Brilliant line: “A supporter of “citizenship taxation” is a person who thinks about “citizenship taxation”.” Yes! But also never too hard and never, ever outside the box.
I think that is why there was a proposal to get rid of the allowance for children abroad. I got a letter from the IRS saying that I might have been able to take another deduction, but I thought this is crazy. I wouldn’t even qualify for this deduction, which is really meant for much poorer people, if I weren’t so wary of the IRS that all of my financial behaviour has changed.
I think that the list may not be quite as limited or quirky as you suggest. Just shows that even intelligent people get confused by all this. If you sort by ISIN and look at the ones that start with US, none of the Vanguard funds shows up, but there are NASDAQ and NYSE listed Vanguard ETFs for sale in the U.K. at mass-market company Hargreaves Lansdown. I just mention this because the ones Vanguard UK sells, rather confusingly, don’t seem to be its US-registered ones, whereas HL sells some Vanguard funds that are U.S.-listed, as well many that aren’t and the names of the funds in the two groups can be dangerously similar. The NYSE and NASDAQ-trade Vanguard funds have North American CUSIP numbers and the prospectuses are written for an American audience. Funds can slip in and out of U.K. reporting status, but the draconian rules only apply if a non-reporting fund is held outside a pension.
I do wonder how sad a life those people must lead to waste it on such pointless vitriol.
The way I see it, it is all about the money. The U.S. has a massive deficit and is far too dysfunctional to put through new tax legislation, so it is determined to enforce to the hilt whatever bizarre laws it already has on the books.
@ Edelweiss, & Publius RE: mutual funds.
I’ll start with a disclaimer. During my 35 years in the UK I’ve never, ever had any funds, stocks, shares, or anything that even obscurely resembles them. I know nothing about them. A large part of my motivation for avoiding them was (and is) the fear of reporting to the IRS, or more correctly, the fear of reporting incorrectly to the IRS (or HMRC) leading to a never ending chain of mail trying to correct the errors. I do my own US and UK tax returns and try to stay within a comfort zone of being (reasonably and hopefully) sure of complying with the filing requirements by limiting types of income. Thank (whatever your choice of Deity, or not) my pensions were of the UK and other EU registered final salary type (treaty). As for reporting UK and EU pensions as a UK resident, there are still known unknowns.
That said, this discussion of mutual funds often arises on the expat sites. The general conclusion is that HL do offer ‘some’ ETFs which meet both UK and US reporting requirements. The restriction is that 95% are Vanguard, and HL seem to be the only firm offering them, so you’re limited as to choice of ETFs and limited to HL as the broker. If you’re unhappy with either, tough luck. The following is one of the better explanations of the whole conundrum:
From what I’ve seen, I don’t think Edelweiss is too far out in the number available. I’d guess an estimate of 100 to 150 as being generous.
What I do think is of interest, is the possibility of adding even more commandments to John’s selection above for those in the UK. I’m sure for other countries there are also additional ‘situations’.
11. Don’t take the 25% tax free lump sum amount on a maturing pension. This has always been a debatable question, and the IRS has issued a private letter saying it’s not tax free in the US, irrespective of the treaty or the definition of a lump sum. It’s now even more complicated due to the new UK pension rules allowing partial payments with partial ‘segments’ of 25% being tax free. Even the compliance condors are running for cover on this issue, as no one seems to have a grasp of what this means for a US return. Of course, one may take the tax free amount in the UK and then pay tax on it to the US which defeats the purpose established for those in the UK.
12. Don’t be a pensioner with a yearly gross income between roughly £8,000 and £15,000, if all income falls within employer pensions, State pension, cash ISA interest, and £1,000 of ‘taxable’ UK interest (unearned income, and depending on exchange rates). You may well owe HMRC £0, but you’ll likely owe the IRS.
The new UK rules on tax free amounts are hurting anyone who files a US tax return (yearly large increases on the personal allowance + new, larger ISA allowances + the new tax free amount on normal interest). I’ve had notices from both banks and building societies that all ‘taxable’ interest will be paid gross (no withholding) starting 6 April 2016. If your ‘taxable’ yearly interest is over £1,000, the tax won’t be paid until a self assessment form is filed which can be 18 months in arrears given the offset differing tax years between the US and the UK. For those who have planned for retirement wisely yet avoided the US pitfalls of having normal UK ‘mutual funds’, there may be an initial year or two when US reporting using tax credits from the UK will need to be carefully planned for and calculated.
Someone needs to bring FATCA in front of British courts. You may want to see if Legal Aid may fund this ‘discrimination’ case despite all the UK Government cuts.
It’s strikes me as odd that nobody stood up and complained about the US taking taxes off resident UK citizens like Boris Johnson. On that note I wonder has Boris really cut a deal with the IRS or simply said so hoping the media storm would disappear.
Yes Boris has other motivations such as doing book tours in the US which may offset his tax bill. However the principle needs to be established in the courts that the US can’t simply ride roughshod over the UK tax base. An individual will have to do it, Cameron & Co don’t care. It would be interesting if Jeremy Corbyn’s take on FATCA would be any different or just more deafening silence from the new opposition leader.
I’m not going to tell the us anything about my EU pensions. Why should anybody? They aren’t reported thru Fatca are they?
I took a closer look at some of the 7,000 funds registered for HMRC reporting status but that didn’t have an ISIN. Vanguard has a series of funds registered by Vanguard Index Funds and Vanguard Scottsdale that are reporting funds without an ISIN (I had previously skimmed these and discounted them as they looked mostly like hedge funds). If you take Vanguard 500 Index, it has no ISIN but has a CUSIP number of 922908363 which when you do an internet search leads you to a NYSE ARCA listed ETF trading under the ticker symbol “VOO” called Vanguard 500 Index Fund ETF Shares. From reading the prospectus it looks like some sort of listed interest in the Vanguard S&P 500 mutual fund that is convertible into mutual fund shares. Somewhat strangely, none of the “summary prospectus”, the “statutory prospectus” nor the “statement of additional information” for this ETF contains any reference to HMRC, reporting, UK or United Kingdom. If you relied on the prospectus, you would be clueless. The Hargreaves Lansdown website unhelpfully lists the reporting status of this fund as “n/a”.
So it does look like there may be additional candidates for non-PFIC funds with HMRC reporting status amongst the 7,000 with no ISIN over and above the 75 with a US ISIN identifier.
You raise an interesting point about the new interest income allowance. I wonder if this impacts the UK’s status under HTKO (due to interest income withholding). Thankfully, I don’t have to worry about it anymore. But if I were still a US person, I would be worried about being put into basket FTC, split tax year, amended US return hell.
You might want to consider adding “don’t be made redundant” to your list of commandments. I doubt the UK’s £30,000 tax-free allowance would be tax free to the US.
Unfortunately, it appears the only entity in the UK that doesn’t have to abide by the Equality Act is the government itself. This is what I was told by the government’s discrimination hotline in a conversation a few years ago. So, you can’t sue the UK government on the grounds of discrimination. There may be grounds other than discrimination to sue the UK government but I think a European Court of Justice effort would prove to be more fertile ground.
@Edelweiss – I agree. The best country needs to be identified and see if a case can work its way on to the EoJ. Otherwise you’re left to renounce or use illicit means to evade FATCA.
Good catch, Edelweiss, on the tax free redundancy payment in the UK which is, of course, taxable by the US. Surprisingly, it’s considered earned income, but that was information from the IRS hot line, so it may not be true. £30,000 is roughly $47,000 (@1.57), which is not a whole lot below the average yearly income for the US.
On the Vanguard ETFs, the general consensus is the CUSIP/ISIN numbers are the key. Funds may have a different name on the HL site from what they are called in the US, but if the numbers match (with the addition of a ‘US’ prefix and a random number like ‘0’ on the end) it’s the same fund. BUT, I really have no idea what I’m talking about,…. just playing the parrot.
The judge summarized his view on the tax treaty here: (66) “The Canada-US Tax Treaty cannot be interpreted in a vacuum: the fact is that Canada and the US entered into an Intergovernmental Agreement in 2014, purportedly under the authority of the Canada-US Tax Treaty … the intention of the contracting governments is clear: they agree to obtain and exchange annually on an automatic basis all relevant information respecting reportable accounts.”
He noted (38) “how the IGA was framed by Mr. Ernewein, the General Director, Tax Policy Branch, Department of Finance” who said: “The U.S. has always maintained that this is about information exchange and not about trying to collect tax, at least through the withholding tax mechanism. It’s an exchange of information and taxpayer compliance.”
This stuck with the judge, who repeatedly backed up the government need to collect taxes and ensure people comply with tax law. He said: (69) “At the risk of repeating myself, FATCA is about US tax compliance. In 2014, the US and Canadian governments, being both ‘supportive of applying the underlying policy goal of FATCA on a reciprocal basis to improve tax compliance’, signed the IGA.”
So there you go. Ultimately, the judge refused to grant an injunction against a law to increase tax compliance with our tax treaty partner. The information exchange for tax compliance (and associated penalties) to the USA is exactly what we are afraid of, not to mention what other horrors the USA could do with that information.
I realize the judge was ruling strictly on the intent of the treaty and not Charter rights, so he could not be expected to know that, even though many of us have renounced, some “US persons” can’t afford to renounce given the crazy high costs, others like Carol’s son are not ALLOWED to renounce, and still others are caught in the IRS-created fiasco of having to first acquire marks of US citizenship in order to renounce the citizenship they don’t even want!
At least, he recognized that non-American spouses and business partners are unfortunately affected and that we consider the IGA reporting to be “unjust, costly and ineffective” (76), going on to say, “The plaintiffs may find this deplorable, but apart from a constitutional invalidation of the impugned provisions or a change of heart by Parliament or Congress, or the governments of Canada or the US, there is nothing that this Court can judicially do today to change the situation.”
NOTICE what he said could change things for the plaintiffs: 1. “constitutional invalidation” which would be when the case is tried on constitutional grounds going forward, which thankfully will be easier because he ruled without costs or prejudice, or 2. a “change of heart by Parliament or Congress.” That is where we now must focus our efforts, on the upcoming election to get the right Parliament, and on our support for Joe Arvay when he defends us on the Charter.
O.k. So the “dos” of being a U.S. person in the U.K. are:
* Do make sure that you have a really good employer pension and that nothing bad happens to push it over the edge like sharp drops in world stock prices, great increases in life expectancy, or years of really low interest rates (Easy peasy, lemon squeezy).
* Do make sure that you are not a poor person in your retirement, even though many of the usually available investment strategies have been denied to you.
* Do make sure that you have a nice, long life expectancy so that you won’t be tempted to take your pension as a lump-sum up front. Don’t get a life-threatening illness. Push away that deep-fried Mars bar. Select the right parents. Get those ten years of foreign tax credits in place before retirement just in case.
* Don’t be made redundant (especially since the jobs centre policies will push you into self-employment tax hell to keep the UK unemployment rate down).
There are other firms besides HL, but the other ones tend to cater to high net-worth individuals. Since, as you have noted, the usual non-fatcat strategy is Vanguard ETFs through HL, I thought this needed to be brought up. At least with the new ISA limits my non-U.S. person husband gets to save loads from his salary while I mainly spend mine (sigh).
Thank you for following this up. The whole non-reporting business is why it is a bad idea to hold these funds outside of a pension.
Everyone I know is surprisingly sympathetic towards Boris’s tax plight, even though my friends tend not to be conservative. I suspect that he might not feel that comfortable publicizing a situation where he has been the victim.
No, pensions are not reported under FATCA. The same is true of loads of other accounts as well under the IGA.
@Publius, even with a CLN, I will always worry that the IRS may subsequently resume thinking of me as still a ‘US tax citizen’ because I never received acknowledgement that my 8854 had safely arrived. I also am concerned that future legislation could retroactively make me a US tax person again, especially if the pass laws to further punish those of us with the ‘gall’ to leave. I don’t think any of us can ever enjoy absolute certainty ever that we’re FULLY out.
Very inspiring comment, especially this part:
“That is where we now must focus our efforts, on the upcoming election to get the right Parliament, and on our support for Joe Arvay when he defends us on the Charter.”
Now that I’m back off my heels from Justice Martineau’s decision, I’m ready to take this loss to my candidates as something they need to know has escalated the battle to a full blown Charter challenge. Not winning the summary trial only made it less easy for them to condemn the FATCA IGA. The loss certainly does not serve to provide cover for them to do nothing, especially when it involves the Charter and the issues that many profess to care about, such as more than one tier of Canadian citizenship.
“I never received acknowledgement that my 8854 had safely arrived.”
I wonder if Form 4506T can be used to request a transcript of Form 8854 the way it can be to request transcripts of 1099 and 1042-S.
If you use a 4506T to request a transcript of your account it might at least show that they processed your account, even if it doesn’t show whether they processed the 8854.
If you use a 4506T to request a copy of your entire return, you have to pay for it, but the copy ought to include your 8854.
@Norman Diamond, thanks for the suggestion, I might do that.
It still concerns me though that banks may not always be satisfied with ‘just a CLN’ because former US citizens could in theory resume being US Persons if, for example, they subsequently spent too much time in the U.S. or in the unlikely even became green card holders or married a USC who filed MFJ.
I could see banks and other financial institutions more often insisting on past tax return transcripts as a result, as my understanding is that US Personhood for tax purposes only ends after filing 8854.
“if, for example, they subsequently spent too much time in the U.S. or in the unlikely even became green card holders or married a USC who filed MFJ.”
That could happen to anyone, not just to former US persons and not just to 8854 filers who don’t know if their 8854 was processed.
Banks will have to add to their questions.
“Have you ever, or will you ever, spend too much time in the US?”
“Are you now, have you ever been, or will you ever be, married to a US citizen or green card holder who files jointly, or who spends to much time in the US, or married to a former US person who filed jointly except for their final return but doesn’t know if their 8854 was processed … well look, even if you promise you’ll never marry someone who didn’t know that all four of their grandparents were born in the US so both parents derived US citizenship and one spent a year there so your future spouse will be a US citizen without knowing it, well look, our crystal ball doesn’t tell us you’re going to keep your promise, so we have to put a hold on 250% of the maximum balance you ever had in your account. Bring us the cash now, and … well we have to make sure we don’t deposit it to your account, but we’ll think of something to do with it.”
It gets even more complicated. In #5 you state “do not buy foreign mutual funds. Buy US ones.” Good luck in finding a foreign bank that will allow you to buy US funds, that is if you can find a bank to “allow” you (very very reluctantly) to have an account in the first place. Also, if your US bank finds out you are living abroad (i.e. you do not have a US mailing address that a helpful relative allows you to use) your US account is likely to be closed. And you may violate US law by claiming to be resident in the US. Seems the only allowed investments are cash (Us/foreign) gold and a shovel with which to bury them in your back yard.
‘So the “dos” of being a U.S. person in the U.K. are:’
Denial Of Service.
See Day 1 (Monday, September 21, 2015) of the Internet Tax Summit – Revolves around Expatriates, FATCA, FBAR, Citizenship Based Taxation and more… Tune In Here – http://bit.ly/1iqAbpZ
Your Comments Are Welcome! See Blog Post And Comment Area Here – http://bit.ly/1Fo5EUg
John Richardson’s Presentation Coming Up On http://bit.ly/1iqAbpZ We Welcome Your Comments Here http://bit.ly/1Fo5EUg If you missed the exciting Presentations from these Tax Experts, including a telephone interview with Keith Redmond that was exceptional, click here https://www.taxconnections.com/internet_tax_summit/checkout
TaxConnections – thank you for providing this webinar.
Glad we heard Keith Redmond at the start and will hear John Richardson at the end. Although the other presentations from the US Tax Compliance Industry may be thorough, they also seem meant to instill fear and seek new business (sorry – that’s the way I hear it). The last word I’d use to describe them is *exciting*.
These presentations, though, are excellent (and maybe even *exciting*) reasons for supporting the litigations going forward in both the US and Canada. What we need is US litigation specifically against CITIZENSHIP-BASED TAXATION and acquiring US-deemed US citizenship WITHOUT CONSENT.
And, now, John Richardson is up and we’re getting to the really important information for other than *Homelanders Abroad* — and, of course *Homelanders* who RESIDE in the USA.
“………At a minimum, modern substantive due process jurisprudence would warrant that the government “warn” individuals that opening, maintaining or having any signature authority over a foreign financial account opens the door to being regulated to such as an extreme that they are waiving their Fifth Amendment right.”
from a commenter posting at this thread;
Monday, March 19, 2012
‘Recent Discussion of Required Records and Other Foreign Bank Issues (3/19/12)’
People who never had any US taint and never even visited nor invested in the US also get denied Fifth Amendment rights if they marry a US person.
Historically, US courts used to hold that non-US persons had Fifth Amendment rights because they were Persons, but didn’t have Fourth Amendment rights because they aren’t part of the People.
Further back in history, US courts used to hold that the US Constitution is the constitution of the United States not a constitution of a group or various groups of persons or people. They used to hold that the United States was constrained by the United States Constitution, no matter what the characteristics were of a person or non-person or people were involved. But then courts changed their minds. Then they changed again. Then they changed again. Now the pendulum is pretty much stuck on the human wrongs side, where the United States can torture and murder with impunity as long as the victims are Non Resident Aliens or even Non Resident Citizens (I suppose Non Resident Non-citizen Nationals too, but haven’t read news reports of such victims yet).
“5. Thou shalt NOT buy non-U.S. mutual funds… Buy American. Buy U.S. mutual funds.”
Easier said than done for someone working/residing outside the US. I no longer have a US postal address and don’t feel right using someone else’s US address. So US investment companies won’t let me open an account. They just say “no.”
Question: For someone in Canada, is there a way of purchasing 100% US domiciled ETFs (or mutual funds) through a Canadian investment firm? If so, wouldn’t the fact that the fund is 100% American bypass the need for PFIC (Form 8621) and FBAR reporting? Please say more about this strategy in your blog or in an upcoming podcast! I’d like to know if it’s OK.
The good news is, Canadian financial institutions will not ask you to prove that you are not a US person when you open an account – just tell them that you are not, and use a drivers license as ID. So you can invest however you want without fear of anything being reported.
Even if you have identified yourself as a US person, banks will sell you whatever you want, PFIC or no. If it’s in a TFSA it won’t be subject to FATCA reporting, so you simply fail to declare it on US tax returns.
If you’re a dual citizen with no plans of moving to the US you can basically do whatever the hell you want, the IRS can’t touch you in Canada.
Thanks, Ron. However, that would be WAY outside my comfort zone. I’m not a dual citizen, and I could very well move back to the US someday.
If purchasing a 100% US-market ETF through a Canadian brokerage would mean there is no need for PFIC (Form 8621) and FBAR reporting, I’d love to know for certain. Has anyone done that?