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Anyone made this decision?
Old 05-14-2005, 11:53 AM   #1
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Anyone made this decision?

Took a senior aerospace job in CA 10 years ago over working for the same firm in the UK. No real thought was put into it, lets just say they sold me on the idea of the everyday sunshine.

The move required issuance of a Green card, but of course all the IRS gotchas associated with taxing of worldwide assets was omitted from INS pamphlets. I've only recently discovered that if I plan to retire here (CA) as planned next year I will get crucified from relocating my UK assets (including UK primary residence) to the US, all of which I was relying on to achieve ER.

Even worse is that if I choose to retire elsewhere outside the US, the IRS still has claims on my worldwide income for an additional 10 years. No other country I know of lays down these types of claims. What a loaf I was to have moved in the first place!!

Can the IRS really track your overseas assets, and if you leave and renounce your Green card, the 10 years statute requiring you to still file taxes surely becomes moot if you never return? .Has anyone run into this problem?, and if so have you just accepted the sting and the pinch and gone ahead anyway, or left the US never to return?

Yours regrettingly
SpaceTraveler
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Re: Anyone made this decision?
Old 05-14-2005, 03:24 PM   #2
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Re: Anyone made this decision?

It is dificult for the IRS to do a random check on your assets but, once they start an audit they can use several techniques to determine you have other income than what you declair
The easiest is your lifestyle. If you add up the easily identifialble expenses (real estate taxes, rent, insurance etc) and add in estimates for other expenses - food, entertainment, education, etc you can see if a person has more income than they are spending.
This is a technique used for owners of cash businesses and criminals.
Also, you have to check off a box on your US tax form stating if you have non USA accounts. I think that if you lie it is a felonly - I'm not sure.
So is it possible for you to hide your non US assets? I don't know but, it may add a little excitement to your retirement.
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Re: Anyone made this decision?
Old 05-14-2005, 04:58 PM   #3
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Re: Anyone made this decision?

Space,

It is rather annoying.

But, in reality, it's more of a paperwork inconvenience than anything else. Yes, you have to file a US tax return every year, but in most cases no extra tax will be payable, over and above what you have already paid in your country of residence.

There are, I'm sure, many people who just don't file their US return after they have moved (back) to another country. But talk about burning your bridges!!!

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Re: Anyone made this decision?
Old 05-14-2005, 08:47 PM   #4
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Re: Anyone made this decision?

Thanks for the moral boost.
Yes the filing inconvienance is only that an inconvenience. The real sting is having to pay tax on the sale of a UK home. Its a sizeable house, part purchased by an inheritance, which sizably appreciated during the UK housing bubble. I was counting on its value (total sale amount) to reach ER. I never ever expected to have to pay tax on its the sale to the US Govt, after all the income required to buy it was generated on taxed income from the UK only, and it was my sole UK real estate.

Regarding the IRS scrupulously adding up your outgoings. I read on CNN money that they dropped those type of invasive audits as it rubbed congress up the wrong way. Instead nowadays they mostly rely on anonymous tip-offs or super-grasses it seems.
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Re: Anyone made this decision?
Old 05-15-2005, 12:15 PM   #5
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Re: Anyone made this decision?

Any funny sideways deals you can do to eliminate the tax load like gift it to someone who's a UK resident (like maybe a fiancee that wont take the money and run off to arizona) or donating the home to charity or some such thing?

Does the same capital gains exclusion from sale of primary home work if the home is not in the US?
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Re: Anyone made this decision?
Old 05-15-2005, 04:59 PM   #6
 
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Re: Anyone made this decision?

Right, I'd bet with some hotshot accountant or lawyer who specializes in this kind of stuff that you could find a way to make it better.
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Re: Anyone made this decision?
Old 05-15-2005, 05:58 PM   #7
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Re: Anyone made this decision?

Quote:
Originally Posted by th
Any funny sideways deals you can do to eliminate the tax load like gift it to someone who's a UK resident (like maybe a fiancee that wont take the money and run off to arizona) or donating the home to charity or some such thing?

Does the same capital gains exclusion from sale of primary home work if the home is not in the US?
There's rather a few charities out there who'd be real pleased to me coming
Yes exactly, as with US no capital gains on primary UK residence.
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Re: Anyone made this decision?
Old 05-15-2005, 06:03 PM   #8
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Re: Anyone made this decision?

Quote:
Originally Posted by TromboneAl
Right, I'd bet with some hotshot accountant or lawyer who specializes in this kind of stuff that you could find a way to make it better.
I'll keep hunting. Very few 'affordable' US accountants are well versed in International+Alien tax issues, unless you're a millionaire and can hire a Fortune 500 specialist . . .
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Re: Anyone made this decision?
Old 05-22-2005, 09:14 AM   #9
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Re: Anyone made this decision?

I would try to see if there is another country that you can transfer the UK house to and then bring into the US from there and hopefully have more relaxed tax laws. The rules on importing into the US varies from country to country. There are also certain countries where the US can not tax money in the accounts their of US citizens so look into that. Also, if you give up your green card and therefore have no current ties to the US, they can not tax you if you are a legal citizen of another country. The US can tax a Swiss citizen living in Switzerland if he lived in the US in 1985 under a green card so you should be cool.
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Re: Anyone made this decision?
Old 05-22-2005, 01:53 PM   #10
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Re: Anyone made this decision?

Moving between the USA and Canada and Costa Rica, I've been having major headaches with these issues too.

Theoretically the US has lower marginal tax rates than other countries and you'd get tax credit for the foreign taxes paid in the US but there are lots of little areas where the US actually has higher taxes. For example, US capital gains taxes are higher than Canada and the primary home exemption is limited.

Accountants who are well versed in the tax systems of two countries are almost impossible to find and impossibly expensive.
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Re: Anyone made this decision?
Old 05-22-2005, 05:48 PM   #11
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Re: Anyone made this decision?

You are probably a very small fish for the IRS. If you have never had any trouble with them in the past, I would not worry too much for the future. Has your UK house ever been on tax returns in the past? Do you have paper trails from your UK bank accounts to your US bank accounts and UK house? I co-own a house with my sister in Europe, it is the least of my worries....

When I was in Costa Rica, I saw tons of Americans that know they have to pay US taxes but don't do it. A lot of these folks owe some serious $$$. The IRS has a nice division set up in San Jose to monitor these folks. However, they could not do much except for threaten them unless the folks need services such as a US passport or go back to the US (but you don't have to have that problem either ).
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Re: Anyone made this decision?
Old 05-23-2005, 08:55 AM   #12
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Re: Anyone made this decision?

I am for seeking advice from an attorney or accountant. To start educating yourself, might try starting at the IRS publications on point, such as publication 519 on income of foreign nationals: http://www.irs.gov/publications/p519/index.html
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Re: Anyone made this decision?
Old 05-23-2005, 09:38 PM   #13
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Re: Anyone made this decision?

Thanks everyone for the replies.
Thanks also Martha as I have been sieving through IRS prose - makes great bedtime reading.
Unfortunately its a bit vague when it comes to expat rules for arguing opting out of the 10 year rule.
What is clear though, to qualify your net worth needs to be below ~600k, which is interesting.
The guide requires some outside wisdom, for instance references are made to Cumulative Bulletins!!?

IRS 519, p20
Expatriation Tax
Ruling request.
For information that must be included in your ruling request, see section IV
of Notice 97-19 in Cumulative Bulletin 1997-1and Notice 98 - 34 in Cumulative Bulletin 1998-2.


Navigating the IRS site is a pain, it took ages to locate a link which allows questions via email to be posed
Using a dummy email address is advisable. Here is the link in case its of help to anyone :-

http://www.irs.gov/help/page/0,,id=120294,00.html

I think I have a case to get out of the 10 year rule, because I fulfill the clause of returning to my home
country (UK), and because my net worth (in the US anyway) is just below $600k.

No run-ins with the IRS. However I broke up the work stretch with a year here and there of study.
I didn't earn, so I didn't file. But there are gaps there that an overzealous tax man might query.

No the UK house has never appeared on US tax filings. I did rent it from time to time, but tax was paid
in the UK as part of my father's filing. No bank account trails between the UK and US.
And no large income from UK savings requiring me to disclose any foreign accounts on schedule A or B.

Finding good accountants is tricky enough. But they don't always get it right.
My uncle get hammered a few years ago in penalties after advice from a very reputable top 5 accounting
firm. Interesting, the South America angle must create a real headache for the IRS.
As others are in a similar spot, I'll Post any useful info the IRS offers . . .
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Re: Anyone made this decision?
Old 05-24-2005, 08:23 AM   #14
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Re: Anyone made this decision?

The IRS is trying to cut back on answering questions via email. That is probably why it is harder to figure out how to email them.

Don't necessarily trust the IRS's answers either, unless they give you a formal letter ruling. If and when you get an answer from the email inquiry, run it past a professional. When questions require research, I favor lawyers. After all, that is what they are taught to do, legal research.
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Re: Anyone made this decision?
Old 05-27-2005, 07:08 PM   #15
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Re: Anyone made this decision?

SpaceTraveler, are you saying that you think you have to pay Uncle Sam capital gain tax in your UK home? According to the Tax Relief Act of 1997, for your primary residence you have no capital gain tax on the first $250,000 if you're single ($500,000 if married). Why would tax law discriminate against a taxpayer whose primary residence is in another country? That seems like unfair treatment.
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Old 05-27-2005, 07:12 PM   #16
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Re: Anyone made this decision?

Quote:
Originally Posted by Free_at_49
SpaceTraveler, are you saying that you think you have to pay Uncle Sam capital gain tax in your UK home? According to the Tax Relief Act of 1997, for your primary residence you have no capital gain tax on the first $250,000 if you're single ($500,000 if married). Why would tax law discriminate against a taxpayer whose primary residence is in another country?* That seems like unfair treatment.
[/quote

Man, are you looking for "fair treatment" in the tax code? Do you believe in the Easter Bunny? Tooth Fairy? Inquiring minds want to know

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Re: Anyone made this decision?
Old 05-29-2005, 11:10 PM   #17
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Re: Anyone made this decision?

Free_at_49:
Stills fails the "use of" rule, i.e. you have to be actually living in the UK residence for it to be the
primary residence. On top of which . . . purchased a small place in CA which has actually been my
primary residence the past 3 years.

The UK residence is worth at least 5 times more, its the capital gains on the sale of this property
that will seriously delay ER. Hence the concern.
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Old 05-30-2005, 11:59 AM   #18
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Re: Anyone made this decision?

I'd like to ask a hypothetical . .
Previously read a money article stating that the IRS no longer utilises means test style audits to track
peoples income, it annoyed congress too much. Instead they mainly rely on whistle blowers.
The article quoted examples where this works well, such as cash in hand industries like dedgy builders,
or bad landlords etc

However for modest ER folks that seems ineffective. especially for ER folks who are disciplined in only
spending foreign monies when overseas, with no account transfers in or out of the US, and no prior run ins
with the IRS. And of course diligently paying tax locally in the overseas host country.
It seems unlikely there would be any real exposure or is it?

What ways could the IRS still identify world-wide assets?
Has anyone taken a 'what the IRS doesn't know can't hurt them approach' to protect their ER existence?
(suggest answering anonymously . . login as a guest)
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Re: Anyone made this decision?
Old 05-30-2005, 01:03 PM   #19
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Re: Anyone made this decision?

A lot of stuff has been put in place to monitor assets and transfers as part of the whole 'anti-terrorism' campaign. I'm probably noted repeatedly for transferring six figure amounts between banks and other various outfits, along with transferring a few six figure amounts to my dad and (at the time) girlfriend.

The IRS can and does get that info.

Unless you're planning on changing your name, not coming back to the US or any other 'friendly' country, and at that taking a chance on your liberty, that is not the answer.
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Old 05-30-2005, 08:54 PM   #20
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Re: Anyone made this decision?

Hi Space Traveler,

Quote:
I think I have a case to get out of the 10 year rule, because I fulfill the clause of returning to my home country (UK), and because my net worth (in the US anyway) is just below $600k.
You may be able to use the return-to-home-country clause (though note that you will have to request a ruling, as I understand it, and it is not guaranteed that they will grant it), but the net worth limit encompasses your worldwide assets, not just US assets.

[Following edited to fix a basic math error:]
One other possibility is that you, as a green card holder, only fall under these expatriation rules if you have been resident in 8 of the past 15 years when you give up your green card. So you could leave the US, keep filing US returns for 8 years, wait to sell the house, then turn in your green card at the nearest US embassy, and thus get out of jail free. This only saves you two years, though.

Bpp
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