reposted from Forms required by #Americansabroad 101 – The Explanation by John Richardson
I just published “Tony Antonetti:” https://t.co/MnQPUWT4ZF – "U.S. Forms 101 – The Explanation" – enough to make #Ameiricansabroad reounce
— Citizenship Lawyer (@ExpatriationLaw) June 13, 2016
The above tweet references
The article was well written, interesting and attracted responses from Homeland Americans. (It was reproduced here and attracted even more comments.) The comments from U.S. residents demonstrated again that they do NOT understand the problems experienced by Americans abroad. Although Rachel DID mention the problem of “forms” as a contributing factor to her renunciation, at least one comment – ” indicated “disbelief” that “forms” could be a contributing factor to the renunciation of U.S. citizenship.
“Let me get this straight — you are renouncing your US citizenship because of too many forms?” — @prchicago https://t.co/3Ik0QFb9xx
— Citizenship Lawyer (@ExpatriationLaw) June 27, 2016
It is clear that this person, well intentioned as he/she may be simply does NOT understand what forms mean in the lives of Americans abroad. It’s as though he/she thinks that filling out a form is akin to completing a customer satisfaction survey.
As I result, I wrote a reply in the hopes of inviting him/her to understand what forms really mean in the lives of Americans abroad. (This post is a modified version of that “reply”.)
Not sure Rachel said that she was renouncing because of “too many forms”. That said, your comment suggests that you don’t understand what “forms” actually mean in the lives of Americans abroad. If you would permit me, I would like to offer a little more information about:
– where the requirements for these forms are found
– what they represent to Americans abroad
– the complexity and cost of completing the forms
– the potential penalties for not completing them properly
So, let’s settle in for: “U.S. Forms 101 — The Explanation”
Where the requirements for the forms are found
Title 31: The Bank Secrecy Act
The first form that is known to most Americans abroad is the “Foreign Bank Account Report” (FBAR) and this is not in found in the Internal Revenue Code. It is found in the Bank Secrecy Act (Title 31 of US laws). A primer on the FBAR is here. This form requires that Americans abroad, who at any point in the year have balances in their “foreign” bank accounts, in excess of $10,000 USD, report these bank accounts to FINCEN (which is U.S. Financial Crimes). Understand that these bank accounts, that the United States calls “foreign”, are actually local to Americans abroad. They are the accounts that they use for day-to-day life to pay bills and buy groceries. The failure to file this FBAR return will subject one to massive penalties which (when assessed) are likely to start at $10,000.
No homeland American is required to report his or her local day-to-day bank accounts to the U.S. government, much less to FINCEN (financial crimes) – yes, “the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN)“. Why should Americans abroad be required to do this? Is it reasonable that Americans abroad should be presumed to be criminals.
What follows is the acknowledgement that one receives after having filed the FBAR:
This is an important message from the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) regarding the status of your FBAR (FinCEN Form 114) submission:
Congratulations! Your FBAR submission has been accepted for processing by FinCEN’s BSA E-Filing System. You will be notified via email when processing is complete in 1-2 business days. Please review the information below and retain for your records.
Your submission was received at **************** EDT
Receipt No.: **********
Filing Name: John Smith
PLEASE NOTE: This email is for notification purposes only. Please do not reply to this email for any purpose. Questions may be routed to the BSA E-Filing Help Desk at 866-346-9478, or BSAEFilingHelp@fincen.gov.
By the way, if you are one of the millions of Americans abroad who has not filed your FBAR, the “Delinquent FBAR Submission Procedures” are here.
So, the FBAR is the first of your “too many forms”.
Title 26: The Internal Revenue Code
Understand that although Americans abroad are deemed to actually live in the United States (for income tax purposes), their assets (which are local to them) are considered to be “foreign” to the U.S. Government. Because their assets local assets are considered to be “foreign” from a U.S. perspective, they are subject to special reporting provisions, under threats of draconian penalties (in most cases the penalties start at $10,000 for a single omission). I assume that you must read (only kidding) the Internal Revenue Code. If you did (or do) you would find Sections 6031–6040 which are described as:
“26 U.S. Code Subpart A – Information Concerning Persons Subject to Special Provisions”.
§ 6031 – Return of partnership income
§ 6032 – Returns of banks with respect to common trust funds
§ 6033 – Returns by exempt organizations
§ 6034 – Returns by certain trusts
§ 6034A – Information to beneficiaries of estates and trusts
§ 6035 – Basis information to persons acquiring property from decedent
§ 6036 – Notice of qualification as executor or receiver
§ 6037 – Return of S corporation
§ 6038 – Information reporting with respect to certain foreign corporations and partnerships
§ 6038A – Information with respect to certain foreign-owned corporations
§ 6038B – Notice of certain transfers to foreign persons
§ 6038C – Information with respect to foreign corporations engaged in U.S. business
§ 6038D – Information with respect to foreign financial assets
§ 6039 – Returns required in connection with certain options
§ 6039A – Repealed. Pub. L. 96–223, title IV, § 401(a), Apr. 2, 1980, 94 Stat. 299]
§ 6039B – Repealed. Pub. L. 99–514, title XIII, § 1303(b)(5), Oct. 22, 1986, 100 Stat. 2658]
§ 6039C – Returns with respect to foreign persons holding direct investments in United States real property interests
§ 6039D – Returns and records with respect to certain fringe benefit plans
§ 6039E – Information concerning resident status
§ 6039F – Notice of large gifts received from foreign persons
§ 6039G – Information on individuals losing United States citizenship
§ 6039H – Information with respect to Alaska Native Settlement Trusts and sponsoring Native Corporations
§ 6039I – Returns and records with respect to employer-owned life insurance contracts
§ 6039J – Information reporting with respect to Commodity Credit Corporation transactions
§ 6040 – Cross references
These sections impose the statutory requirements for the “information returns” (forms). Notice how many of these are related to transactions involving “foreign entities”. These sections of the Internal Revenue Code are responsible for the “International Information Returns” (Forms 8938, 5471, 8865, 3520, etc.) The point is that Americans abroad are disproportionately subject to “special reporting provisions”.
Yes, Americans abroad are most definitely subject to special provisions. What are they doing living outside the United States anyway? Remember their assets are foreign. The Internal Revenue Code (is this a reflection of America?) is extremely hostile to anything “foreign”.
The cumulative effect of these provisions is that many (I would argue most) of the business, retirement planning and investment activities of Americans abroad are required to be reported (because they are “foreign” and are therefore subject to special tax and penalty provisions) to the U.S. Government.
– most retirement planning and investment vehicles are considered “foreign” under U.S. law and are therefore subject to special reporting and penalty requirements. The required forms are Forms 3520 and 3520A
– foreign corporations and partnerships required by Internal Revenue Code S. 6038 which leads to Forms 5471 (a complete corporate tax return with various schedules) and Form 8865 (Foreign Partnership)
– Statement of their local (sorry foreign financial assets) as required by S. 6038D (the infamous Form 8938 which can easily lead to a $50,000 penalty for failure to file. Oh and before leaving this paragraph a separate information return is required by those who advance money to these businesses (see S. 6038B of the Internal Revenue Code)
– what if a U.S. citizen abroad is married to a “foreign spouse” and receives a gift of more than 100,000 from that foreign spouse? Yes, it must be reported to the U.S. Government under threat of penalty. (By the way, while we are on the topic of a marriage between a U.S. citizen and “foreign” person, understand that the U.S. person does NOT have the unlimited marital deduction enjoyed by “pure U.S. to U.S.marriages.) Why should an American abroad be penalized for NOT marrying another U.S. citizen?
– Ever invest in a mutual fund? That’s a normal thing to do. Well, if you are an American abroad who invests in a mutual fund in your country of residence (Good God — A Foreign Mutual Fund) not only is there required reporting, but it’s taxed at punitive rates. The idea is to: Buy American and ONLY Buy American. But, we are talking about forms — Yes, it’s form 8621.
2. What these forms mean for Americans abroad once they are filed
“It’s not just the forms. It’s the penalties for not knowing which forms to file. More…” — @spinweaveknit https://t.co/zGiisWs4ma
— Citizenship Lawyer (@ExpatriationLaw) June 27, 2016
“As another American living in the Netherlands, I completely relate to your frustration with the US…” by Erin G.-S. https://t.co/5EgHHKPYuJ
— Citizenship Lawyer (@ExpatriationLaw) June 27, 2016
By filing these forms the poor American abroad (his accountant somehow fails to tell him this) has agreed that his activities are subject to the “special provisions” they deserve because they are foreign. Basically, it’s so punitive that those who understand what the forms represent, will avoid the activity that generates the requirement to file the form. So, avoiding the activity that generates the requirement to file the form, means that Americans abroad must be careful to NOT: have foreign businesses or partnerships, invest in non-U.S. retirement planning (absent a treaty pensions are included) vehicles, and avoid non-U.S. spouses. That is if they follow the law. In other words, the forms are a “form” (pun intended) of life control. By avoiding all things foreign Americans abroad are required to live as “tourists” in their country of residence.
“When in Rome, Live as a Homelander!”
3. Cost and complexity of the forms
With the exception of the FBAR and possibly the Form 8938, the average American abroad will NOT be able to complete these forms without expensive help. Actually, the above average American abroad will NOT be able to complete these forms without expensive help. In fact, the average U.S. CPA would have NO idea how to complete these forms if their lives depended on it (they would deny it, but …)
4. The potential penalties for not complying with the “form requirements”
Draconian (starting at $10,000 per form except the 8621) and very expensive to complete.
By the way, the effect of all the forms is that it is very common for Americans abroad to file U.S. tax returns that exceed 100 pages. No problem at all. Ever notice that CPAs seem to charge by the page — can easily be in the thousands of dollars.
Anyway, Rachel didn’t say specifically that her renunciation decision was based on too many forms. That said, the renunciation decision of many Americans abroad is based on the forms, the compliance cost of the forms and what the forms represent to them.
Homeland Americans don’t have to complete these “forms”. Why should Americans abroad?
“U.S. Forms 101 — The Explanation”
To me it’s not only the financial cost, but what the forms represent. Forms of punishment to prove that your bank account down the street from where you live isn’t being used for tax evasion, terrorist and money laundering purposes.
As well as all the forms recquired to get a SSN! Only ever having spent 3 weeks in a U.S hospital maternity ward before going home to Canada, of course I never had one. Had to prove to the U.S, with official documents, that I had been living in Canada for five decades . One document for each decade.
After finally ” getting permission” to renounce and becoming officially un American, the final cost of being a border baby ; over $10,000. ( without having to pay any taxes).
Oh no! Not Tom Hunter again. Don’t waste your time on that guy. His head is as thick and hard as a concrete block wall. His heart too.
Nice summary. Also might include restrictions on US investments if tax resident abroad, such as restriction from purchasing mutual funds and with most major brokerages restrictions from purchasing securities.
I think every expat on the planet should print out a copy of this post and carry it around with them. When any discussion would occur and a homelander would express doubt, said expat could simply hand this post over. Then let’s see what the reaction might be. Presuming the homelander could take in even 1/4 of it, I doubt we’d hear the usual “don’t let the door hit you in the ass on your way out.”
I renounced because I believe that if a ‘US person’ is obligated to do something, they should be capable of doing it–not have to pay an ‘expert’ to do it. Seeing the growing complexity and idiocy of it all over my 22 years of not living in the US required that I renounce to get out of this bizarre, sick, depressing, never-knowing-if-you-have-done-something-wrong-and-will-be-fined-a-huge-unreasonable-amount annual’dance.’
Do Americans live in Alice’s Wonderland and not see how wierd this all is? Sigh……
Welcome to Brock! Really nice to see you here. Your description hits the nail on the head. I remember my biggest fear was that the never-knowing would just grow and grow, getting worse and worse. I could hardly live with the anxiety of the 3-4 months between finding out and renouncing, nevermind letting that go on for years. I have never regretted renouncing and now it seems like it was not nearly as hard to do or get over as I expected.
Yes, they are definitely drinking the Kool-Aid. Even some expats are stuck on stupid.
Hi Lynn, you hit the nail on the head about why I renounced. I could have lived with filing via software and even paying a few hundred dollars per year in U.S. taxes; however, I was facing ongoing accounting fees north of $2000 EACH year at a minimum. Just too burdensome. No regrets at the end of the day!!
“I renounced because I believe that if a ‘US person’ is obligated to do something, they should be capable of doing it–not have to pay an ‘expert’ to do it.”
Exactly the same for me.
I think a good analogy for US tax and FBAR forms is a mine. Negotiating the forms is a mine field. You’re just never sure when one might go off and destroy your life. Better to renounce and live in peace.
Thanks Patricia for reposting. Thanks @Citizenship Lawyer for the original. I am thinking of shortening for disqus comments on articles.
Lynn (et al.),
Yes – the compliance minefield was a large part of my decision to renounce: complexity, potential penalties, the loss of financial privacy.
Another big factor for me was the control the US tries to exert on expats via the punitive taxation of basic savings tools such as mutual funds and retirement plans. I teach my students that for most people the best savings strategy is to buy passive index funds – instant diversification, no need to pick individual companies. Exposure to different sectors is now widely available through traditional funds and ETFs. But with PFIC rules, the only mutual funds available to an expat are US funds (if you can even open a US account). For the long-term expat, investing only in the US means exposure to unnecessary currency risk. If you want to invest where you live, you’re limited to direct shares (which requires selecting companies and having enough capital to diversify) or direct property (not very liquid, large capital requirements, and not diversified). For the expat who wants to save a small amount each month, the only option is a bank account.
Karen: minefield exactly sums it up. It’s quite possible to walk through the minefield OK. However it is risky and stressful. And there should be no reason to submit to such nonsense. I am currently coming into compliance with a simplified situation but a simple SSN mistake on 3 years of forms has resulted in 21 letters from the IRS (letters asking me to pay the tax, which will not be due once they correct the SSN, letters saying they have received my letters, letters asking me for more time to examine this complex matter, etc, each time one for each year filed) in 8 months.
Frankly, I thought I could weather this storm without renouncing but now I’m not sure!
Linkee no workee for me for this one
(It was reproduced
*** here ***
and attracted even more comments.)
Try this link https://news.ycombinator.com/item?id=11973401
For those still locked-in to the mainland, USA mindset (“we’re no. 1, we’re no. 1!!!”) they’ll NEVER get it, nor agree.
I think it’s very deliberate that we, outside of the mainland US are called, “expatriates”– so that to the uninitiated ear, it sounds exactly like, “EX-Patriots”. Imagine how THAT sounds to everyone with what’s happening there now?
Then consider that for sooooooooo many in the USA– even traveling outside, for a HOLIDAY, is a major anxiety event (with many NEVER leaving the mainland). I mean, their own gov’t keeps up the rhetoric about how “dangerous” it is to leave (ironic, in the face of all of the continuous death & destruction within the US). So, those us who live outside of it, & prefer it, are going to be met with disdain & plenty of govt-fueled suspicion. I believe THAT’S where all of the vitriol-inspired, “don’t let the door hit-cha…” comments originate.
No, I really do see the plight of US expats as a battle which will only be won in courts, not in the every-man, unfortunately. Of course, it doesn’t stop me from shouting about it any time I get the chance…but until there are media-covered court wins, the odds of RBT taking over, or genuine meaningful change to CBT, look pretty slim….
The minefield analogy is very appropriate. This particular minefield was intentionally created by the US government to prevent its soldiers from leaving the battle which is now raging inside the US. Who in their right mind would want to live in a war zone or try to be a US citizen living outside of the US? The only logical choice is to renounce and be free (and safe).
Brilliant, one-stop-shop, for information about forms! Thank you, John Richardson!
I think that many on this thread sum up the issues very well. The U.S. has become a totalitarian society, as any nation that threatens and seeks to maintain control over its own innocent law abiding citizens, wherever they may live in this world, is not a free society. If we look at history, there aren’t many parallels of societies that kept their citizens living abroad on such a tight leash. The first that comes to mind is the former Soviet Union, a country that the U.S. itself once used to define an undemocratic, oppressive and totalitarian society. Apparently the U.S. studied them carefully and actually admired a lot about what they saw, as the U.S. today, as far as how it treats its own citizens living outside of its borders, resembles more the former Soviet Union than it does Germany, Britain, Japan, or other developed representative democracies. Another horrible regime that comes to mind is the apartheid regime in South Africa, who used to demand hight fines and exit taxes from any of its white citizens who disagreed with the fascist system there and attempted to leave the country. There again, the U.S. used to criticize South Africa, but now the U.S. also demands an exit tax, from those of its citizens wishing to renounce their citizenship and live elsewhere who hold a certain amount of money and wealth. So, I guess Americans aren’t as free to live where they want as they were once told they were. And finally, the most reprehensible and evil of all regimes known in recent history, the Nazi regime in Germany and elsewhere during the 1930’s and 40’s. They too demanded exit taxes from Jews and others who wanted to leave their system. They too levied taxes and excessive penalties on any who dared to want to leave and live elsewhere. They also, actually from the moment they invaded a country, demanded that all banks hand over account information of Jews and others that they defined, so that those people could be watched and ultimately expropriated of their funds and belongings.
So, with its laws the U.S. resembles more of all that they once condemned and less of what the rest of the world has become. No wonder people want out and are running for the exits right now. I have been told that more and more consulates will be ceasing to accept any appointments for renunciations as many already have done, Dublin for example. The fact that the U.S. allows this exodus of its citizens to continue, without taking any action, apart from increasing the exit fee by 422%, should be a clear sign, if one was needed, that this government has absolutely no intentions of remedying the problem, but rather profit from it and extort more money from the innocent Americans who want to just live peacefully and provide for their families, have a simple bank account and be attractive to potential employers outside of the U.S. Wake up U.S. people. You all seem to be walking in a trance to your demise. Still waving the flag and naively believing that your representatives or future president will look after you and solve this mess. Not only they won’t solve it, but it will be made worse. Think about this, before it’s too late for you and your family.
May I ask who you are referring to as “flag waivers”, because for those of us who are tax compliant, it’s already “too late”. Tax compliance is just one step closer to complete extrication for many.
I think that the “flag waving” comment refers to the many overseas Americans who still participate in July 4th events and are active members of the many organizations, like Democrats Abroad, who seem to be totally oblivious to what is going on and continue to rally overseas Americans to vote and attend July 4th picnics and barbecues, while they themselves are ripe for extortion and are sitting ducks for financial devastation and that neither their votes nor their membership in these overseas US organizations will do anything to improve their plight. It’s a very sad situation and actually hard to believe, if I didn’t see this for myself. FATCA has also succeeded in driving a wedge between the American overseas community, of those that want to sever ties at all costs and another “flag waving” group who think that it will all be solved by believing in their divine “democracy” and leaving it to their elected leaders to sort out on their behalf. What they haven’t realized nor accepted, and probably never will, is that their elected officials, who they most probably didn’t elect, nor can they, couldn’t give a damn about their predicament, nor that of the other 9 million Americans living outside of the country. They are just low hanging fruit, vulnerable and ready to be extorted and they accept that.
@Keith, several of the flag-waving types at the Americans Citizens Abroad group were aghast when I admitted that I’d renounced. I joined as a life member back in 2011 and was pleased that they are trying to make it easier for Americans to have a U.S.-based bank account.
I want to maintain a U.S. account because my parents send me dollar checks at Xmas and birthdays. I am also concerned about how I might handle any possible U.S.-sourced inheritances, etc.
The point is that I emailed the ACA because I needed to know my membership number to contact their suggested US credit union but believe I was ignored. :/