US/UK Tax & Financial Advice

[Bevdeforges]

Hi Punktlich2,
You make lots of excellent points in your post. I come at the issue from the other side - I'm an accountant, a CPA in the US with some experience in and with the big public accounting firms. Unfortunately, there really aren't all that many hands-on practitioners who truly understand both (or all) sides of the multi-national tax situation.

As far as the US is concerned, there is also a certain level of "what the IRS will and won't bother with." Within the big accounting firms, there are lists of items that constitute "red flags" and will make a client's return more likely to audit or intense review. The IRS is said to have a similar list, complete with point values, which they use when determining which returns to audit - though they deny this vehemently, or simply refuse to disclose any such lists.

Similarly, the IRS is well aware that the vast majority (or so I suspect) of US citizens (accidental or otherwise) living overseas probably aren't filing returns. As long as they "probably" fall under the earned income exclusion, they simply don't bother trying to find them - hence the long-standing policy of forgiving past sins if an expat files 3 years in arrears showing no tax liability. OTOH, if someone living overseas has enough income and assets to be concerned about estate planning, that's probably someone the IRS is more interested in "getting to know." (And I've been told that in the matter of sharing estate tax returns, the US is particularly cozy with their European tax counterparts.)
Cheers,
Bev

[Punktlich2]

Originally Posted by Bevdeforges

Hi Punktlich2,
You make lots of excellent points in your post. I come at the issue from the other side - I'm an accountant, a CPA in the US with some experience in and with the big public accounting firms. Unfortunately, there really aren't all that many hands-on practitioners who truly understand both (or all) sides of the multi-national tax situation.

As far as the US is concerned, there is also a certain level of "what the IRS will and won't bother with." Within the big accounting firms, there are lists of items that constitute "red flags" and will make a client's return more likely to audit or intense review. The IRS is said to have a similar list, complete with point values, which they use when determining which returns to audit - though they deny this vehemently, or simply refuse to disclose any such lists.

Similarly, the IRS is well aware that the vast majority (or so I suspect) of US citizens (accidental or otherwise) living overseas probably aren't filing returns. As long as they "probably" fall under the earned income exclusion, they simply don't bother trying to find them - hence the long-standing policy of forgiving past sins if an expat files 3 years in arrears showing no tax liability. OTOH, if someone living overseas has enough income and assets to be concerned about estate planning, that's probably someone the IRS is more interested in "getting to know." (And I've been told that in the matter of sharing estate tax returns, the US is particularly cozy with their European tax counterparts.)
Cheers,
Bev

That "coziness" is subject to lots of conditions. For example, the Canada-US Protocol which goes further than any other US treaty in terms of mutual enforcement of tax claims, excludes citizens of the target (requested) government. Few, probably almost no, countries will assist a foreign country in a tax claim not involving money-laundering or drugs or fraud where the (non-)taxpayer is also (or only) a citizen of the requested country. The UK has a generous extradition treaty with the US and it is said that many accused persons have been unfairly extradited by the UK to the US. But as with the European Arrest Warrant, tax crimes are excluded.

I don't think the IRS will get far in seeking to enforce US estate duty in lieu of a QDOT against a British widow. There are many unfortunate/outrageous situations in income taxation too, some of which yield tax over 100%. In the Carter years when foreign earned income exclusion was abrogated, US schoolteachers in Nigeria earned, say, $25,000 in cash, plus an apartment and car that due to the overvalued exchange rate led to tax over 100%. The IRS guy in Paris told me they really hoped such cases would not come to their attention. Think also of the "beneficiaries" of incentive stock options who owed tax on phantom income after the stock tanked in the dot-com crash. Waiting out the SOL and then filing bankruptcy was the only solution after Congress failed to act.

In France the reliance on wealth taxes and social contributions means that most tax paid to the French Government is not creditable on Form 1116. My daughter's boss in Paris recently consulted me on surrendering his green card to end what amounted to a voluntary $50k annual payment to the USG.

In estate cases, as I said, one can safely fashion a non-payment plan if (and perhaps only if) all assets and all heirs are outside the USA (and preferably also non-citizens).

On the nationality point: the US is one of those (few among OECD countries) that does not know who its citizens are. Many countries -- here in Switzerland, also Denmark, Belgium and other European countries -- withdraw the nationality of a child one s/he reaches majority or age 22 etc. abroad and fails to declare him/herself to a consulate and (obviously) has another nationality as well.

By and large IRS wants six years of back returns, and no more. Years ago I had a client who was the spouse of a non-filer who, incredibly, was a USG auditor in Europe. When he died I advised her to file six years of back returns as married filing separately, and we also filed a minimum of self-employment income. There was at the time no totalization agreement with the country where she lived; the result was she got her survivor's civil service pension and a minimum social security plus Medicare.

One ought not to plan on the basis of nonpayment of tax; but even the IRS had to deal cutely with those who had their US citizenship unexpectedly restored by the Supreme Court: Rev. Rul. 75-357, PLR 8138071 (accepted an attribute of US nationality; under international law it is unlawful to impose a nationality without consent on someone at a time other than birth or adoption or, perhaps, marriage), see Vance v. Terrazas, 444 U.S. 252 (1980 and 7 FAM 1250. Many, many persons are never documented in their lives as Amcits and because they never lived in the USA for 5 years, 2 of them after age 14, any offspring will not be Amcis unless the spouse is. (The rule is one year without ever leaving in respect of nonmarital offspring born abroad.)

It is no surprise to me that here in Switzerland the cantonal and private banks decided not to open, and if they had one to close, US offices. QI rules, and the EU savings agreement are one thing, invasive access to books and records quite another. I quite like the outcome in the Van deMark case, 68 O.R.(2d) 379 (Ont. H.C.J.) where the Toronto-Dominion Bank, from whose NYC branch disputed US taxes were seized from the depositor under the principle of transferee liability, had to pay the same amount to the Canadian depositor. The funds were, after all, deposited in one of the bank's Ontario branch.

[Bevdeforges]

Ooh, we're really drifting here, but this is kind of interesting stuff - at least to the likes of you and me.

It's not always the US that is the heavy in these situations, either. I have been told by some of the tax lawyers here in Paris that failure to declare overseas bank accounts on your French returns can lead to the accounts being essentially impounded on your death rather than being passed along to heirs.

But again, that kind of depends on your having sufficient assets to draw the attention of the tax people from the various countries involved.

And, I must say that I have found the IRS folks in the Paris office to be genuinely helpful - something that is not always the case back on the IRS's home turf.

One big potential glitch in all this is the liberalization of the US citizenship laws - done back in the 1970's due to lobbying from US expats. We've now got a generation of US citizens of prime tax-paying age who have never lived in the US, but who have a US tax obligation (whether they realize it or not). The son of a friend of mine was in this position and was considering renouncing his US citizenship prior to starting his own company here in Europe. His mother was distraught at the idea of him renouncing, but I can certainly understand his motivation.
Cheers,
Bev

[Punktlich2]

Originally Posted by Bevdeforges

Ooh, we're really drifting here, but this is kind of interesting stuff - at least to the likes of you and me.

It's not always the US that is the heavy in these situations, either. I have been told by some of the tax lawyers here in Paris that failure to declare overseas bank accounts on your French returns can lead to the accounts being essentially impounded on your death rather than being passed along to heirs.

But again, that kind of depends on your having sufficient assets to draw the attention of the tax people from the various countries involved.

And, I must say that I have found the IRS folks in the Paris office to be genuinely helpful - something that is not always the case back on the IRS's home turf.

One big potential glitch in all this is the liberalization of the US citizenship laws - done back in the 1970's due to lobbying from US expats. We've now got a generation of US citizens of prime tax-paying age who have never lived in the US, but who have a US tax obligation (whether they realize it or not). The son of a friend of mine was in this position and was considering renouncing his US citizenship prior to starting his own company here in Europe. His mother was distraught at the idea of him renouncing, but I can certainly understand his motivation.
Cheers,
Bev

Most IRS attachés abroad are being rewarded for good, loyal and quality service in what amounts to a pre-retirement post. Nothing wrong with that, and it tends to get us experienced, intelligent, non-"jobsworth" people in the position. They no longer have a "quota" or anyone they have to please to get a promotion.

The French cannot "impound" a foreign account. And in the French law of succession there is no disinterested "syndic" or executor or trustee: assets pass to the heirs as a matter of law (as does, through an anomaly, real estate in New York, whether or not there is a will). The anomaly here is that if the (non-)estate (i.e., the decedent) is insolvent the heirs have to disclaim or they inherit the debts! I heard once of a child who had to be made bankrupt because he had inherited an insolvent business (there is no personal bankruptcy in France, the Loi Neiertz is a 5-year standstill for overindebted consumers).

What the French can do is to reclaim inherited French assets to compensate for foreign assets that have escaped tax or "forced heirship". That's what was at issue in the succession of Leslie Caron's father: Caron v. Odell

But the issue is less important in France than it once was: wealthy French taxpayers have fled abroad, to Switzerland and other places. The fall in interest rates has made the tax on foreign savings interest trivial.

The olden days when the 25-km zone around the French border was a dangerous area to be in carrying money or valuables because you could be stopped and interrogated by the CRS (as I once was, driving a brand-new van owned by my then-employers, an Embassy, with cases of wine in the back, being shipped from the embassy to one in another country. It gave me some satisfaction to be able to tell show them my "ordres de mission" and tell them they had no right to search the van without authorisation from the Foreign Ministry. But I thought all along of the mysterious account, which I read in an old issue of the Sunday Times Magazine, of a load of World War II gold that had been seized that way en route to Switzerland, and which had disappeared from the radar, presumably corruptly. The point of the story was that the only way the car could have been targeted is if somebody in the Swiss bank had tipped off the CRS, presumably in exchange for a reward. Well, we know now that happens, think: Liechtenstein Massive Tax Evasion Scandal in Germany: The Liechtenstein Connection - SPIEGEL ONLINE - News - International

Sorry to get further off topic, but it's not really off topic at all, is it?

I'm back in London next week with a stack of tax returns to finish and a "décalage" problem relating to the British ecclesiastical/tax year conflicting with the US tax year. The sources of grief and potential double taxation are endless.