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Old 04-18-2012, 09:32 AM   #21
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Those kids are US citizens because a parent is a US citizen, they don't get to choose. So they must still comply with US tax law and avoid many foreign investments unless they officially renounce.

I would agree... but since the US might not know who they are and what they are doing, what is the gvmt going to do if they do not follow the law
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Old 04-18-2012, 09:43 AM   #22
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Compliance and the penalties if you get it wrong are big burdens for the US expat. But the tax burden is an issue when it comes to investing in foreign mutual funds. It also has one of the most ridiculous compliance issues too with the wonderful form 8621. Foreign pensions are a big problem for the US expat, but the bigger issue is often where to save taxable money.

The situation is highlighted by comparing the tax compliance issues for the UK expat with those of the US expat. As a UK expat there are zero compliance issues because the UK only taxes non-residents on UK source income and that is generally done at source. The US tax system is much like it's healthcare system, overly complex, inefficient and more concerned with protecting vested interests and locked into a mind set that is detrimental to the fundamental goals.

I was an expat for a very short time... 14 months.... but the record keeping was a nightmare... I had to give the tax people a list of where I was EVERY DAY... which country I was in, if I were flying etc. etc... and even though I was overseas for two tax years, the company had to pay for 5 years of returns as they had to reimburse me for my tax equilization and then do it again the next year....


I have probably lost it by now, but at one time I had $46,000 plus of foreign tax credits....


PS... each year I found errors in the tax return that one of the big accounting firms prepared for me... that is how complicated it becomes... that even one of the top accounting firms can not get it right....
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Old 04-18-2012, 10:17 AM   #23
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There I knew a guy briefly in Los Angeles (a radio ham and engineer) who had "renounced" his social security number. His lawyer had written a letter to the SSA informing them of such and according to him, they had 30 days in which to reply, otherwise the declaration remained good. He didn't pay any taxes and said that in return he didn't expect to receive anything back in terms of benefits. As far as I remember, he had kept his citizenship. I couldn't follow the arguments supporting his plan of action but as far as I remember, he hadn't renounced his citizenship.

I occasionally wonder how he's doing with that.
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Old 04-18-2012, 10:33 AM   #24
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I occasionally wonder how he's doing with that.
You should be able to find him here: BOP: Inmate Locator Main Page
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Old 04-18-2012, 11:29 AM   #25
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I would agree... but since the US might not know who they are and what they are doing, what is the gvmt going to do if they do not follow the law
If those kids ever want to live in the US it will become an issue. Also many European countries have agreed to collect data on US citizens and report it to the IRS. When you open a UK financial account you are asked if you are a US citizen because of FATCA, so those children will be identified as US citizens unless they lie on the form, or don't know the rules, either way they'll be risking IRS penalties.

All the complications arise out of the US's bizarre practice of taxing on the basis of citizenship. The US should come into line with the rest of the world and stop taxing on citizenship
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Old 04-18-2012, 11:46 AM   #26
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. The US tax system is much like it's healthcare system, overly complex, inefficient and more concerned with protecting vested interests and locked into a mind set that is detrimental to the fundamental goals.
Absolutely right, you foreigner/heretic/socialist/communist/Brit/...... (delete as appropriate!!!!). Now you will be shot at dawn for daring to criticise the good 'ol US of A.

Here come the mods........
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Old 04-18-2012, 12:10 PM   #27
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Absolutely right, you foreigner/heretic/socialist/communist/Brit/...... (delete as appropriate!!!!). Now you will be shot at dawn for daring to criticise the good 'ol US of A.

Here come the mods........
The ones I'd delete would be communist and foreigner.......As I'm British it's obvious that I'm not a foreigner, everyone else is though

I made the comparison between US tax and healthcare because they are both systems that are collapsing under their own bureaucratic weight and have better implementations overseas, IMHO. I'm very worried by the IRS's regulations that it applies to overseas entities that deal with US citizens, making the US expat a financial pariah. I will one day be a US/UK dual citizen living in the UK so I have researched the tax implications and I have a fairly detailed plan of how to deal with everything. But I'm a tax geek and the penalties and compliance issues should just not be so onerous. The level of either ignorance or worry when it comes to taxes on expat forums convinces me that the IRS is creating more problems that it is solving.
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Old 04-18-2012, 01:35 PM   #28
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Sometimes the rhetoric can be as excessive as the regulation. These measures will inconvenience some, but most US citizens, at home and abroad, should be able to get by without too much effort. They will have to learn to prepare new tax schedules. Some will have to pay more tax. As long as the US economy is the world's biggest and the US$ is the global reserve currency I don't see much risk of institutions abroad turning away US clients.

If the new measures are as complex as some have claimed this represents an excellent opportunity for self employment as a specialized tax adviser.
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Old 04-18-2012, 02:04 PM   #29
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Sometimes the rhetoric can be as excessive as the regulation. These measures will inconvenience some, but most US citizens, at home and abroad, should be able to get by without too much effort. They will have to learn to prepare new tax schedules. Some will have to pay more tax.
This shows you do not understand and have not had to fill out the relevant schedules - many foreign investments are completely alien to the IRS and it is practically impossible to comply with their (naturally) US centric view of products. Their forms do not allow for the correct reporting of some investments, sometimes the information is not available because foreign investment companies follow a different methodology as dictated by their local requirements. As Nun said foreign pensions are often in this category. The new 8938 is a particularly badly designed form, introduced in too much of a hurry, by people who don't appear to have enough knowledge of what they are asking for, but carrying a large penalty for the user's failure to do the impossible.
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. As long as the US economy is the world's biggest and the US$ is the global reserve currency I don't see much risk of institutions abroad turning away US clients.
The US laws and IRS governance are doing all they can to help change this. This is not to say that similar issues won't exist under the new leading economy!!!
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If the new measures are as complex as some have claimed this represents an excellent opportunity for self employment as a specialized tax adviser.
Er, isn't that w**k?
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Old 04-18-2012, 02:16 PM   #30
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This shows you do not understand and have not had to fill out the relevant schedules - many foreign investments are completely alien to the IRS and it is practically impossible to comply with their (naturally) US centric view of products.
I may not understand (although I think I do) but I have filled out the relevant schedules for taxpayers abroad many times. My first was in 1977, my most recent was last thursday, and most years in-between.
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Old 04-18-2012, 02:28 PM   #31
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I may not understand (although I think I do) but I have filled out the relevant schedules for taxpayers abroad many times. My first was in 1977, my most recent was last thursday, and most years in-between.
Planning and familiarity definitely makes filing easier. However, it's almost an impossibility for the novice and even many professionals, and it's necessary to keep up to date with all the new IRS rules.

A simple situation like a US expat with a UK employer sponsored pension into which the employee contributes more than their employer will probably lead to the need to file foreign trust forms along with PFIC and a mark-to-market on an annual basis, although there is language in the treaty that could be interpreted that the gains can accrue tax deferred so you should probably file an 8833 to make the treaty claim. I say probably because tax professionals differ on the interpretation and there is no IRS ruling. So you now need to read and understand the US/UK Tax Treaty which is wonderful bedtime reading and I can show you at least one Article in it that is regularly mis-interpreted by the IRS. In fact the explanatory notes to the treaty say something completely different from the Article in the tax treaty. IRS agents and 99% of enrolled agents are not familiar with the tax treaty, the nature of foreign pensions and accounts or how they interact with US taxation and of course you need to go through a similar set of laws and regulations to pay tax where you live.

Now throw in the out of phase UK and US tax years and the situation quickly spirals into a Kafaesque series of forms, FTCs and offsets. If the innocent US expat then decides to invest in a UK stocks and shares ISA they are in for a nighmare of forms and draconian tax rates and notice I haven't even mentioned FBAR and FATCA which are just informational forms that add to already complicated paperwork. Most US expats do not comply with IRS filing requirements and the IRS did not previously enforce the rules with much conviction. But that has changed and once people start filing FBAR and FATCA the IRS will start to ask "where's that 3520, or 8833 etc".

Next you have to deal with UK taxation. If you have UK income it will be taxed at source, but you need to know how much you've paid to get a US tax credit. If you have US income, the UK will probably tax that on an arising basis, but will also give you credit for US tax paid, leading to "chicken and egg" scenarios.

My next question would be how does the US expat deal with the new UK NEST pension plan on US taxes........Many US expats who work in the UK will be automatically enrolled in this UK pension plan arrangement. Should they opt out, thus loosing the employer contribution? or deal with the IRS tax filing consequences?

Even if this stuff was easy it would still be more than an inconvenience because of the associated fines and penalties.
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Old 04-18-2012, 03:13 PM   #32
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These measures will inconvenience some, but most US citizens, at home and abroad, should be able to get by without too much effort.
I must say, I really do enjoy your sense of humour.

From a GAO report to Congress regarding duplicative reporting (FBAR and Form 8938), dated 12 February 2012:

Since the Form 8938 and FBAR were developed to meet two different governmental needs—tax administration and law enforcement—some filers have to report the same or similar information twice, but through different mechanisms and at different times. This increases the compliance burden and adds complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Currently, the instructions and guidance for both forms lack any explanation of why and where duplication exists. (emphasis mine)

http://www.gao.gov/assets/590/588921.pdf
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Old 04-18-2012, 03:37 PM   #33
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I will one day be a US/UK dual citizen living in the UK so I have researched the tax implications and I have a fairly detailed plan of how to deal with everything.
I have thought about living abroad for a few years at some point before I die. But these nightmare stories that one hears about regarding US expats and the IRS makes me have second thoughts. I read on a different forum that somebody spent 38 hours just on these two different forms even though the person at the end didn't owe anything to the IRS.

I am curious, if you don't mind, what you have regarding a detailed plan for how to deal with things. I have looked at tax treaties on the countries I am interested in but that doesn't address these new forms they are requiring. And hiring a CPA is not necessarily the answer as I have heard that the forms are so complicated that the CPA does necessarily help.
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Old 04-18-2012, 03:37 PM   #34
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I must say, I really do enjoy your sense of humour.

From a GAO report to Congress regarding duplicative reporting (FBAR and Form 8938), dated 12 February 2012:
Well, clearly you're bothered. But most taxpayers will not notice.

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Planning and familiarity definitely makes filing easier. However, it's almost an impossibility for the novice and even many professionals, and it's necessary to keep up to date with all the new IRS rules.
Perhaps my view is colored by the fact that I was exposed to the business side of US tax regulations for many years in addition to paying my taxes while abroad when there was no enforcement mechanism or audit trail. US taxes are complex and ever changing by design, and the issue here is not greater complexity, but increased reach. Tax complexity is not the result of rules, it is the byproduct of exceptions.

I can imagine nothing more frustrating than being employed overseas by a US company that manages to avoid paying US taxes on its income earned abroad while I am taxed on the income it is paying me, even as it deducts my compensation as an expense to lower its US tax bill.
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Old 04-18-2012, 04:11 PM   #35
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Well, clearly you're bothered. But most taxpayers will not notice.


Perhaps my view is colored by the fact that I was exposed to the business side of US tax regulations for many years in addition to paying my taxes while abroad when there was no enforcement mechanism or audit trail. US taxes are complex and ever changing by design, and the issue here is not greater complexity, but increased reach. Tax complexity is not the result of rules, it is the byproduct of exceptions.
Filling out the IRS forms isnt that much of a chore, it's the interpretation of the law that poses the difficulties and dealing with 2 tax authorities. Right now I trying to find out how the UK taxes a US 457 plan as it is not specifically covered in the treaty. Little things like that make cross-border tax complex
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Old 04-18-2012, 04:19 PM   #36
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Well, clearly you're bothered. But most taxpayers will not notice.
Yes, you're right, the vast majority of US taxpayers will never notice the issues we're discussing. What also bothers me is the number of individuals who may wish to w**k abroad, thereby expanding their knowledge of the world and the contributions such knowledge can offer the US, and US business. After realising the issues involved for the expat American, they may be much more reluctant to take that step. It then becomes a loss to the US.

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Tax complexity is not the result of rules, it is the byproduct of exceptions.
Very true. Now, if those of us abroad could only get those who live in the US and feel they are exceptional to stop fiddling their taxes by not reporting foreign assets, the life of the expat American would improve. Although not what you meant, the exception in this case is US taxation by citizenship.
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Old 04-18-2012, 05:04 PM   #37
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Filling out the IRS forms isnt that much of a chore, it's the interpretation of the law that poses the difficulties and dealing with 2 tax authorities. Right now I trying to find out how the UK taxes a US 457 plan as it is not specifically covered in the treaty. Little things like that make cross-border tax complex
I guess the positive way to look at that is once you figure it out, you're good for a couple of years. Next year will be easier. Not that it is of any consolation, but I do feel some of your pain.

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Yes, you're right, the vast majority of US taxpayers will never notice the issues we're discussing. What also bothers me is the number of individuals who may wish to w**k abroad, thereby expanding their knowledge of the world and the contributions such knowledge can offer the US, and US business. After realising the issues involved for the expat American, they may be much more reluctant to take that step. It then becomes a loss to the US.
I don't see these regulations as affecting potential employees looking for experience abroad. For them, not much has changed. This has much greater impact on the choice to become a permanent resident or citizen if one does not intend to live permanently in the US or has substantial income or assets abroad. This will be especially though for married couples that did not have to consider this when they joined together.

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Very true. Now, if those of us abroad could only get those who live in the US and feel they are exceptional to stop fiddling their taxes by not reporting foreign assets, the life of the expat American would improve. Although not what you meant, the exception in this case is US taxation by citizenship.
When some citizens are taxed on all their income and others on part, and the only difference is the location of the taxpayer when the income was earned, the exception is the excluded income. That a majority of countries practice that exception does not make it less of one.
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Old 04-18-2012, 05:21 PM   #38
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Tax complexity is not the result of rules, it is the byproduct of exceptions.
But every rule creates exceptions. If we tax income, what is 'income', what is an 'exception'? If we allow charitable contributions, what qualifies, what is an 'exception'? And on and on....

Most 'unintended consequences' of our tax code are not 'unforeseeable', they were either just ignored, or more like very intentional.

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Old 04-18-2012, 05:57 PM   #39
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I don't see these regulations as affecting potential employees looking for experience abroad. For them, not much has changed. This has much greater impact on the choice to become a permanent resident or citizen if one does not intend to live permanently in the US or has substantial income or assets abroad. This will be especially though for married couples that did not have to consider this when they joined together.
FBAR, which has been required since the 1970s, and FATCA have done nothing to change the tax filing requirements on foreign assets, but they have given those requirements a higher profile. Unfortunately that profile is not high enough with the average US expat and with the increased IRS enforcement many will be caught in expensive mistakes.

An employee who gets their taxes done as part of a foreign posting won't worry at all unless they decide to stay longer and discover the difficulties of investing and having pensions in foreign countries once they have to do their own taxes.
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Old 04-18-2012, 06:30 PM   #40
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I am curious, if you don't mind, what you have regarding a detailed plan for how to deal with things. I have looked at tax treaties on the countries I am interested in but that doesn't address these new forms they are requiring. And hiring a CPA is not necessarily the answer as I have heard that the forms are so complicated that the CPA does necessarily help.
FBAR and FATCA are just informational forms and you have to understand what foreign accounts need to be reported on each. FBAR is probably unavoidable as it has a $10k threshold, but FATCA has a $200k threshold for a single person living outside the US so careful account management should take it out of the picture.

My plan is particular to the UK and you'll have to adapt it for other countries in light of their domestic taxes and the tax treaty. I am also lucky that I have my assets in the US and HMRC (UK equivalent of IRS) deals with foreign assets in a far less complex way than the IRS.

The UK recognizes the tax deferral of US retirement funds and I will consolidate my US retirement funds into IRAs to make reporting and tracking easier and so that I'll only have 10% US withholding tax when I take income. I'll take this as a UK tax credit and pay the UK the difference of the 10% and the UK tax rate.

As ROTHs are also recognized by the UK I will make annual IRA to ROTH transfers taking into consideration the US and UK income tax brackets.

I will qualify for both US and UK social security and I have thoroughly researched how each benefit is taxed. There is an anomaly in the US/UK tax treaty in that as a US citizen living in the UK my US SS is only taxable in the UK, but my UK SS is taxable in both countries. This is because of wording in the treaty that, IMHO, does not actually achieve the objective of the treaty.

For taxable assets the US PFIC rules make UK mutual funds a bad idea, and I've never liked the paperwork overhead of buying individual stocks, so I will invest in US mutual funds that have UK reporting status. This means that they will not fall under the UK restrictions on investing in overseas mutual funds.
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