US expats given hope of lower tax bills
Republicans edge towards eliminating need to pay levies overseas and at home
published in the Financial Times
by Demetri Sevastopulo and Barney Jopson in Washington
You can read the article by answering a simple question that appears when the page loads. I cannot post the entire article due to copyright restrictions.
Here are some excerpts:
Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US.
Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world.
“It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.”
The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.
Mark Mazur, who was the top tax official in Barack Obama’s Treasury department, said he supported the change, arguing that it was necessary to address the “inequity” of an expat paying tax on the same income to both the US and a foreign government.
“If you take two people, one works in London, one in New York, working for the exact same US multinational — if they make the exact same amount of money you might think they should be taxed exactly the same,” said Mr Mazur, who heads the Tax Policy Center.
Solomon Yue and Michael DeSombre are also mentioned in the article.
There are quite a few comments with JC doing Yeoman’s Duty.
I am mellow today, so the following elicits saddness instead of the usual frustration and anger.
“The driving and credit history problem is not unique to the US. Friends moving to Canada (and to a certain extent even ourselves moving back from Germany) have definitely had issues with both.”
Why does one who knows this recommend moving a family to the US to a midfle aged male who can not afford to renounce? How could an unemployed (upon leaving Japan) midfle aged man with no credit and driving history and no savings sponsor his non his nonUS spouse to stay in the US?
Why suggest such a thing to such a person?
“The issues were hardly insurmountable. Just relatively low credit for a few years, and a bit more effort required when shopping for car insurance.”
No cash = no residence = no credit = no car to need insurance for.
The rich have no understsnding of the poor.
“Given your insecurity concerning passport revocation, what exactly is wrong with compliance? Presumably you come in under the FEIE so no actual money is involved (other than the possibly hypothetical threat of penalties). It might be the least bad option given that you likely will only ever have US citizenship.”
FBAR. I have no money now but I did share an account with my wife. Our combined account, 98% of which was her money, put me over the reporting threshold. Not reporting her assets to the US.
As for filing, when would I do that?
@JapanT
Does your wife know? That her money is in danger?
Actually if JapanT doesn’t have any money himself, and his wife’s money is no longer in his accounts, I think his wife’s money is safe.
When the IRS figured out that I had learned enough about their malfeasance that if I ever get a court to hear a case again (instead of saying lack of jurisdiction) then the evidence will get into court, the IRS stopped attacking me and started attacking my wife. A while later the IRS put her into “currently not collectable” status. I figured out my wife could petition US Tax Court for innocent spouse relief, for which the latest news is that Tax Court dismissed her case for lack of jurisdiction, but before they did that, the IRS told the court that the IRS abated the asserted penalty against my wife. The IRS’s evidence showed even more malfeasance, that money they previously confiscated (my money but our money) disappeared from their records, so of course the court had to rule that they don’t have jurisdiction. But anyway, my wife’s money seems to be safe now.
Anyway, some penalties are joint, but I don’t think FBARs are. JapanT’s wife doesn’t have to file FBARs. JapanT can be penalized for failing to file FBARs were JapanT would be required to declare his wife’s money, but the penalty can only be imposed against JapanT. And he’s “currently not collectable”, His wife is safe.
@Polly
“Does your wife know? That her money is in danger?”
I’ve told but she does not believe that Japan would agree to such things. She does at least listen to my concerns of her taking postings in the US though.
ND’s description is accurate. We no longer have a joint account, which was a great under taking to close. Her money should be safe. FBARs must be filed 6 or 5 (I forget which) years back, so I can not start doing that until our joint account is that far back in history. Not having anywhere near the reporting threshold, I will not need to file any, or so it seems to me.
Got several more years to hold me breath hoping that are joint account fades into history and off the map.
Regarding the difficulty of moving back to a country after being away many years. It really is NOT easy.
Living with a lowly credit score for a while? Oh, there’s a lot more to it than that.
What I actually faced was going in to estate agents looking for rental accommodation as a person who is homeless, unemployed, ZERO credit records and with references that they not would take up because they don’t take references from outside the UK, and not even in receipt of any benefits such as unemployment or disability.
Too polite to show me the door, they nevertheless got the message across.
Then you need a car, and how do you do that if you don’t have the thousands required because no one is going to offer you finance in those circumstances?
And yes, the insurance is going to kill you because you have no driving records that they will accept for no claims.
In my case I had several things going for me that others may not, such as family where I could stay occasionally, a car from my previous Belgian employer that I could keep for six months and drive to the UK with it, a bank account I had maintained while away and mostly, I have money.
No bank account, no family, no job, no car, no credit, no estate agent that will touch you and not enough money for hotels?
Nightmare.
“Given your insecurity concerning passport revocation, what exactly is wrong with compliance?”
Even if I thought compliance would be painless now, my next thought would be that once I was on the radar, what about if my circumstances change and/or the IRS moved the goal posts again leaving me with serious problems in the future? Not like the IRS to not consider US expats when they move the goal posts around, eh?
Here an article written by a US citizen in Japan regarding complying with the US tax code from Japan.
https://www.finance.senate.gov/imo/media/doc/Todd%20Stoudt1.pdf
Compliance is never painless. When I had my omg moment, i started off with the intention of complying. i thought how hard could it be? I still had the delusion that the USA was a fair country. Someone mentioned the FEIE to me and I did not know that it stood for only earned income and thought it would be just a matter of one form to check in every year that I was earning under the threshold. How wrong I was!
Once I knew exactly what was involved, I had to choice but to renounce. and not being able to integrate properly financially (after living here many years) and retirement and job issues. It was a real wake up call.
Anyone not in compliance now should do everything in their power to stay that way.
Mike,
Thanks for your account of moving back home. I have not had that experience nor have I known anyone who has, but your account is almost exactly how I came to understand how it must be. There is another wrinkle though. It may be a US thing, but you can not rent a car without a credit card regardless how much cash you have on you. This I know from personal experience. Nor can you rent a hotel room without a credit card. You CAN pay in cash but they will not rent a room to you unless you provide a credit card number as deposit on the room and its furnishings.
Motels may be different but they tend to be away from the center of the city requiring that car you couldn’t rent.
UK Rose,
Thank you for that. I have been trying to tell many people the exact same thing. According to many, I am just being lazy, or not doing my duty as a USC, an unpatriotic, making mountains out of mole hills and the rest. I have no doubt that you heard much the same.
Mike,
Yes, the history of moving goal posts is another major concern to keep one from wanting to try to ger back onto compliance.
@Japan T
Yes I heard that too but mainly from homelanders. My UK family and friends were shocked with the complexity. I had to ask my husband to assist in stapling my final dual status return together because the pile was so thick and I could not get the staple through it the first time. It’s absurd really.
There is such a thing as soft compliance but even that is not without pitfalls and as Mike said, the rules can change at any time. Even the subject of this thread, i do hope there is positive change for others as too late for me now. any change is better than none. but i would still be weary. Laws can change for good as easily to back to bad.
and regarding Fatca and recalcitrant account holders here, I was one with my bank, never heard a thing back and don’t think I will. I didn’t know my social security number at that time. my account is still active today. Maybe I was lucky but there is too much fear over Fatca. Yes one needs to be aware but the IRS is receiving a mountain of data and probably many false records and I can’t imagine they have resources to shift through it and use it properly.
“Nor can you rent a hotel room without a credit card.”
I tended to stay in very small family run places where they didn’t insist on a card at all, or bed and breakfast type establishments. Pubs with rooms above to let. They rarely if ever need a card and like cash. Stay a few nights and tell them not to bother changing the bedding and you can very easily get down to 35 pounds a night including your breakfast.
It was quite fun doing that for a few months.
“Anyone not in compliance now should do everything in their power to stay that way.”
Absolutely.
Mike and UK Rose:
You both echo my first thought upon hearing of the possible tax reform perfectly! Who is to say that the IRS won’t move the goalposts again? And who chooses voluntarily to live with that uncertainty? Renouncing is still the only soution!
Whenever I meet new US expats I try to find out if they have had their OMG moment yet. Surprisingly, despite the current compliance situation going on for years, the majority are unaware of their reporting obligations. This point really hit home for me when I was at the US consulate recently to renounce and several young couples – where only one parent was a USC – were there to claim citizenship for their newborns. The widespread ignorance of CBT, FBAR and FATCA is not to be underestimated; however, it is not surprising given that vitually no information campaign has ever been mounted to inform expats.
@Petlover
I have yet to meet face to face anyone else who is aware of any of this. They insist, as I once did, that they do not need to file if they earn less than the FEIE. They do not believe that their bank/s are reporting them to the IRS.
Petlover –
Coming in to compliance is the equivalent of coming out of a safe bunker with a white flag and hoping that your enemy doesn’t shoot you when every fibre of their being wants to shoot you full of penalties. That’s what they do. And even if they don’t now, new orders can come down the line at any time and even where they don’t actually intend to shoot you, you nevertheless end up as collateral damage because those giving the orders to shoot can’t even see the expats in the firing line. They go to tackle a domestic issue and the expats are collateral damage, again.
As to Americans abroad who still don’t understand any of this and think it’s no problem, I’ve met a few. Usually they are simply not in compliance and don’t even know it. Basically anybody with a full financial, business and family life who is still unaware of any problem is most likely in a world of trouble and just don’t know it yet. Last one I met said this was no issue had never heard of FBAR, for example.
I know a few people affected with this mess and they have had their omg moment already, but most only quite recently.
most just ignore it. however one dual went as far as to speak to an accountant that did serious scaremongering. i didn’t know she was a dual but she had an American accent. i asked her one day if she had American ties and she said yes she was dual. i said i renounced my US citizenship to see her reaction and then she told me of the nightmare she was going through since finding out of fatca.
I learned she did not have a US birthplace. born in the UK, family moved to the US and she got dual citizenship but she lived there long enough to acquire an American accent but decided to come back to the UK to work.
I told her point blank, stop everything you are doing right this second, no more meetings and talks with accountants and do absolutely nothing. use your UK passport only and never admit you are a US citizen. You do not have a US birthplace and should not bother with any of this. Compliance is much more riskier than non-compliance and she took my advise and is still taking my advise to this day. no consequences but if i hadn’t caught her in time, and she had compiled her situation would be quite different today
The thing that i really have problems with is convincing acquaintances not to get green cards. I have had a few here that I had to warn, and I have to send factual proof before they will believe it
My employers are still sending employess and students to the US for extended periods of time. Tried to get then to stop this practice or at least shorten the periods of stay there, to no avail.
Many JNs and Chinese I know are still hoping to give birth to their children in the US. No one listens to anything that challenges their beliefs.
@UK Rose
Mostly homelanders are the ones that responded that way but not only homelanders and homelanders abroad. Most of my British, Australian and Canadian coworkers have similar responses. Eventually, they ask, tell, demand I stop pestering them with it as it doesn’t pertain to them anyway. So I tell them again for the umpteenth time that all countries will soon be requiring similar of their absent citizens. That’s when they call my paraniod.
That was back before I even learned of CRS. Wonder how they’ll react once that hits them. Too bad schadenfreude has never had an effect on me, as it does on many of these individuals. Some are happy at the troubles these cause me and others.
A brief digest of replies.
Obviously, moving to another country is difficult if you have no money or employment. (Not impossible, if you look at immigration patterns. But not much fun either.) A middle-class sort of person with a job offer and some reserves has it relatively easier.
I didn’t suggest that compliance was a *good* idea, but rather it might be the *least bad* idea for someone living in perpetual insecurity in a country where they will never acquire citizenship and banks are taking FATCA seriously.
As for CRS and all that, other nationalities have the possibility of becoming tax non-resident with respect to their home countries. A Canadian in Japan can file the necessary form to end their Canadian tax obligations, at which point they are no longer subject to CRS reporting. It gets more complicated as you grow older and acquire greater wealth, but is very easy early on in life. With the US, the only way out is to renounce.
@UKRose
If your friend is ever questioned about her accent, she can simply say that she grew up in Canada. Learn a few pop-cultural references (names of hockey players appropriate to the decade etc.) and it’s a bulletproof alibi!
UK Rose: you gave your friend the BEST advice. I recently spent a whole dinner basically FORBIDDING friends here from EVER AGAIN contemplating compliance. The wife is dual as are the kids, but none have US birthplaces. They have a complex financial situation here and compliance is practically impossible anyway.
It’s really important that the people with non-US birthplaces and dual citizenship be warned not to do anything.
Nononymous: Indeed some of us feel forced to “comply”.* I became “compliant” to avoid the risk of being thrown out of a bank again. It’s been 3 years since Deutche Bank Belgium threw me out unceremoniously. Since then ING has sent me a few letters about my tax residences – I suppose because of my birthplace. Despite being compliant now I am still ignoring them. However I would be unable to open a new account in a new bank without giving them US tax info.
*important note: compliance being quasi impossible, I define “compliance” as feeding the IRS simplified, easy to digest data. This of course should never include rental income, capital gains on house sale, retirement accounts…
@Fred (B)
I’ve heard of some European banks demanding proof of compliance. This is of course absurd – how could they assess whether you were truly compliant? I assume that you just show them a copy of a 1040 and that’s the end of it. (Whether you actually send in that 1040 is an entirely different question.) Certainly if I for whatever reason needed to appear compliant, I’d claim an income at 95 percent of the FEIE and leave it at that.
I have a German ING account which I need to deal with soon. I ignored their letter requesting proof of address registration (Anmeldung) because of course we aren’t currently living there and are just using a friend as a postbox. They possibly noticed because we didn’t receive new cards when the old ones expired. I’ll be curious to see if they ever ask about US citizenship. I listed Canadian on the application and showed a Canadian passport as ID (with US birthplace) but I don’t think they asked for place of birth. I may need to do the CRS form for Canada, but that’s no big deal.