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Discussion Starter · #1 ·
Hello All,
I am looking for some help/tips, regarding the best way to become fully compliant on my US Tax obligations. Any help would be greatly appreciated !

Summary of my situation:
1. US Green Card Holder. Green Card will expire in 2018 and I am not planning to renew it.

2. Until recently, my (mis)understanding was that I was not US resident since 2010, after I stayed out of US for > 12 months and rarely visited US after that.

3. I recently became aware that my understanding was wrong and consequently, I am 6 Years delinquent on US Tax Returns and FBARs. Although I feel like kicking myself for getting into this situation, this was nevertheless an absolutely genuine mistake and I am now eager to become fully compliant.

4. Another fact is that I was contacted once by IRS for missing tax return for Year 2013 (CP59 notice). I did not reply (I thought it was IRS’s mistake as I assumed that I was not US resident anymore) and IRS did not send me any further notice.

5. I’ve now been advised by an Enrolled Agent (EA) against going with Streamlined Procedure, since: (i) I did file Tax Returns and FBARs, from 2005-2010, and (ii) there is unanswered IRS notice, in 2013. In order to avoid possible issues, the EA advised that I just file the missing Tax Returns and FBARs.

6. In the period 2011-2014, I was Tax resident of Cyprus and due to “Tie-Breaker” clause in the USA-Cyprus tax treaty, I now understand that I will have to file 1040NR as non-resident and attach Form 8833 to it. No US Tax owed.

7. In period 2015-2016, I worked in Singapore. I will have to file 1040 for those years and after using FEIE and Housing Deduction, my estimate is that I owe about $30K of tax, which I will pay.

8. I will have to file FBARs for years 2011-2016

Based on the above, I have the following questions:
1. After I go ahead and file all missing returns and FBARs correctly and pay all due taxes, plus interest, plus possibly penalties for late filings of tax returns…will I be ALL DONE ? Is there any risk that IRS may still attempt to claim penalties on late FBAR filings ?

2. I am planning to attach “Reasonable Cause” statements to my 2015 & 2016 tax returns, hoping that the late filing penalties may be waived. Any comments regarding likelihood of success with that ?

3. Any issues with late filing of 8833 Forms for years 2011-2014 ? I think no issues, but needed to double-check.

4. If you think that despite the above advice of EA, I’d be better off filing under SP, I would be grateful if you could share your opinion. Also, if you think I am missing something in the whole picture, or there is another option to follow, I’d also appreciate it, if you shared your view.

Clearly, my objective is not (and has never been) to hide anything or avoid any tax I owe. I think that paying the $30K of owed Tax plus Interest is painful enough for the mistake I made (especially because I had no real need for keeping the US Green Card). But at least, I want to make sure that I will be done after that and I want to understand if there are any risks of being accused of something that I did NOT do (i.e., wilful non-filing) !

Frankly, I’ve become a bit paranoid after some extreme comments I have seen (mostly from tax attorneys) and I am hoping to see some informed opinions on my situation, from this community.

Thank you very much, in advance !

Alex.
 

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You may want to proceed with caution here.. and you probably want to do some careful tax planning and get some solid advice, because the plan of action you describe above is likely to cause you grief.

If you are greencard holder (even if you could not actually re-enter the US on it because the card itself had expired) and choose to use a treaty tie-breaker clause it is considered an expatriating act and potentially mean you are a covered expatriate for the purposes of the exit tax - particularly as you will be considered a long term permanent resident.

In theory you could use this to your advantage (assuming you have not re-entered the US on the greencard since your return to Cyprus).

Conceptually you could take that treaty position on your first delinquent return, attach 8854 and 8833 along with the FBAR for that year and that might be the end of it, assuming that you can ensure that you are not a covered expatriate. Then you would simply file delinquent 1040NR on any US sourced income for the subsequent years.

Actually you could do that at any point, but you would be filing a 1040 not a 1040NR up until the year that you chose to take a treaty position. Remeber while you have the greencard.. you are a tax resident of the US regardless of whether you can enter the US on it (because for example your re-entry permit has expired)

Regardless, in light of the CP59 it might be wise NOT to use form 2555 as there is a much higher chance it will be rejected. In order to take a foreign earned income exclusion your return must be timely... I don't think you can make a late filing pursuant to 1.911-7(a)(2)(i)(D) procedural rules given the CP59. You should instead probably file form 1116 (Foreign Tax Credit) and use foreign taxes paid to offset US taxes on that income.
 

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Discussion Starter · #3 ·
You may want to proceed with caution here.. and you probably want to do some careful tax planning and get some solid advice, because the plan of action you describe above is likely to cause you grief.

If you are greencard holder (even if you could not actually re-enter the US on it because the card itself had expired) and choose to use a treaty tie-breaker clause it is considered an expatriating act and potentially mean you are a covered expatriate for the purposes of the exit tax - particularly as you will be considered a long term permanent resident.

In theory you could use this to your advantage (assuming you have not re-entered the US on the greencard since your return to Cyprus).

Conceptually you could take that treaty position on your first delinquent return, attach 8854 and 8833 along with the FBAR for that year and that might be the end of it, assuming that you can ensure that you are not a covered expatriate. Then you would simply file delinquent 1040NR on any US sourced income for the subsequent years.

Actually you could do that at any point, but you would be filing a 1040 not a 1040NR up until the year that you chose to take a treaty position. Remeber while you have the greencard.. you are a tax resident of the US regardless of whether you can enter the US on it (because for example your re-entry permit has expired)

Regardless, in light of the CP59 it might be wise NOT to use form 2555 as there is a much higher chance it will be rejected. In order to take a foreign earned income exclusion your return must be timely... I don't think you can make a late filing pursuant to 1.911-7(a)(2)(i)(D) procedural rules given the CP59. You should instead probably file form 1116 (Foreign Tax Credit) and use foreign taxes paid to offset US taxes on that income.
Thanks a lot for your feedback, which was very useful !

After additional thinking, below is a (hopefully plausible) scenario, along with some remaining questions:
1. 2010 was the first year when my return is delinquent, but in that year, I was NOT long-term permanent resident yet
2. So, I need to file 1040NR, 8833 & FBAR Forms for Year 2010
3. It seems that I do NOT need to file form 8854 for Year 2010...because this form applies to US citizens and long-term permanent residents, only

Key question is what happens after that ? Form 8854 and Exit Tax considerations apply to US Citizens and long-term residents (LTR), but I can not find anything regarding what happens to "non LTRs, who file form 8833 for a certain year".

So, the best case interpretation is that once I file 1040NR and 8833 Forms for 2010 and since I was NOT LTR at that time, I am all done. I think that all other info. regarding Exit Tax and Form 8854 is not contradicting to this view, since the later apply to US citizens and LTRs only. And based on that, if I am ever questioned by IRS for any year after 2010, I can refer back to my 2010 8833 filing and the fact that I was NOT LTR at that time...thus, 2010 was my "Exit" Year.

Could you please tell me your thoughts on the above approach ? Am I missing something ?

On a side note, it is obvious that there are contradictions between immigration law and tax law that cause confusion, which also led to my original misunderstanding...I know I am not saying anything new. Furthermore, when I opened the subject of the above scenario with the two EAs I discussed with, it seems that either they did not know or they were not willing to get into analyzing my case along this path and they discarded it...instead, they advised to go with full filing for missing years. But your feedback re-opened this trace of thinking for me and hopefully, this approach (perhaps with some modifications) makes sense and can be worked out !
 

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First of all let me start by saying it is normal not to know of these filing requirements. It is actually more normal not to know then to know. and many have found themselves in similar situations. and tread very carefully with lawyers and the US tax compliance industry in general. They will will sometimes over comply with the laws and use scaremongering tactics. Not all are like this but I have found most are like this.

Take a read of the blog entry which may answer some questions. Phil Hodgen's blog has a lot of information on lots of subjects.

https://hodgen.com/green-card-holders-treaty-elections-and-exit-tax/
 

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Could you please tell me your thoughts on the above approach ? Am I missing something ?
The key thing is that from the IRS perspective you are still to this day a permanent resident and will continue to a permanent resident until such time as you return your green card using form I-407 or take a treaty position on a tax return. This is regardless of whether or not you could actually re-enter the US.

The way I see it there are a few options that you have and you may wish to play through them all to see which is the most palatable for you in terms of risk, effort and cost (tax prep and/or back taxes - or for that matter the cost of the weight of this on your shoulders)

Option 1: File a late 2010 return, take a treaty position and attach 8854.
There is a non-zero risk of a $10k penalty because of the late filing of an 8854. But late filing in itself does not make you a covered expatriate.

https://hodgen.com/filing-late-form-8854-covered-expatriate/

I think Phil Hodgen is one of the few people out there who provide good solid reading of the tax code and its foibles without any fear mongering.

Option 2: File late returns up to present (you could actually write and apply for an extension for the 2016 tax year in which case "present would be the 2015 year), and then file a timely return that takes a treaty position, attach 8854 and be done with it. But then of course you would be a long term permanent resident rather than just filing 8854 late.

This approach removes the risk of a late form 8854 filing penalty, but there might be late payment penalties if you owned US Tax on any of your foreign income. As I said earlier, because of your CP59 I would suggest that you do not attempt to file a form 2555 as those must meet one of the definitions of timely (including filing before the IRS say your are delinquent... which they have done).

This would mean you would need to file Form 1116 to be able to use the foreign taxes you paid as a credit to the US taxes payable on that income. Without knowing the tax regimes of Cyprus, Singapore and anywhere else you have paid income taxes, it is difficult to say what the result of this would be.

There is an option 1.5 which is somewhere between these which might be appropriate... for example filing late returns up to and including the year that you could have re-entered the US on the greencard and then a treaty position for the following year..

Now both of these options have the decidedly distinct disadvantage of having to put you back on the radar of the IRS... which leads to...

Option 3, would be just to ignore it. Unless you have assets in the US, are planning on returning you are more or less out of the reach of the IRS. But, the IRS can and may file a tax return on your behalf. Which means you could very well have an outstanding tax debt because the IRS made some assumptions about your income in that (and potentially) subsequent years.

but I can not find anything regarding what happens to "non LTRs, who file form 8833 for a certain year.
Any permanent resident who takes a treaty position by filing 8833 is considered to have abandoned their permanent residency of the US. Whether you just got the greencard or have had it for 50 years makes no difference..


Personally, if it was me.. this is the planning I would do before making a decision...

First, I would not rush into anything. In theory there are 7 years of back taxes to file.. an extra month or two is not going to make any significant difference... so plan and think before doing anything.. no rushed or rash decisions.

Then... assuming that I still had enough paperwork to figure it out, I would prepare (but not file) one by one the 2010 through 2016 tax returns (remember 1040 not 1040NR and all relevant forms and schedules).

Then I would calculate...

Total US taxes due in 2010 + the potential $10k penalty for a late 8854 form
Total US taxes due for 2010 to 2016 + any late payment penalties

Next I would also try to figure out what Form 8854 would look like in 2016 and ensure that I would not be a covered expatriate.

Compare the two positions and see which is better for you.

If both are pants, then you can make an informed decision about the risk of just ignoring it all ..
 

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My belated (and predictable) contribution: what is the risk of continuing to ignore this? Do you have assets in the US, or expect to receive Social Security. If the answer to both questions is no, then do nothing. Presumably you have not identified yourself as a US green card holder to your local bank, so there will be no FATCA reporting. You are off the radar and should stay there.
 

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I was wondering where you were, Nononymous!

While I appreciate there is considerable respect for and interest in Phil Hodgen as a tax adviser, let me remind everyone lurking here that he is just one of many out there. The fact that he is popular with the expat-thinking-of-renouncing crowd does not mean he has any sort of inside track on what the IRS will or won't do (or accept).

And as Nononymous says, your choice of approach needs to take into consideration ALL of your situation (including elements you haven't - or don't care to - shared here on the forum). Until and unless the IRS actually moves against you (and the likelihood of that is really up in the air) there is little or no link between the IRS data bases and the Immigration data bases. There are virtually no reports of people being stopped on entry to the US for not having filed income taxes in one or more years. You probably should do something about formally giving up the green card, however.

The IRS has long worked on the "shock and awe" basis. Their actual reach is considerably less than what they would have you believe.
Cheers,
Bev
 

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Discussion Starter · #8 ·
Moulard, celticweb, Nononymous, Bev, thank you very much for your feedback and insights !!

I went through the recommended links, did further reading and I have narrowed down on 3 options, described below. I plan to request a consultation with another tax expert (perhaps Phil Hodgen) to get his thoughts on those options, but before doing that, I’d like to run this again by this group and in a bit more detail. Your comments and pointers have been very valuable and perhaps, I could get some additional feedback to be even better prepared.

Firstly, a fundamental question: Assuming I have to file FBARs for one or more years, is there any valid basis or risk that IRS may still try to charge the heavy FBAR penalties, because I filed late ? Or once I file FBARs, before IRS contacts me about those, I have no such risks ? This is critical for me to understand…the tax return late filing penalties for 2015-2016 could be affordable, but the insane FBAR penalties (if applied) would be devastating.

Also, let me clarify that there is Tax Treaty with Tie-Breaker rule for US-Cyprus (applicable for me for years 2010-2014), but there is no tax treaty between US-Singapore, so, I may need to file 1040 for Years 2015-2016 and the US tax for those two years (before interest and late filing penalties) would be approx. $30K. Also, unfortunately, there is no Tie-Breaker rule in the USA-Greece treaty (I am Greek citizen), so, this is not something I can use for years 2015-17.

Option 1: I file Forms 1040NR, 8833 & FBAR for Year 2010 (the first Year when the US-Cyprus treaty can be evoked).
• I do not need to file 8854 for 2010, because I was not long-term resident that year. Apparently, 8854 applies to US citizens and long-term residents only.
• The key question remains what is my US tax status for Year 2011 onwards ? Based on all I read, I cannot find a specific answer to that. Everything I saw talks about long-term residents and 8854 filing and related events/timings, etc. I have not found any info. related to my case, i.e., what happens if you file Form 8833, before being long-term resident yet ? In other words, the tax documentation focuses on “exit/expatriation” triggers for long-term residents only…nothing about a Green Card holder who evokes a tax treaty, before becoming long-term resident.
• A hopeful interpretation is that nothing needs to be filed after 2010. But somehow I feel that I may be missing something.

Option 2: If my hopeful interpretation with Option 1 is correct or defendable, then actually “doing almost nothing” could also make sense, because: (i) the treaty position can be taken, even without filing 8833 ! The only risk here is $1,000 fine for not filing the 8833 form, (ii) technically, I was not required to file 1040NR in Year 2010, because my US income in that year was less than $2K. I would still need to file FBAR for Year 2010 though.

Then, in deciding between Options 1 and 2, I assume that I will have to balance the pros and cons between doing that properly (Option 1), or staying off the radar (Option 2), without doing anything fundamentally wrong and subject only to risk of $1,000 fine. Since I will have to file 2010 FBAR anyway, perhaps Option 1 would be safer to defend in case of any future IRS questions ?

Option 3: If the above Options are not workable, then I file I-407 now and then, I will have to file Tax Returns & FBARs for Years 2010-2017. Only Years 2010-2014 will be covered by US-Cyprus treaty and therefore, the bad news with this option is that I would now be considered long-term resident and the Form 8854 would apply. Still, I would not be “covered expatriate”, but obviously, this option is much more costly and troublesome (and risky ??). I am particularly worried about any unknown risks that I may not understand at this point.

Finally, I am planning to file I-407, in any case…I should have done it back in 2010. Regarding ties with US, I like very much to visit once a year or so and want to continue doing so, but I am not planning to return to live in US permanently and not expecting social security benefits. I only have relatively small amount of cash in US Bank, which is easily transferrable and does not need to stay there.

Looking forward to receiving any additional feedback and thanks a lot again !!

Alex
 

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Finally, I am planning to file I-407, in any case…I should have done it back in 2010. Regarding ties with US, I like very much to visit once a year or so and want to continue doing so, but I am not planning to return to live in US permanently and not expecting social security benefits. I only have relatively small amount of cash in US Bank, which is easily transferrable and does not need to stay there.
In your case I would stick with Option 0: do nothing. You can fill out an I-407, or just surrender your green card at customs next time you visit the US, but on the tax front, I wouldn't give this any further thought. I would guess that the vast majority of former green-card holders are in a similar position, and there is nothing the IRS can do to them even if, theoretically, they all owed tens of thousands in fines for failure to file tax returns and FBARs.

Let this particular sleeping dog continue to lie. The IRS cannot touch you outside the country and will have no reason to become suspicious and cause trouble if you visit as a tourist. US customs might ask why you still have a green card if they see a sticker in your passport so it's worth giving up, but they won't ask about taxes. (After being delayed once or twice for that reason my wife surrendered hers and had something stamped in the passport so they would stop bothering her.)
 

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Option 1: I file Forms 1040NR, 8833 & FBAR for Year 2010 (the first Year when the US-Cyprus treaty can be evoked).
... A hopeful interpretation is that nothing needs to be filed after 2010. But somehow I feel that I may be missing something.
Somewhat late to the party here, but....

I think what you are missing here is that for an 8833 to activate treatment as a resident of a foreign (that is, non-US) country, it has to be 'timely filed'. See the top of page 4 of the form/instructions for details. This would mean you cannot really 'go back in time' and terminate your green card effective 2010.

That leaves you fewer options on the tax front, so at least you now have a simpler decision to take. Given a potential tax cost of around $30k to comply with a foreign tax system that defies both reasonableness and international norms, my inclination (already expressed by others above) would be to consider just ignoring it.

You'll want to quantify any potential future exposure to the US -- Social Security payments, trapped ISAs or 401ks, that sort of thing -- but if these are minimal or zero then the US has no real leverage and you can probably safely let this sleeping dog lie.

In particular you might want to note that by not being technically compliant with US tax law for a few years, once you surrender your green card you automatically become a 'covered expatriate'. But again, if you expect no future financial contact with the US, and if you will not pass on any gifts or bequests to US citizens, that should be a non-issue.

Finally, I am planning to file I-407, in any case…I should have done it back in 2010.
Indeed. The cost of an un-exercised 'option' on a return to the US, or even just a mild paperwork 'footfault' on US tax, can be huge. It's a ridiculous system.
 

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FBAR’s are filed online directly to FinCEN thus independent of income tax returns. The filing with FinCEN makes the penalties for not filing to be high, anything from $10k for willful non filing, incomplete or incorrect filing. Since most foreign financial firms are now providing reports of their American account holders since 2016 under FATCA, the risk of penalties for noncompliance by the FBAR deadline is real. I would recommend the Streamlined Procedure as long as one finds a good US expat tax pro.
 

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FBAR’s are filed online directly to FinCEN thus independent of income tax returns. The filing with FinCEN makes the penalties for not filing to be high, anything from $10k for willful non filing, incomplete or incorrect filing. Since most foreign financial firms are now providing reports of their American account holders since 2016 under FATCA, the risk of penalties for noncompliance by the FBAR deadline is real. I would recommend the Streamlined Procedure as long as one finds a good US expat tax pro.
a) There's no risk of FBAR penalties for a UK resident who is not engaging in tax crime. It's very easy to backfile FBARs, if the UK resident wishes to do so. Choose the explanation "Did not know I had to file."

b) If wishing to enter the Streamlined Procedures, consider D-I-Y. A lot of people find they don't need paid advice.

The US can't collect FBAR penalties from UK residents. No need to be terrified by the punitive FBAR fines.
 

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If you are considering the Streamlined Compliance program, I would strongly urge you to at least try doing it yourself. The back filings for the FBARs are simple enough to do. The 1040s may be a bit more challenging, given the change to the 1040 form this year (i.e. for the 2018 tax year), but if your financial situation is fairly simple (all income from salary, bank interest, no "international investments") you should be able to manage.
 
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