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American Expat Relief Coming September 1st

12K views 58 replies 14 participants last post by  RødGrød 
#1 ·
Some tax filing relief for expats starting September 1st.

The kinder, friendlier IRS just announced a special program to reduce the filing requirement stress of expats who didn't know that they had to file. Starting September 1st, they are launching a special program for "low compliance risk" taxpayers that will allow you to file the last 3 years of tax returns and the last 6 years of FBARS, if required, penalty free!

So the 6 year filing statute is in essence being put on hold...so filing the last years and paying a minimal tax due with interest takes you "off the hook" for all prior years. All you have to do is provide a reasonable explanation, pass the review process, and "poof" the IRS is off your back.

Keep in mind that this new procedure only applies to "low compliance risk" tax payers...those who owe little or no tax.
 
#3 ·
This is the IRS release about this "new" procedure: New Filing Compliance Procedures for Non-Resident U.S. Taxpayers

It's basically a return to the old "current year plus 3 years in arrears" - other than the FBAR filing requirement (which is now 6 years). Basically, the IRS doesn't have the resources to audit everyone who is in technical breach of the law, so they have to concentrate their efforts on those who might actually be evading some significant taxes due.
Cheers,
Bev
 
#4 ·
Well, I didn't file 2009, so I logged into FreeFillableForms and was told that I couldn't use it. That kills that idea, even without mentioning the fact that the $20 billion information system won't process my address using FreeFillableForms.

It never ceases to amaze me how the IRS can waste $20 billion while neglecting the most basic and important element of an information system - the address.
 
#7 ·
The tax relief I want to see is an end to citizenship-based taxation. Plus eliminating FBAR's for non-residents.

This endless revision of IRS regulations only adds to the confusion. No one really knows what they mean by "low compliance risk". And who the heck knows (or cares) what the maximum balance of their checking account was 6 years ago?

I live in another country, bank in another country, pay tax in another country, and spend my money in another country. What business is it of the US government or the IRS? Their only interest in me is potential revenue.

Please, just go away.
 
#8 ·
What's almost funny is that Romney is exactly the profile of taxpayer the whole FATCA thing is supposed to be seeking out: US resident, offshore accounts, vast wealth, financially savvy enough to make use of every available loophole, complex financial affairs, etc.

Almost leads one to hope that should the schmuck get elected, he'd "fix" the tax code - but what do you want to bet it would only get "fixed" for wealthy US residents and nothing for those of us resident outside the US with dead normal local bank and savings accounts?

OTOH, the US isn't the only country that asks for disclosure of overseas accounts. My French tax declaration asks every year for a list of my bank and "life insurance" accounts outside of France. (Admittedly they don't ask for any balance information, just the account identification information.) That, I can live with and, in fact, I tend to "over report" just to be on the safe side.
Cheers,
Bev
 
#9 ·
Right you are, Bev. Canada also wants similar information on assets and income from abroad. But the difference is that France and Canada are our respective tax homes. And if the income is significant we will probably pay some tax to our respective governments. Fair enough, there are many advantages to living in Canada--I'm sure France is the same.

The US is home to neither of us; not in a tax sense and not in a residential sense. In my case not for 40 years. Yet the US still requires all of this useless invasive reporting, threatening ruinous financial penalties or even prison for the slightest infraction. I know that they can't really touch me but I would like the freedom to travel to the US occasionally to visit relatives. I would never move back to the US. I have had (and continue to have) a very good life here in Canada.

The result is that I have begun to resent and even hate the government of my country of birth. As I have stated before on this forum, I do not intend to live the rest of my life with this hanging over my head. So they either come up with some real relief or I'm going to fix the problem myself, once and for all.
 
#10 ·
The US government is welcome to threaten me, and the minute it does so, I'll renounce. I love America and the American people, my ancestry helped to build America, but I left the United States to find a job instead of collecting unemployment checks and thus I have absolutely no interest in being threatened by that country. I'll do what I can to comply with its demands, but it if won't work with me, then I'll stop working with it.
 
#12 ·
I just got a snail mail letter from the IRS. It says that they were unable to process a request for Transcript of Tax Return because of an incomplete or missing address. The address is obviously good because I got the letter, and it's the same address that I used for filing, but they may have another address on file since I've used different US addresses whenever the system prevented me from entering my local address.
 
#17 ·
I spoke with the IRS yesterday and asked them if they wanted me to file 2009 since I hadn't filed it. They said that they would like for me to do so, so I'll go ahead and snail mail it to them. I'll send any documentation that they want to have. I hate using snail mail, though, because it costs the US taxpayer and myself more money and it makes sensitive data about Americans easily accessible to terrorists who could intercept the snail mail. Just this week, the US government warned that Americans abroad need to act with caution since they are targets of terrorism.
 
#19 ·
maz57, I think you've summed it up rather nicely.

"Americans living overseas" summons up an image in the US of caviar swilling fatcats on expense accounts - and that's what drives the Congresscritters as they try to appease their constituents. There is some lobbying done on behalf of overseas residents, but the way we're split up in terms of voting district means that we aren't seen to have any real weight. (Actually, no one knows how many of us there are.)

The one option we do have (short of renunciation, that is) is "selective reporting." Some elements of our "worldwide income" the IRS has the ways and means to find out about (should they care to) and other elements, not so much so, if at all.
Cheers,
Bev
 
#23 · (Edited)
Who here can tell us what "low compliance risk" tax payers are? without that answer the program is meaningless.
I would guess that officially it's only a very small percentage. Many Americans living abroad could easily wind up owing over $1500 in US taxes if they, for instance, had to pay capital gains taxes on the sale of their primary residence or if they held 'foreign' mutual funds (PFIC taxation).



On the other hand, I would like to think that in reality the IRS will also include a large grey area of expat minnows within it's 'low-compliance risk' category for expat filing even though the official definition is quite narrow.
 
#24 ·
I think you're being a bit pessimistic here. "Low compliance-risk" probably covers the bulk of American expats - those whose main source of income is salary income (subject to the FEIE) plus a nominal amount of bank interest or investment income easily offset by taxes paid to their "host country" system.
Cheers,
Bev
 
#26 ·
The killer in these situations are the various "tax free" funds (and other arrangements, such as "tax advantaged" retirement arrangements) that are available in so many countries. If you have no foreign taxes with which to offset the demands of the US, then you lose the advantages of such funds altogether.

The system is definitely unfair - but in the current financial and political climate it seems a lost cause to try to oppose it.
Cheers,
Bev
 
#27 ·
Most banks in Switzerland are now refusing to provide services to "US Persons". In the US, it is a federal crime to deny a mortgage to one due to their national origin and yet US policy is forcing banks to practice US federal crimes against American citizens. What will it take to finally get the global community to acknowledge that citizenship-based taxation is a crime against humanity?
 
#29 ·
I am hoping that the guidlines will help me to clear up some NEW TO ME outstanding questions that I have. I did file ON time , 6 years of FBARS, after many, many hours of work and searching for papers, but have recently come across a post on another website telling me that I must report my TFSA (tax free saving account) to the IRS on the form 3520. I have closed the TFSA anyway, held a GIC for just 3 years. I am trying to figure the form out,and have asked my bank for addition help.
They have told me that my GIC held withing the TFSA are not considered a foreign
trust. But it would be to my advantage to have a document from my bank that would put in writing that my GIC is not a foreign trust, but my bank is not willing to do that. Any advice on this? Should I just let sleeping dogs lie, I did report the TFSA as a bank account on my FBAR's, and I really don't want to have to pay a lot of money to get help filing out the 3520 if my bank tells me it isn't a foreign trust.
Is their verbal assurance that it is not a foreign trust enough for the IRS, if they would even come back and ask me? Thanks!
 
#30 ·
This isn't an official response by any means, but given that you've closed the account, I'd just let it lie. You disclosed the account on your back filings. Unless there is something "suspicious" about it, chances are the IRS will simply mark you down as "having filed" and probably not look much farther into it.
Cheers,
Bev
 
#31 ·
Plan to renounce citizenship

I am a US citizen but left the US almost 35 years ago and just filed my back taxes and FBARs for the last six years. I don't have any emotional attachment to the US although I lived there until my early 30s. I live in Canada, love it and am a Canadian citizen. I plan to renounce my US citizenship because I see no benefit in filing these reports every year and no desire to tell the IRS about my meagre finances or those of my wife, a non-US citizen who has never lived in the US.

What are the negative implications if I renounce my US citizenship and where can I get information on how to renounce.
 
#32 ·
I am a US citizen but left the US almost 35 years ago and just filed my back taxes and FBARs for the last six years. I don't have any emotional attachment to the US although I lived there until my early 30s. I live in Canada, love it and am a Canadian citizen. I plan to renounce my US citizenship because I see no benefit in filing these reports every year and no desire to tell the IRS about my meagre finances or those of my wife, a non-US citizen who has never lived in the US.

What are the negative implications if I renounce my US citizenship and where can I get information on how to renounce.
We've been around on this topic any number of times.

Contact your nearest US Consulate for the low down on how to renounce, and they will most likely give you the "standard pitch" on the negative implications. http://www.state.gov/documents/organization/115645.pdf is the section from the US Consular Affairs Manual if you want a preview.

Practically speaking, the major negative at the moment is possible confusion on entry to the US if an immigration officer notices that your place of birth is in the US but you are entering on a non-US passport. (Solution: carry your renunciation certificate with you any time you go to the US).

If you fall into a certain income and/or wealth bracket, renunciation can carry various tax penalties: i.e. the "expatriation tax" obligation - either a one-time settle up based on all your assets, or a 10-year obligation to file US tax returns after renunciation (or, potentially, both of the above). Oh, and the act of renunciation itself costs you - something like $450 to process the paperwork.

Other than that, good luck with your decision.
Cheers,
Bev
 
#34 ·
I was a US diplomat working for NATO for 8 years during the 90s. During that time I fell under 3 differing NATO treaties concerning taxes.

THE IRS UNDERSTOOD NONE OF THEM and routinely gave us bad information. It was so bad that I, and several others, took it up with the Charge d'affaires. We got into several tax fights, and basically won every case, and never even got into tax court although we came close at least once.

Point is, the Keystone Kops of the IRS usually have feet of clay if you know your ground in regards to taxes on Expats. And if it is a grey area, color it your way; and if they don't "rule" your way, threaten them with tax court. BTW, they lose much more than they win in court, and they (the IRS) know it.
 
#38 ·
I'm in the middle of trying to complete tax forms from many years back and just read about this low compliance angle. Now I'm wondering if I should forget about the older ones and only concentrate on the last 3 years, or if I'm understanding the posts here correctly that I would have had to file 2009 through ordinary channels?

Also, regarding the definition of low compliance--I have bank accounts in my foreign tax home and they do occasionally go over the $10,000 limit since I'm paid sporadically, so I understand I need to complete the FBARS. I also have a bank account in the US that I use only for the purpose of paying a student loan (I transfer money from my foreign account to cover an automatic payment). Would that disqualify me even though I do not owe taxes (due to the foreign income exclusion and/or foreign tax credit)? Would payment (through my work) to a retirement fund disqualify me? The retirement fund is one set up by my work and so it's not an account per se: does this need to be reported?

I guess my question is: when I'm so far behind in filing, what's my best option? Filing isn't a simple process, I have a small amount of interest income (from the US only) and I have sold some stocks in the past that will appear as capital gains (although I still don't think I owe taxes due to the exclusions and taxes paid in the foreign countries).
 
#39 · (Edited)
I think that this is your best option, but I'm not a tax preparer or CPA and thus I won't threaten or scare you into paying huge fees. I'd recommend that you call the IRS directly and discuss all of the issues directly with them. If you are nice to them, then they will be nice to you, even if they appear grumpy at first. Just be friendly and patient.

I'd say, just do the last 3 years and last 6 years of FBARs. The US bank account shouldn't cause any problems, as mentioned in the comments here:

Even though it is "foreign" for you, it is not "foreign" for the IRS, I guess. For the US, "foreign" is anything that is outside of US borders, including US citizens who work abroad.

Your retirement fund probably does not have to be reported, depending upon the double-tax treaty with your government. On this, the IRS wrote to me:

When reporting worldwide income, you must include any income that is received. Since the income is deferred from your pay until a future date, you would not include that amount in your gross income for the year.
US Expatriate Foreign Pension Plans Continued? | American Working Middle Class Abroad

I don't know about capital gains. I've stayed away from those since the US makes it complicated and audit-needy.

For filing, it would probably be best to use a free filer. Here is a little review:


You can use it to design the basic stuff while inquiring with the IRS on the more complex issues, and then manually entering in the dated into printed tax documents, since US tax preparers are utterly horrified with the thought of expats free-filing current or previous year returns. I wrote an article on doing past-year tax returns with money-hungry tax preparers:

Day One: Filing Previous Year Tax Returns
http://goo.gl/DuVgp

The second part, Day Two, is pending and I'll finish it when I get around to it.

When you are done, post your experience with how it relates to your country, such as here where it is described in relation to Hong Kong:

IRS “Streamlined Filing Compliance Procedures” and Hong Kong: Shatin Families Calumniated & Plundered
http://goo.gl/xq1gq
 
#42 ·
Transplant: I would just file the three years required by the amnesty program. If the IRS wants to see more years then they'll let you know. Since you've already done the work, you can save them just in case they ask for them, but, in my opinion, there's no reason to draw attention to yourself by sending in more than they require.

How do you deal with your retirement account on your actual tax forms? Since the US-Danish tax treaty makes no allowance for our "foreign" retirement accounts, I'm always curious as to how my fellow Americans in DK report them.
 
#43 ·
Hi Rødgrød: I have completely ignored the issue of the retirement accounts, since nothing has been paid out (therefore not income). I'm not sure how the US gov't will feel about that, but I can't see where they are to be mentioned. Since I don't have signing authority over them now, I'm assuming they don't need to be included in the FBARS either.

What is your strategy?
 
#44 ·
Just for clarification there--when I report my Danish earned income, I'm reporting the total amount that includes what is paid towards my retirement, even though it is not taxed by the Danish gov't. I had asked about that in another thread some time ago and was told to use the total income amount.
 
#46 ·
As RodGrod says (sorry, I don't have the Danish character on my keyboard), just file what you need to file - 3 years back for tax returns and 6 years for FBAR. Don't get too concerned about this "low compliance" thing (I think it's actually "low compliance risk" - i.e. the risk of you owing anything significant is real low) - just send them in as back filings and forget about them.

The IRS will get back to you if there is anything seriously wrong with them - but unless they suspect they can collect some major back taxes and penalties from you I suspect they'll just marked you down as "filed" and be done with it all.
Cheers,
Bev
 
#50 ·
Finally all done with the last 3 years plus the 6 years of account info, filled out the questionnaire and even the envelope........only to find out that I first have to file an application to have my social security card/account updated, since I never did that when I married. The IRS will accept a copy of the application, but I have to visit the embassy in Copenhagen to submit the application so they can see my passport and my marriage license.

I'm going to be doing a major happy dance when I am finally able to submit!
 
#51 · (Edited)
Help with 3520a

I'm just about ready to do my "happy dance" too!

Finally after all the fear, trepidation and angst over the process, and 200 hours of filling out forms condensed in 3 week period (night and day), I have finished my 6 years FBARS, two years 8938, and 4 years tax returns (yes, one more than required).

I have a question for anyone on form 3520a... :confused:
Form 3520a page 4, question 8:
“Attach an explanation of the facts and law (including the section of the Internal Revenue Code) that establishes that the foreign trust (or portion
of the foreign trust) is treated for U.S. tax principles as owned by another person.”

What are they asking for? Does anyone send an attachment with this? What Code are we supposed to cite? :(

I have a family trust, used extensively in Australia for farmers, as legal protection and used like a company, without the company tax problems. I also have a couple Unit Trusts which treat different investors in the trusts as Unit holders (think Share Holders)... how would anyone know IRS codes to support our situation?

Separately, I say to anyone looking to file - just do it and 'get legal'. I have to file on Monday my past years 1040, three 5471's, three 3520a's and the 8938 for each year applicable, and it all seemed soooo insurmountable in the beginning.
But, I got through it! :clap2:

Yes, I have complaints about the process, the unfairness of making us go through this, but someday, I might want to visit the U.S. again for extended period, and I can't afford to miss out. It's a great feeling to overcome this huge hurdle, and I will certainly be keeping up in the future. My ONE KUDO is to who ever brought about the "Streamlined" program, because without it, I don't know how I could have faced this... maybe I couldn't have :eek:
 
#52 ·
I honestly have no idea how they expect anyone to do that one, but I notice that the request for IRS Code and chapter number is actually question 7 and that question 8 says something about "if the trust has not appointed a US agent" to just list the documents of the trust that you are attaching.

If you have a copy of the trust documents, I would simply send them a copy (at least they're in English and you don't need to send a translation!) and list that for question 8. That way you've "fully disclosed" what you have, and if they have questions, they'll get back to you.

When in doubt, go for full disclosure and let the IRS decide what else they want.
Cheers,
Bev
 
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