| Pages in topic: < [1 2 3] > | FATCA and US citizens living abroad Thread poster: Jonathan MacKerron
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| Thanks for your input | Nov 28, 2014 |
@Robin: Of course I can't persuade them otherwise, I just want to know how the law is being interpreted in Germany, e.g. is there a limit under which reporting is not required. It seems as though the banks themselves can interpret this as they see fit, and some will report all accounts to be on the safe side. That said, how can they identify US persons in a country where that information was not required at the time the accout was opened?
@Mark: Indeed, that is the question: how can... See more @Robin: Of course I can't persuade them otherwise, I just want to know how the law is being interpreted in Germany, e.g. is there a limit under which reporting is not required. It seems as though the banks themselves can interpret this as they see fit, and some will report all accounts to be on the safe side. That said, how can they identify US persons in a country where that information was not required at the time the accout was opened?
@Mark: Indeed, that is the question: how can they even identify US persons? Did they require that you fill out a W-9 form?
In my case I think them finding me was simply based it on my name, perhaps in your case as well. At the same time, I have not heard from all my banks, so am assuming that they do not know my nationality (yet...).
The law is very confusing. As far as I can ascertain, I tend to think it requires all banks to identify accounts held by US persons, but not to submit a report unless the account exceeds a certain amount.
Have asked my bank twice to call me and explain their policy - still no response from them.
Just found another bit of information: according to the IRS website, in the context of FATCA any US person with foreign accounts containing a total of $200k are now absolutely required to file a 1040 and accompanying appendices each year. Am assuming that one of the main purposes of FATCA is to glean this information from foreign banks, and then make those people file.
Until now, most Americans living in countries recognized as "tax homes" by the IRS have not filed, simply because they owed no money to the IRS. The exception here was interest income in the US exceeding $400, for which an annual filing was required. The wording on the IRS site now more or less suggests that ALL persons with any foreign income 'should' file, even if their bone fide tax home is Germany for example.
[Edited at 2014-11-28 11:49 GMT]
[Edited at 2014-11-28 11:51 GMT] ▲ Collapse
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Jonathan MacKerron wrote:
Until now, most Americans living in countries recognized as "tax homes" by the IRS have not filed, simply because they owed no money to the IRS. The exception here was interest income in the US exceeding $400, for which an annual filing was required.
Errrr, I'm not sure if you're citing anecdotal evidence ("most ... have not filed"), but I have been an expat for well over a decade (Germany and now Australia) and I have always known that I was *required* to file federal U.S. tax returns; it's also common knowledge here in the Australian expat community, where taxes and accounting services are discussed like clockwork every year. So this is really nothing new on the part of the IRS.
Now, I happen to know at least two Americans who fit into your anecdote, i.e., they haven't filed because they know (or assume) they don't owe, but from speaking with them, I also think it's largely because they don't imagine they will ever live in the U.S. again, so they really don't think there will be any consequences.
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Just a reminder for any Americans reading this thread: There's a difference between "no real consequences" - a guess at best - and "no real requirement". The requirement has always been there - you are, legally, required to file tax returns unless you fall into a particular exception category:
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http://www.usexpattaxhelp.com/expat-tax-filing-requirement.php
"Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status in the following table" (In 2013: Married Filing Separately $3,900, Single $10,000, Head of Household $12,800, Married Filing Jointly $20,000, etc.)
"For self-employed individuals if your net earnings from self-employment are $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier."
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That's what I meant, citizens living abroad permanently without financial ties to the US and not planning to return any time soon, and thus, by definition, owing nothing to the IRS.
Others still maintaining property, earnings and bank accounts there are in a quite different category.
Moreover, the rules have changed over time. I have been abroad for over 40 years and the requirement to file has also changed during that period.
While it is true that US citizens have always the... See more That's what I meant, citizens living abroad permanently without financial ties to the US and not planning to return any time soon, and thus, by definition, owing nothing to the IRS.
Others still maintaining property, earnings and bank accounts there are in a quite different category.
Moreover, the rules have changed over time. I have been abroad for over 40 years and the requirement to file has also changed during that period.
While it is true that US citizens have always theoretically fallen under US tax law, this was never explicity enforced to any degree, otherwise customs would have stopped thousands, if not millions at the border for non-compliance.
But given the current atmosphere of absolute government overreach, these kinds of controls may now actually be implemented. ▲ Collapse
| | | | | Ridiculous law | Nov 29, 2014 |
Especially because US expat citizens are essentially punished for living in responsible/weak/developed countries, and rewarded for living in less responsible/stronger/less developed countries. For example, I have never been contacted by any of the ten banks I have accounts with in China regarding FATCA, nor do I expect to be (barring a groundbreaking agreement between China and America).
Another great law is the US foreign income exclusion, which, since it only applies if you're abr... See more Especially because US expat citizens are essentially punished for living in responsible/weak/developed countries, and rewarded for living in less responsible/stronger/less developed countries. For example, I have never been contacted by any of the ten banks I have accounts with in China regarding FATCA, nor do I expect to be (barring a groundbreaking agreement between China and America).
Another great law is the US foreign income exclusion, which, since it only applies if you're abroad for more than 330 days a year, is basically a multi-thousand dollar punishment for anyone who wants to come home to spend time with family. In related news I was only home in the US for about 30 days between 2013 and 2014.
I don't think most Americans abroad have a problem with paying taxes, albeit at a reduced rate, but the idea that we should pay taxes at the same level as someone living full-time in the US is ridiculous, and is a great way for the US to close itself off to the outside world by discouraging its citizens from spending significant amounts of time in it. ▲ Collapse
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| | | Rules and Regs | Nov 30, 2014 |
@Preston, I sympathize with the sentiment, but my interpretation is somewhat different from yours.
The instructions for Form 2555 state:
"Tax home test.
To meet this test, your tax home must be in a foreign country, or countries (see Foreign country, earlier), throughout your period of bona fide residence or physical presence, whichever applies."
So, for example, "If accomplishing the purpose requires an extended, indefinite ... See more @Preston, I sympathize with the sentiment, but my interpretation is somewhat different from yours.
The instructions for Form 2555 state:
"Tax home test.
To meet this test, your tax home must be in a foreign country, or countries (see Foreign country, earlier), throughout your period of bona fide residence or physical presence, whichever applies."
So, for example, "If accomplishing the purpose requires an extended, indefinite stay, and you make your home in the foreign country, you may be a bona fide resident."
http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Bona-Fide-Residence-Test
"Questions of bona fide residence are determined on a case-by-case basis, taking into account such factors as your intention or the purpose of your trip and the nature and length of your stay abroad. You must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year."
http://www.irs.gov/publications/p54/ch04.html#en_US_2013_publink100047413
"During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country."
The examples given that disqualify someone from bona fide residence are pretty clear, e.g., people who have temporary contracts offshore or overseas, who travel back and forth and/or return back to a "home" in the U.S. after stints abroad, etc.
My personal interpretation is that you meet the bona fide residence test if you have gone to clear lengths to establish your residence in another country, for example if you have a "long-term" or "permanent" residence permit, have set up a household there, etc. If you happened to take a 35-day trip instead of a 30-day trip, I believe you could still prove your bona fide residence status as long as the other factors apply. Simply put, you would need to be able to demonstrate your intention of being a resident there, of returning there as your "home" after trips, etc.
@Jonathon, I don't know if enforcement of the existing (i.e., tax filing) laws has actually increased or not (I haven't seen any anecdotal evidence that it has), rather, the new laws regarding asset account reporting are naturally getting a lot of attention from the authorities. I'm sure we haven't yet begun to see the extent of the enforcement of those.
Separately, I agree that enforcement of tax-filing requirements/laws has likely been lax, but I don't necessarily agree that "customs" would have been stopping non-tax-filers left and right if they were being enforced, mostly because it's not border security that is primarily responsible for enforcement.
Citizens traveling back to the U.S. are required to provide their passport numbers but not their social security numbers, so my guess is that unless the IRS had evidence that a particular person was a major tax evader and went to all the trouble of getting an arrest warrant, this wouldn't affect entry into the country but might instead be prosecuted at a later date, e.g., after the social security number is flagged as part of some transaction (purchase, credit check, employment, investment, U.S.-based tax return, etc.). ▲ Collapse
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While no SS number is shown on a US passport, the passport application form requires a social security number, so the SS number of every citizen is cross-referenced to a specific passport, which the Immigration officer sees when checking your passport upon entry. A person could be easily flagged by the IRS for Immigration to check and possibly deta... See more While no SS number is shown on a US passport, the passport application form requires a social security number, so the SS number of every citizen is cross-referenced to a specific passport, which the Immigration officer sees when checking your passport upon entry. A person could be easily flagged by the IRS for Immigration to check and possibly detain upon entry.
See
http://www.theatlantic.com/business/archive/2012/04/no-taxes-no-travel-why-the-irs-wants-the-right-to-seize-your-passport/255940/
@Janet: I mispoke, meant Immigration, not Customs ▲ Collapse
| | | | | I stand corrected (twice!) | Nov 30, 2014 |
Jonathan: Thanks for sending that, I wasn't aware of this. It will be interesting to see how thoroughly this is implemented, and if old account holders are included or not.
Janet: I think you're right. I'd always gone with the physical presence test farther down the page, but I don't see any reason why I couldn't use the bona fide test. Of course the screwy thing is that it sounds like the final decision is up to the IRS. I've come home for a 2.5 month visit at the moment, but still... See more Jonathan: Thanks for sending that, I wasn't aware of this. It will be interesting to see how thoroughly this is implemented, and if old account holders are included or not.
Janet: I think you're right. I'd always gone with the physical presence test farther down the page, but I don't see any reason why I couldn't use the bona fide test. Of course the screwy thing is that it sounds like the final decision is up to the IRS. I've come home for a 2.5 month visit at the moment, but still view China as my permanent home. If I were to claim these 2.5 months using the bona fide test (which I feel I should be able to do), it sounds like the IRS could still reject this and give me quite an unpleasant surprise in the form of thousands of dollars in back taxes in a few years (please correct me if I'm wrong, I'd love to be!). ▲ Collapse
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Melanie Nassar 
United States
Local time: 16:43
German to English
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| My bank in Palestine also asked me to provide this information | Nov 30, 2014 |
... at which point I was glad that I had listed this account on my US tax return (where they always remind you that it is very important that you report any foreign bank accounts in which you have an interest, even though you are not required to pay taxes on them).
I don't know what your situation in Germany is, but for me, although I do not have to pay income tax in the US on an annual income less than $95,000, I still have to pay social security tax of something like 16-17% on my ... See more ... at which point I was glad that I had listed this account on my US tax return (where they always remind you that it is very important that you report any foreign bank accounts in which you have an interest, even though you are not required to pay taxes on them).
I don't know what your situation in Germany is, but for me, although I do not have to pay income tax in the US on an annual income less than $95,000, I still have to pay social security tax of something like 16-17% on my foreign income. ▲ Collapse
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But your paying of SS contributions is voluntary, or?
And yes, those of us who have been declaring foreign bank accounts on the TD F 90.22.1 form (sent to the US Treasury) should be OK, although this form is now to be replaced by a mandatory, much more detailed annex to the 1040, which must be filed directly with the IRS, and not sent to the Treasury as in the past.
The 'foreign earned income' deduction ($97,600 in 2013) applies for all who pass the 'bone fide residence test'. Thos... See more But your paying of SS contributions is voluntary, or?
And yes, those of us who have been declaring foreign bank accounts on the TD F 90.22.1 form (sent to the US Treasury) should be OK, although this form is now to be replaced by a mandatory, much more detailed annex to the 1040, which must be filed directly with the IRS, and not sent to the Treasury as in the past.
The 'foreign earned income' deduction ($97,600 in 2013) applies for all who pass the 'bone fide residence test'. Those making more than that can take the foreign tax deduction, i.e. receive credit for taxes paid abroad.
As far as I can tell, the only expats who might owe tax to the US are those with very high salaries and financial income.
But as Janet points out, the obligation to file is not directly based on your income, but numerous other factors as well.
[Edited at 2014-12-01 09:47 GMT] ▲ Collapse
| | | | | Not a tax lawyer (unfortunately) | Dec 1, 2014 |
Preston Decker wrote:
If I were to claim these 2.5 months using the bona fide test (which I feel I should be able to do), it sounds like the IRS could still reject this and give me quite an unpleasant surprise in the form of thousands of dollars in back taxes in a few years (please correct me if I'm wrong, I'd love to be!).
Unfortunately I can't "correct" you because I'm just a layperson. I believe in my interpretations (I wouldn't want to "mess around" with the IRS), but that doesn't mean I can hand them out as advice.
Basically - and I'm sure we're all in agreement on this - the IRS can pretty much do or claim whatever it wants, until or unless stopped by appeals processes and/or tax court verdicts.
I once knew a woman who was an accountant, and the IRS tried to go after her for deducting certain expenses for rented areas of her house. She fought back with percentages and ratios, and I think in the end she won her case (or at least a majority of it), but she said it came down to every little nitty gritty detail, dollar amount, and measurement - she had to fight every step of the way.
So the moral of this story is, whether or not a taxpayer is "right" about something, you still have to be prepared to back up whatever interpretation you choose as your own.
@Jonathon: Please note the FBAR (the replacement form you refer to) has been in effect for quite some time! I know, I only learned of it this year, too, but it IS HERE! I filled it in (late) this year, I didn't find it particularly onerous, so no worries on that account, but AFAIK you do have to submit it online.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR
As far as your newspaper article, it says that (under the legislation proposed), a passport would be vulnerable "provided that the IRS already either filed a public lien or a assessed a levy for the outstanding balance." This is similar to what I stated about getting an "arrest warrant" - the IRS has to be sufficiently interested in your case (I would assume they'd have to be able to prove you owe a significant amount of money) to go to all that trouble - and you would likely know all about it before you got there.
Not filing returns and owing money are two different things, as we discussed here. It doesn't mean the IRS wouldn't be interested in a non-filer per se, but unless it can prove that the non-filer owes money, it can't place a lien, etc. As I said previously, it seems more likely to me, and more logistically and legally sound, for the IRS to just put a "flag" on the social security number if it suspects foul play, and wait for it to come up in a stateside transaction - that makes the game a lot easier on their end.
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Another small story: The other year I received a notice from the IRS claiming that I had cited a figure (for my income) incorrectly, and the letter cited a different figure. My heart was in my throat for sure, but the more I looked at the letter, the less I understood where on earth this other figure had come from. More to the point, despite the figure being over $10,000 different from (higher than) my own, it still didn't put me into the bracket where I would possibly owe taxes to the U.S. from overseas.
I wrote my points out in a brief letter (which I faxed) explaining 1) that I could find no numbers that added up to the figure cited and would need clarification, 2) how I had derived my figure in the paperwork submitted, and 3) that even though I would be happy to re-file using the new figure - if it could be demonstrated to be correct - my income would still be exempt since it was under the limit for the deduction.
For some reason, I never heard anything back after that.
Unfortunately, I have to assume that this "flags" me for further scrutiny down the road, but it would at least seem to indicate that the IRS is not completely impervious to logic.
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In any event, it seems congress isn't too fired up about yanking passports just yet (see page 1, letter C):
http://tinyurl.com/modifications-to-the-act-text
[Edited at 2014-12-01 18:55 GMT]
| | | | Neptunia
Local time: 15:43
Italian to English
| FATCA and expats | Dec 2, 2014 |
I have had my share of financial expat hassles but I don't think FATCA is going to be a problem for us individual account holders aside from the annoying big brotherness. From skimming the IRS agreement with Italy that is equivalent to the German one, it looks like the threshold for banks to report US-citizen accounts is also 50K. Funny enough, my Italian bank did call me in recently to provide an updated form of identification since the original one had expired but they didn't ask me for my soc... See more I have had my share of financial expat hassles but I don't think FATCA is going to be a problem for us individual account holders aside from the annoying big brotherness. From skimming the IRS agreement with Italy that is equivalent to the German one, it looks like the threshold for banks to report US-citizen accounts is also 50K. Funny enough, my Italian bank did call me in recently to provide an updated form of identification since the original one had expired but they didn't ask me for my social security number or mention anything about FATCA. I think they will probably figure it out and panic sometime next year. The IRS does have a page warning foreign financial institutions about widespread phishing scams so the concern about identity theft is valid. They are apparently also considering 2015 to be a transitional period as foreign institutions and the IRS processing departments figure out what to do. Personally I am much, much more concerned that my US banks will close my accounts if they were to discover I am resident abroad. Being stopped at customs because of a tax suspicion or bank reporting error presumes such a huge degree of organization and communication. I am much more paranoid about getting my parmigiano and grappa through. Wouldn't they just send me a letter or an email first? I've actually always had very decent exchanges with the IRS and they have taken into consideration my personal circumstances. I had to get certificates for several years showing that I was a tax resident of the US even though I wasn't living there to avoid paying double taxes. I also had to persuade my former home state that I wasn't a resident there to avoid paying state taxes. Though I am now paying taxes in Italy, I always file US taxes though I don't actually pay anything. I always do the FBAR form too and there are new requirements about Form 8938 which seem complicated but I am below the reporting threshold for residents abroad so I am not going to worry about that.
http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
Recently I also have had to claim back a bank account that was closed (after only 2 years!) for inactivity from my former home state and that was also surprising easy to reclaim and I deposited the check with my cell phone for the first time. woohoo! ▲ Collapse
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| US bank accounts | Dec 2, 2014 |
I wouldn't have thought that US bank accounts are prohibited for citizens living abroad, particularly since any interest accrued is reported directly to the IRS by the bank, income which the account holder must then declare in Schedule B. Having an interest accruing US bank account used to be one of official reasons given by the IRS obliging expats to file a 1040.
Can only assume that the bank froze your account because they did not have a current address(?), and even more so because it is... See more I wouldn't have thought that US bank accounts are prohibited for citizens living abroad, particularly since any interest accrued is reported directly to the IRS by the bank, income which the account holder must then declare in Schedule B. Having an interest accruing US bank account used to be one of official reasons given by the IRS obliging expats to file a 1040.
Can only assume that the bank froze your account because they did not have a current address(?), and even more so because it is a hassle for them to sort out a dead account in terms of finding the rightful owner.
I can see where some banks might balk at opening an account tied to a foreign mailing address, but I haven't found any google evidence that this is true. That said, the regulations are changing all the time, so who knows what the law-de-jour is nowadays...
The most obvious reason for expats to have a US bank account is to receive social security or other annuity payments, or even to pay their US taxes.
Here's some information on this matter, albeit from 2009
https://americansabroad.org/files/7013/3589/7836/banka.pdf
[Edited at 2014-12-02 14:43 GMT] ▲ Collapse
| | | | Neptunia
Local time: 15:43
Italian to English
| US bank accounts for citizens abroad | Dec 2, 2014 |
@Jonathan, you are right - - US bank accounts certainly aren't prohibited for citizens living abroad but there may be some financial institutions who don't want to deal with the new obligations they have for due diligence with regards to money laundering laws. For example, I could only sign up for an online brokerage account using my US address, not my "real" address and I am afraid it may become ... See more @Jonathan, you are right - - US bank accounts certainly aren't prohibited for citizens living abroad but there may be some financial institutions who don't want to deal with the new obligations they have for due diligence with regards to money laundering laws. For example, I could only sign up for an online brokerage account using my US address, not my "real" address and I am afraid it may become a more extensive trend:
http://online.wsj.com/articles/expats-left-frustrated-as-banks-cut-services-abroad-1410465182
I appreciate the link you included which seems to have very good advice for how to persuade a bank not to close one's account. I am glad to see the ACA is advocating on this issue.
The particular problem I had with my little bank account was merely that I hadn't made any transactions in 2 years. I was receiving statements regularly at my US address and they never sent a warning note. The last statement I got even said "Happy New Year" on it after which point they closed it according to regular policy for dormant accounts and sent the money to the state comptroller's office. I just had to fill out an online claim through the state website and got my money back in the form of a check in the mail. It was actually less hassle than closing a bank account (quick and no fees) and I just wanted to mention it as a case of a relatively easy government-money interaction and as a reminder to others to not let an account sit idle for that relatively short amount of time. ▲ Collapse
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Also important to know what the current minimum monthly balance is. Some banks have raised it to $250 or even $500, under which a $15-20 monthly service fee is incurred. Doesn't take long for the account to drain and you end up owing them money.
[Edited at 2014-12-02 22:15 GMT]
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