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Archive for Expatriate

Recent Economic Upheaval Creates Expatriation Opportunities For “US Persons” Living Abroad

JOHN RICHARDSON

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green Card (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green Card holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:
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A Thoughtful Proposal Regarding Expatriates Foreign Trusts And Retirement Savings: Will Treasury Listen?

Foreign Trusts - John Richardson

TaxConnections is posting this thoughtfully written comment on an article titled “Treasury Exempts Applicable “Tax-Favored Foreign Trusts” From The Form 3520… And Therefore Form 3520A Requirement” written by John Richardson. Here is a recommendation for Treasury to consider as posted by a David Johnstone.

John,
Excellent post. Based on my reading of the Revenue Procedure, as well as feedback from practitioners in the UK or Australia, I have grave reservations about the claim that this Revenue Procedure will help “many” Americans abroad. Perhaps this is an example of an attempt to simplify things from a legal perspective that in practice – once one does the math – may lead to greater complexity and help a very small number of people at best.
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How Could The IRS Find Out That I Am Not Tax Compliant As An Expat?

Olivier Wagner

You’re living your adventure and you’re settled in your new home, having non-US bank accounts, a non-US employer and a non-US social life. You have limited ties with the US and since the people who pay you (banks, employer) are not in touch with the IRS, you consider simply not filing US tax return. What could go wrong?

As you might know, on some level… US citizens are required to report their worldwide income on a US tax return, regardless of where they live.

Think AGAIN…

IRS has a few proven ways they use to track people down.

Below you will find the most common ways that IRS can track you down and check if you filed your US tax return, no matter where you live in the World.

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IRS Unveils Tax Breaks For Certain Former Citizens; Tax Experts Give Their Verdicts

Helen Burggraf

The U.S. Internal Revenue Service unveiled a set of “new procedures” on Friday that it said would enable “certain” expatriates – a sub-group of “accidental Americans” who have renounced their citizenship, or are considering doing so – to avoid key taxes normally associated with renouncing.

Tax experts said the announcement was highly significant, and would likely be welcomed by many who fit the relatively narrow category of those likely to benefit from it. One suggested the scheme might help the IRS to focus its attention on the “bigger fish” it believes to be lurking in the overseas pond. 

In a statement, the Accidental Americans Association said it welcomed the initiative, but added that it did “not go far enough”. 

The “Relief Procedures for Certain Former Citizens” only applies to individuals who have relinquished their citizenship since March 18, 2010, or have not yet done so, who have less than US$2m in net worth, and who have never filed U.S. tax returns as U.S. citizens or residents, the IRS explained in a statement. 

They also must “owe [only] a limited amount of back taxes to the United States.”

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U.S. Imposes A Punitive Tax On Dual Citizens: 150+ Comments

John Richardson - Dual Citizens

Due to all of the commentary from U.S. Citizens living abroad, I thought it was a good idea to include a portion of a post written by Tax Lawyer John Richardson:

“The Internal Revenue Code of the United States of America”
– Title 26

The beauty, genius and timeless wisdom found in the Internal Revenue Code include the principle that:

“The Internal Revenue Code in its majestic equality punishes both Homelanders and Americans abroad for having financial assets and accounts outside the United States.”

Part C – What does it mean to be a U.S. citizen abroad?

  1. All U.S. citizens abroad live outside the United States.Therefore, they live in “Foreign” countries. They will have bank accounts and retirement accounts that (although local to them) are “Foreign” to the United States. A FATCANatic (true believer in FATCA) would refer to your bank accounts as being “offshore”.
  2. Most U.S. citizens abroad are required to BOTH earn a living and invest for retirement.To this end they may have a pension from their place of employment (“foreign”). They may invest in mutual funds in their country of residence (foreign – PFIC). They may invest in retirement planning vehicles that are appropriate in their country of residence (foreign – PFIC). If you own an investment vehicle that is a PFIC, you should avoid either buying or selling without getting specialized counseling.
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U.S. Expatriates Object To U.S. Taxes While Living Abroad

Antonio Rodriguez, Expatriate Tax Advisor

A growing proportion of U.S. born expatriates do not feel they should be required to file taxes while they live abroad and about one-fifth of them are considering renouncing their U.S. citizenship, according to a new survey.

The survey, by Greenback Expat Tax Services, a firm that specializes in helping expatriates with their tax issues, noted that 9 million U.S. expats live and work abroad, but since they retain their U.S. citizenship, they also still have federal tax reporting requirements. Greenback polled more than 3,800 U.S. expats between March and May for its survey. It found that 66.8 percent of U.S. expats do not feel they should be required to file U.S. taxes while living abroad. That number has risen 1 percent since a similar survey by Greenback last year.

The tax reform law that Congress passed last December lowered overall tax rates for U.S. individual and business taxpayers but did not aim to provide relief for expat taxpayers, although their rates would also have dropped. But many expats still object to the increased reporting requirements that were ushered in by FATCA, the Foreign Account Tax Compliance Act, which Congress passed as part of the HIRE Act of 2010. That law required foreign financial institutions to report to the IRS on the assets they held from U.S. taxpayers, which led many banks abroad to close the accounts of U.S. expatriates in order to avoid the extra reporting burden.

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How To Qualify For Foreign Earned Income Exclusion

To claim the foreign earned income exclusion, you must meet all three of the following requirements:

  1. Your tax home must be in a foreign country
  2. You must have foreign earned income
  3. You must be one of the following:
  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect, and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

There are only two of the factors to be considered in determining whether you pass the bona fide residence test: the length of your stay and the nature of your job. You need to remember that you do not automatically acquire bona fide resident status just by living in a foreign country or countries for one year and your bona fide residence is not necessarily the same as your domicile. If you made a statement to local authorities in your residence country that you are not a resident of that country, and they determine you are not subject to their income tax laws as a resident, you can’t be considered a bona fide resident.

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5 Things To Know About IRAs For U.S. Expats

As an American living and working abroad you better be fully armed with a knowledge regarding IRA for US expats, its’ opportunities and tax savings you can achieve. For example, do you know that depending on your foreign income you may or may not contribute to your regular or Roth IRA as an American abroad?

A lot of US expats qualify for the Foreign Earned Income Exclusion and they choose it to exclude the first $102,100 (as of the 2017 tax year) of foreign wages or self-employed income from the US federal income taxes. But not so many people know that if you are using the Foreign Earned Income Exclusion, then you signed yourself to its restrictions on your contributions to an IRA. Read further to find out more about it.

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Expatriates Required To File U.S. Individual Tax Return – Automatic Filing Extension Until June 15, 2018

All Americans are required to file annually the U.S. Individual Tax Return, wherever in the world they live. Here’s what US expats need to know about filing US taxes from abroad.

Expats have an automatic filing extension until June 15th, with a further extension available until October 15th upon request.

All Americans who earn over $10,400 ($4,050 if married filing separately), or just $400 of self-employment income are required to file, regardless of where their income is earned, where in the world they live, whether the U.S. has a tax treaty with that country, or whether they also pay foreign taxes.

The good news is that there are some IRS exemptions just for expats that allow them to reduce or in most cases eliminate their U.S. tax liability completely, although they still must file a US return to claim these exemptions.

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Foreign Earned Income Exclusion For U.S. Expatriates

Even if you have left the United States for a brighter future elsewhere, you  (something not as strong) take a moment and think about any obligations you have towards the IRS. The US retains its right to tax globally its citizens and resident aliens who are a citizen or national of a country with which the United States has an income tax treaty in effect. Only two countries have such a citizenship-based taxation system: the United States and Eritrea.

What Is A Foreign Earned Income Exclusion For U.S. Expats?

The Foreign Earned Income Exclusion (FEIE) is offered to US citizens and resident aliens that are living abroad on a consistent basis, have earned income in a foreign country and can prove that they have done so for the past tax year by satisfying either the Physical Presence Test or the Bona Fide Residence. Read more

What US Expats Who Receive Form W-9 from a Foreign Bank Should Do

Over the last few years, millions of US expats have been asked by their foreign banks and investment firms to fill out IRS form W-9. Receiving form W-9 often causes surprise or alarm. While there’s no need to panic, there are a number of things that expats should know if they receive form W-9, to ensure that they don’t create any problems in the future. Read more

Filing IRS Back Taxes for US Expat Americans

American expats are still required to file a US federal tax return to the IRS. As expats also have to comply with the tax rules in the country where they live, it’s counterintuitive but nonetheless important that they file US taxes too.
Taxing US citizens abroad, or Citizenship (rather than Residence) Based Taxation, dates back to the Civil War, but until recently the IRS was powerless to enforce expat taxes, so few expats filed.

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