Taxes and the american citizen...

[HF63]

I personally have a cousin that was born in Texas but was taken to Mexico when he was abot 2 months old. I don't even think that he files any tax return technically he is breaking the law. He is probably not awared of all the requirements. As far as I know, he proabably does not want live in the states and proably will be a good candidate to renounce his US citinship.

 

[nun]

I personally have a cousin that was born in Texas but was taken to Mexico when he was abot 2 months old. I don't even think that he files any tax return technically he is breaking the law. He is probably not awared of all the requirements. As far as I know, he proabably does not want live in the states and proably will be a good candidate to renounce his US citinship.

The US won't let him renounce until he is up to date with his taxes. He'd also need another citizenship.

 

[rodi]

Out of curiosity I looked over at a couple of expat boards that focus on Italy. Many of the regular posters are US/Italian dual citizens who work and live in Italy. I was specifically looking for complaints about the US tax filing requirements.

There were no rants and a pretty level headed discussion of the compliance.
Expats in Italy • View topic - 2011 US taxes and form 8938

I don't think it's a huge burden. It's just more forms to fill out.

(We've considered part of our retirement in Italy since hubby is a dual citizen and I'm in process of applying under juri-matrimoni)

 

[nun]

Out of curiosity I looked over at a couple of expat boards that focus on Italy. Many of the regular posters are US/Italian dual citizens who work and live in Italy. I was specifically looking for complaints about the US tax filing requirements.

There were no rants and a pretty level headed discussion of the compliance.
Expats in Italy • View topic - 2011 US taxes and form 8938

I don't think it's a huge burden. It's just more forms to fill out.

(We've considered part of our retirement in Italy since hubby is a dual citizen and I'm in process of applying under juri-matrimoni)

I think the thread you link to shows the lack of knowledge most US expats have about their US tax filing responsibilities. There is some confusion between FATCA and FBAR and there is no conversation about how to deal with PFIC, foreign pensions, insurance policies or mortgages of various types etc. I seldom see a thread where someone talks about FATCA and also says that it doesn't change how you should be already reporting your foreign assets and pensions. My suspicion is that the FATCA form will lead to many realizing that they need to make treaty claims and file foreign trust and PFIC forms.

What type of income do you have in retirement? Is it a state plan, and employer plan or a personal pension? How is it dealt with in the US/Italian tax treaty?

 

[MichaelB]

I think the thread you link to shows the lack of knowledge most US expats have about their US tax filing responsibilities. There is some confusion between FATCA and FBAR and there is no conversation about how to deal with PFIC, foreign pensions, insurance policies or mortgages of various types etc.

What type of income do you have in retirement? Is it a state plan, and employer plan or a personal pension? How is it dealt with in the US/Italian tax treaty?

Either a lack of knowledge or they are only concerned with issues that affect shorter term stays abroad. Either way, it is critical for individuals and couples looking forward to longer term stays to fully understand the tax obligations and liabilities before committing themselves. This is especially so for people with multiple residencies and citizenship.

 

[theOAP]

Out of curiosity I looked over at a couple of expat boards that focus on Italy. Many of the regular posters are US/Italian dual citizens who work and live in Italy. I was specifically looking for complaints about the US tax filing requirements.

There were no rants and a pretty level headed discussion of the compliance.
Expats in Italy • View topic - 2011 US taxes and form 8938

I don't think it's a huge burden. It's just more forms to fill out.

(We've considered part of our retirement in Italy since hubby is a dual citizen and I'm in process of applying under juri-matrimoni)

If all of your investments, pensions, life insurance, etc. are US sourced, you'll be over the major problems of filing for the US. As nun said, this may not be true for Italian taxes. When you are in Italy, try to limit any financial accounts to a basic checking and savings account. In this situation, even if you must file FBAR and FATCA, they'll not cause much of a problem.

I'm unfamiliar with Italian offerings, but as nun and MichaelB said, you'll have to be on your guard at all times.

I'll use the UK as an example. In the UK, you can invest in some basic tax free (for the UK, but not the US) accounts at all banks and the UK equivilant of Savings and Loans. They're called ISAs. They basically come in two flavours, a cash ISA and a Stocks and Shares ISA. If you have a traditional cash ISA, filing for the US is not complicated as it takes the form of a savings account or CD. If you have a Stocks and Shares ISA, you'll have all the major problems that nun has spoken of, and you're US tax return will be a nightmare.

To add to the confusion, some companies offer what they name as a cash ISA, but in fact it's a Unit Trust (pooled), and again, you've problems. When living abroad, for either a short term or permanent stay, you must interrogate every financial account you come into contact with.

Things have become a bit easier this year. If you can sign a check for the accounts from the neighborhood bake sale, unlike previous years, this year you may not have to report that on your FBAR. And....that was not a joke.

 

[nun]

Things have become a bit easier this year. If you can sign a check for the accounts from the neighborhood bake sale, unlike previous years, this year you may not have to report that on your FBAR. And....that was not a joke.

Wow that's a relief, but I hope you remembered to include your UK Government heating allowance, that is tax free in the UK, on your 1040 so the IRS can tax it! along with other UK tax free benefit payments like attendance allowance.........

If you are a US citizen living on UK tax free benefits you can't use FEIE or FTC on your US taxes and so will have to pay US tax on them. I think this is an area where the treaty needs to be modified!

 

[theOAP]

Wow that's a relief, but I hope you remembered to include your UK Government heating allowance, that is tax free in the UK, on your 1040 so the IRS can tax it! along with other UK tax free benefit payments like attendance allowance.........

If you are a US citizen living on UK tax free benefits you can't use FEIE or FTC on your US taxes and so will have to pay US tax on them. I think this is an area where the treaty needs to be modified!

You forgot to remind me about the (UK tax free, but not US) £10 Christmas bonus on the UK State Pension! And don't forget the prepaid 'Oyster' travel card for the London underground on the FBAR. I still haven't decided about the seniors bus pass! (I still haven't used it, just in case.)

 

[rodi]

Not retired yet - but it will all be US based funding. Small (microscopically small) pension, SS, taxable accounts, and IRA/401ks.

It's probably not going to happen, because we don't want to give up our home here... and maintaining a second home (either rental or purchase) hits the budget too hard. But we've got my husband's cousins clamoring for us to repatriate to Sicily. LOL. And they make great food and offer us great wine - so it's enticing.

If we do go - it might just be extended visits. Summer breaks for example (school age kids).

 

[george76]

If all of your investments, pensions, life insurance, etc. are US sourced, you'll be over the major problems of filing for the US. As nun said, this may not be true for Italian taxes. When you are in Italy, try to limit any financial accounts to a basic checking and savings account. In this situation, even if you must file FBAR and FATCA, they'll not cause much of a problem.

I hope you are right. According to this article, they make it sound like you could be in big trouble just for filing these forms incorrectly.

http://www.nytimes.com/2012/04/16/b...just-got-more-complicated.html?pagewanted=all

International tax experts worry that even accidental discrepancies on the new form will expose filers to big penalties. And if examiners do end up comparing information on the FBAR and Fatca forms, which have different filing deadlines and are sent to different offices, they say, it could open the door to more trouble. “It’s going to be a mass of confusion, at least for the first year,” said Edward Tanenbaum, an international tax lawyer at Alston & Bird in New York.

 

[nun]

Not retired yet - but it will all be US based funding. Small (microscopically small) pension, SS, taxable accounts, and IRA/401ks.

It's probably not going to happen, because we don't want to give up our home here... and maintaining a second home (either rental or purchase) hits the budget too hard. But we've got my husband's cousins clamoring for us to repatriate to Sicily. LOL. And they make great food and offer us great wine - so it's enticing.

If we do go - it might just be extended visits. Summer breaks for example (school age kids).

The UK/Italy treaty deals with pensions thoroughly. Gains in US accounts will not be taxed in Italy or obviously the US. If you are a US citizen, resident in Italy and not an Italian citizen income from US retirement accounts and SS will be taxed in both US and Italy, but Article 23 will save you from "double taxation".

 

[theOAP]

I hope you are right. According to this article, they make it sound like you could be in big trouble just for filing these forms incorrectly.

The info for the forms suggests very large penalties could be applied if the forms are completed incorrectly, but we won't know how the IRS will apply those rules untill the tax filing season is over (June 2012 for expats) and the forms are submitted and reviewed. Many expats subject to form 8938 are delaying filing until as late as possible in hopes that clearer instructions will somehow become available.

The reason I suggested "a basic checking and savings account" is the filing of the information for both these types of accounts is really rather straightforward on both FBAR and FATCA 8938. But yes, you could still make an innocent mistake.

It's the financial accounts beyond the basics that become a problem. The first are the tidly bits, the travel cards (a result of having to declare prepaid credit cards), and the proceeds from the bake sale (a result of reporting accounts that you have 'signature authority' over).

Having signature authority has already resulted in US expats in accountancy postions in foreign companies to be removed. Although they have no control over the the vast financials of the company, they may have the authority to write checks to suppliers, for example, in the companies name. In previous years, if they remained in that postition, they would have to report the full company assets on their FBAR. This is the rule that changed for 2011. They may now keep those positions and not have to report the company assets if they meet certain conditions.

'Other foreign assets' is the section of 8938 that is causing the most concern. To understand this section, you must fully comprehend the IRS (Code) definitions of PFICs, entities, issuers, counterparties, foreign trusts, etc.

To bring this thread back to it's original title, there have been two recent announcements on a US expat website in the UK. In the last month, one of the regulars has stated they are initiating renouncing their US citizenship, and will keep the others posted as to how it proceeds. They've had enough. Others (similar to members of this site) are posting requests for information and experiences on the process, for the same reason. In the last week, a newer member (a USC married to a dual USC/UKC) has been denied opening a bank account with one of the major UK banks. The reason: they are *********. (... Americans! SShhhh, don't let knowledge of their 'social citizenship disease' get around).

 

[MichaelB]

The info for the forms suggests very large penalties could be applied if the forms are completed incorrectly, but we won't know how the IRS will apply those rules untill the tax filing season is over (June 2012 for expats) and the forms are submitted and reviewed. Many expats subject to form 8938 are delaying filing until as late as possible in hopes that clearer instructions will somehow become available.

US tax authorities do not have a history of severe penalty or punishment for innocent errors. It will likely take much more time (>2 years) to see if this is the exception or not, as neither the IRS not the US Treasury have the staffs to deal with the volume or the unexpected consequences.

To bring this thread back to it's original title, there have been two recent announcements on a US expat website in the UK. In the last month, one of the regulars has stated they are initiating renouncing their US citizenship, and will keep the others posted as to how it proceeds. They've had enough. Others (similar to members of this site) are posting requests for information and experiences on the process, for the same reason. In the last week, a newer member (a USC married to a dual USC/UKC) has been denied opening a bank account with one of the major UK banks. The reason: they are *********.

In Spanish they say "Las palabras se las lleva el viento". Roughly, talk is cheap.

(... Americans! SShhhh, don't let knowledge of their 'social citizenship disease' get around).

??

 

[nun]

In the last week, a newer member (a USC married to a dual USC/UKC) has been denied opening a bank account with one of the major UK banks. The reason: they are *********. (... Americans! SShhhh, don't let knowledge of their 'social citizenship disease' get around).

OAP, which site is that? uk-yankee?

I'm afraid of being refused a UK bank account when I return to the UK, or of having to pay extra fees just to get basic service.

If that happens I'll probably renounce US citizenship. I could then get rid of the 1040 requirement. As most of my money is in US retirement accounts I'd just have to file a W8-BEN, my SS would not be US taxable and I could move my taxable money to the UK and invest in UK mutual funds.

 

[theOAP]

Yes. It's the post from Vadio in the "Yahoo article about Expats, taxes, and renouncing US citizenship". I've had a PM from Vadio which names the bank and the account (a standard account in the UK).

 

[F M All]

Nun, if you were to return to the UK and renounce US citizenship, would you be able to keep your US investments? I believe a UK citizen cannot use Vanguard (US), for example, though perhaps an existing customer may be able to keep an account by some means.
There appear to be several issues here -
1) US citizens moving overseas and having problems with financial instruments and reporting - potentially resolved by only using simple accounts in the foreign country and keeping investments in US where they can be understood by the IRS
2) US citizens connected to foreigners with the result that they must try to report on foreign assets that are alien to the IRS e.g. UK ISAs and PEPs. Unless their partner is willing to reveal all and liquidate everything not easily understood by the IRS and re-invest in other instruments, these people have a major problem as described in the original article.
3) Non-US citizens who reside in US with foreign assets and who do not quickly liquidate all foreign investments and re-invest in items understood by the IRS.
Since many of these foreign investments carry special local tax treatment, selling is not an option if the move overseas or to the US is not permanent. This does not appear to be appreciated by the IRS (or certain posters). It seems to be an attitude of do it our way or not at all - which may not be in the best long term interests of the US, discouraging talented people from coming here and others to renounce their connection as they leave.

 

[nun]

Yes. It's the post from Vadio in the "Yahoo article about Expats, taxes, and renouncing US citizenship". I've had a PM from Vadio which names the bank and the account (a standard account in the UK).

Interesting, but I thought Vadio was refused a "higher yielding account" not a basic bank account, so the issues might be more to do with foreign trusts and PFIC.

UK banks may not like US citizens as customers, but they are ok with them as CEOs

Barclays chief Bob Diamond links part of bonus to improved performance | Business | The Guardian

 

[F M All]

The point has already been made here that one key difference between US tax administration and other countries is the taxation of US citizens worldwide. Another key difference, and one which creates huge issues with reporting to the IRS, is the calculation of taxable profits and losses within a fund even if the shares of the funds are not traded. In other countries only realised gains and losses are reportable/taxable therefore investment companies do not produce the data (equivalent to 1099) that is demanded by the IRS.
This taxation of unrealised gains and losses is one of the elements of the US system that appears to be huge waste of administrative effort.

 

[theOAP]

US tax authorities do not have a history of severe penalty or punishment for innocent errors.

I would refer you to the response from Nina Olsen, National Taxpayer Advocate, in her report to Congress issued on December 31st, 2011, on the "Bait and Switch" IRS tactics, starting on page 206.

http://www.irs.gov/pub/irs-utl/2011_arc_internationalmsps.pdf

 

[MichaelB]

I would refer you to the response from Nina Olsen, National Taxpayer Advocate, in her report to Congress issued on December 31st, 2011, on the "Bait and Switch" IRS tactics, starting on page 206.

http://www.irs.gov/pub/irs-utl/2011_arc_internationalmsps.pdf

Instead of proving a link and a tease, why not a short summary that would benefit other thread readers.

 

[MichaelB]

The point has already been made here that one key difference between US tax administration and other countries is the taxation of US citizens worldwide. Another key difference, and one which creates huge issues with reporting to the IRS, is the calculation of taxable profits and losses within a fund even if the shares of the funds are not traded. In other countries only realised gains and losses are reportable/taxable therefore investment companies do not produce the data (equivalent to 1099) that is demanded by the IRS.
This taxation of unrealised gains and losses is one of the elements of the US system that appears to be huge waste of administrative effort.

The US does not tax unrealized gains of mutual funds. It does require mutual funds with realized gains to distribute them and then taxes those as income.

 

[F M All]

The US does not tax unrealized gains of mutual funds. It does require mutual funds with realized gains to distribute them and then taxes those as income.

Technicality. You are completely ignoring the point.

 

[F M All]

Instead of proving a link and a tease, why not a short summary that would benefit other thread readers.

This sort of response is not helpful. Readers of the thread will be well aware of the point being made.

 

[theOAP]

UK banks may not like US citizens as customers, but they are ok with them as CEOs.

The problem with the renumeration package for Diamond was in part due to his US tax situation. (7th paragraph down in the following article.)

Barclays pay row lifts the lid on bank's closed culture - Telegraph

 

[MichaelB]

This sort of response is not helpful. Readers of the thread will be well aware of the point being made.

Not really. The post appears to disagree with a comment of mine, but instead of indicating why it only links to an external document that may or not be related. A brief summary would inform the casual readers and also give those interested enough information to know whether they should pursue the link or not.