How would you feel if you found your bank account frozen? After all the sweat and the sacrifice, you make after hours of working and putting together all your resources only for the IRS (Internal Revenue Service) to freeze them. Can the IRS freeze your foreign bank account?
When you delay paying your taxes, the IRS can access your bank account, savings, or assets such as a house or a car. They can take your salary before it gets to your pocket. Two, they can place a tax lien on your personal property. Finally, they can freeze your bank account and use the money to pay your tax due. When you move overseas, the IRS does no longer has such power.
However, don’t believe that your money is safe just because it is in an offshore bank account. The IRS can issue a levy to any bank within the US. If you’re an account holder of a foreign bank that has a branch in the US, the IRS can easily issue a levy notice to the US office and empty your account overseas.
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:
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.
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.
NOTE: TaxConnections often receives questions from taxpayers living around the world. This question came in recently and we ask our members how they would answer their three questions.
TaxConnections Members – Please go to the Ask Tax Questions Section and Answer the question there. If you are currently a member just Login to your Tax Professional Member Account. Once you answer their questions, it will be sent directly to them by email. You will be connected as they are searching for a Tax Advisor to to help them as well. TaxConnections also promotes you our our Home Page every time you answer a tax question from one of our site visitors.
My spouse and I are Canadian citizens and are currently visiting China. Although we are not residents of China, we are planning to stay here for a minimum of 3 to 4 years before returning to Canada. During these years living outside Canada, we are planning to file our income tax as a non-resident. We don’t have any significant residential ties to Canada (i.e. we don’t own a home or vehicle in Canada, nor do we have any dependents living in Canada.) For secondary residential ties, the only tie that we currently have is a bank account with RBC, TD and money is sitting in Meridian Credit Union high interest saving accounts. We are still using our Canadian Credit Cards while visiting China.
“This legislation is being interpreted by a number of tax professionals to mean that individual U.S. citizens living outside the United States are required to simply “fork over” a percentage of the value of their small business corporations to the IRS. Although technically “CFCs” these companies are certainly NOT foreign to the people who use them to run businesses that are local to their country of residence. Furthermore, the “culture” of Canadian Controlled Private Corporations is that they are actually used as “private pension plans”. So, an unintended consequence of the Tax Cuts Jobs Act would be that individuals living in Canada are somehow required to collapse their pension plans and turn the proceeds over to the U.S. government” Read More
Many American citizens who live outside the US have for years raised concerns about the United States’ Citizen-Based-Taxation System. They may have been hopeful when tax reform was being proposed but have been disappointed that their concerns have been ignored. The new tax reform bill Tax Cuts and Jobs Act called TCJA (pronounced tick-jah) has brought about massive changes in the way individuals are going to be taxed but not much has changed for American Expatriates.
In a referendum in June 2016, the UK voted to leave the European Union (EU). The result was a surprise to many, as experts had been lining up to say that the UK would be worse off economically if it left. Just over a year on, it’s still a divisive issue in the UK. However the government formally triggered the start of the two year leaving process in March 2017, so it’s definitely going to happen. While heated debate on the pros and cons of staying and leaving still rages among the Brits, many U.S. expats are wondering what the implications for them are. Read More
American expats are, unfortunately, still required to file U.S. taxes from abroad. Thankfully though, there are several exclusions that reduce or in most cases eliminate their U.S. tax liability. The foremost among these is the Foreign Earned Income Exclusion. Not owing U.S. taxes doesn’t exempt expats from having to file a U.S. tax return though, as the exclusions that reduce or eliminate U.S. tax liability for expats must be claimed each year when expats file their federal return. Read More
Two questions that I frequently receive from people who have renounced U.S. citizenship are:
I. An immigration question: What if I attempt to travel to the United States during the period of time between my actual renunciation of U.S. citizenship and actually receiving my CLN (which is my proof of having renounced U.S. citizenship)? Read More
Living in Greece is an incredible experience for a number of reasons, including the friendly locals, the culture, history, architecture, climate, beaches and islands, not to mention easy access to the rest of Europe. As an American expatriate living in Greece though, what exactly do you need to know regarding filing U.S. expat (and Greek) taxes? Read More
Introduction – Introducing Gerd Topsnik
“This case will be seen as the first of an (eventual) series of cases that determine how the definition of long term resident applies to Green Card holders. The case makes clear that if one does NOT meet the treaty definition of resident in the second country, that one cannot use that treaty to defeat the long term resident test. A subsequent case is sure to expand on this issue. Otherwise, the case confirms that the S. 877A Exit Tax rules are alive and well and that the 5 year certification test must be met to avoid non-covered status.”
According to a report published by the United Nations, Department of Economic and Social Affairs, the number of Americans living in the United Kingdom was estimated at 212,150 in 2015. This represents a sizable group of Americans living in just one foreign country.