Yahoo/CNBC article - expats ditch US passports

http://finance.yahoo.com/news/tough-tax ... 39667.html

I know this is just a generic article. However, there was one paragraph that caught my eye:

"My filing requirements and possible penalties are very much different (to U.S. residents)," Jim Rogers, a renowned U.S. investor who lives in Singapore, told CNBC. "It is treating Americans who live abroad differently-you would think it is some kind of discrimination."

Certainly, both US resident and those abroad are all subject to the filing requirements for the FBAR, FATCA, 5471, ... What additional filing requirements (besides the Form 2555) does a citizen living abroad have?

That's all that I know of. FinCen, 8938, and 2555 if they are your run of the mill employee. Then 5471 if involved in a corp/business.

I think the penalties he is talking about are the FinCen, 8938 and 5471 penalties, which are definitely high

I got no sympathy for this guy. International noncompliance with US tax laws is like domestic noncompliance on steroids. Many expats need to grow up. They have wanted to sit on the fence enjoying the benefits of being an American when it suits them, and but not feeling that they were American when it came to paying their taxes. So it's time for them to get off the fence. Either pay taxes or renounce your citizenship. Is it so bad the IRS is telling them you can't play it both ways?

Some expats are completely innocent. But what you really have are degrees of guilt. Some actively engaged in tax fraud, but most knew better, but didn't want to do anything about it, because it would have been difficult for them to get caught, and nobody else is doing it (ie. reporting their income from abroad). It's very difficult to feel sorry for them. I understand the $10k penalty should have a safe harbor for reasonable cause, and I'm sure the law will get developed in that area as time goes by.

I understand the $10k penalty should have a safe harbor for reasonable cause, and I'm sure the law will get developed in that area as time goes by.

One wonders how it will get developed - by our lawmaking bodies or by taxpayers having to fight it on constitutional grounds?

Anyhow...What additional filing requirements (besides the Form 2555) does a citizen living abroad have?

From the point of view of the taxpayer, the requirements are different. It goes outside of strict tax law. For example, he might be thinking, "I have a $15,000 savings account at a regular, local bank". The US resident in this case has no FBAR, while the overseas guy does. The taxpayer thinks a "regular, local bank" is just that, regardless of which country it's in, but the tax law sees a huge difference depending on US vs. non-US.

My typical new client profile is someone who was born in the US, left at - say - 2 years old and is anywhere from 20 to 70 years delinquent with filing in the US. I normally speak with about six to ten such people each week.

The individuals in these circumstances find that they have to:
1. Disclose all of their savings and investments to the US Treasury and IRS. Folks living within the United States do not have any similar obligation to disclose all of their accounts to anyone, unless they hold all of their accounts outside the United States.
2. Avoid numerous investments that might be tax efficient in their home country, because of US PFIC and foreign trust rules.
3. File tax returns for the rest of their lives in two countries if they do not renounce citizenship of the United States.
4. Discover that many of them are being refused banking and investment services in their home country because of FATCA.

My typical new client profile is someone who was born in the US, left at - say - 2 years old

But what is the typical client? An EU resident, or Canadian resident? Is there any particular benefit to holding onto US citizenship in this case, when someone left the country at such a young age?

Guya,

They don't have to do the things you listed. The American Government does not impose citizenship upon them without their consent. Now if they want to be citizens, but not pay US taxes, then we have a problem. The only way to describe their behavior accurately is to say they have been outright rogue taxpayers. Maybe a notch higher than a tax protestor, but not much higher. So they don't comply with US tax law, how should they be treated. Is the defense "but I didn't know" valid for expats?

Anyway this article is about Expats willing to revoke their citizenship to avoid all this nonsense, and that's not really the group that I feel were doing anything wrong.

Terry, I don't work in this area other than to comply with some of the disclosure forms for a couple of clients. But I've read several articles about the impact on the people who Guya describes. Not everyone is a sophisticated taxpayer who has colluded to hide funds. Some literally did not know that they were US citizens - born in the US, left at age 2, mom and dad aren't citizens. Many are just living...in a different country. What may seem natural to you - the obligation to file a US tax return and make these foreign disclosures - would never ever occur to many people who are not educated in these matters.

If I weren't a CPA, if I didn't have a couple of clients with foreign issues, if I hadn't lived here since I was 2, if I had built a life abroad, if I thought of myself as a citizen of any other country, I would not be aware of these issues. I would not be watching for pronouncements by the IRS.

I've read about people trying to obtain mortgage without success because of their citizenship (the banks don't want to have to deal with the reporting obligations forced upon them) and people who renounce because they want to be free to invest in the more esoteric hedge funds, and the hedge funds don't want to deal with them if they are US citizens. These reporting requirements are a burden on the rich, sophisticated investor and on the little guy.

Someone asked for additional filing requirement: If they have foreign investments, Form 8621 might be required.

I believe the Form 8621 filing requirement is universal to both citizens living in US and those living abroad.

Maybe a notch higher than a tax protestor, but not much higher. So they don't comply with US tax law, how should they be treated. Is the defense "but I didn't know" valid for expats?

But why would they know? The USA is literally the ONLY industrialized country on earth that does this. The only one. Why should it be "common knowledge" that they have a filing requirement? I see at least a dozen college kids every year who live here, who have always lived here, who don't even have a basic understanding of their own filing obligations.

Remember that even Former Secretary of Defense Donald Rumsfeld, sends a letter to the IRS every year along with his tax return, (you can google this) stating that he has basically no idea what he's filing and that he's not sure that his return is correct. And this guy worked at the highest level of US government. Why would a citizen that left the country when they were 2 YEARS OLD think they were doing anything wrong? So now they're criminals?

Some of you guys have forgotten what it was like before you became tax pros. This board exists so we can ask each other questions, because even though we're professionals, the IRC still mystifies us--how do you think it feels for someone who doesn't have our experience? Seriously, ease up.

I'm not really just talking about the sophisticated investor committing fraud.The IRS wants to get him for sure, and It's too bad that some people didn't know they were American and what that entails. I'm sorry that they are caught up in the crossfire and will have to pay for what others have done. Keep in mind that this really just change. They will get used to it or renounce their citizens, if being a citizen is meaningless to them.

But I don't think people really have an idea about how big this problem was and still is. Forget about the completely innocent and sophisticated rich for a moment, those are extremes. I believe there are a ton of middle class people who are not completely rich and are not completely innocent who know they are breaking the tax laws. I've talked to some of them, and they don't have to know taxes like you and me to know they have a secret from the IRS. I'm not just talking about across the pond, or Europe. Americans have financial ties to countries throughout the world- Asia, the middle east, South and Central America, and everywhere. I say that this is still a major problem, but because of the very nature of it, we just don't know how big of a problem it is. To me this area is just like tax shelters before the passive loss rules came into play. So should we allow the integrity of the US tax laws to erode because some people were two years old when they left the US and didn't even know they were Americans?

Is it sound tax law to impose taxation based on citizenship? If not, what is the preferred method?

So should we allow the integrity of the US tax laws to erode because some people were two years old when they left the US and didn't even know they were Americans?

The US tax laws are completely ridiculous. Every single developed nation on earth does it differently--there are no industrialized nations anywhere on earth that tax their citizens on worldwide income. So the US is the only one that does it right, and 8 billion other people are doing it wrong? Let's be real. Who else forces the disclosure of foreign bank accounts for nonresident spouses? What possible reason is there? Especially since the US government can access all our information without a warrant now, anyway.

It's an absolute invasion of privacy, and the whole idea that the disclosures are to catch a bunch of terrorists, or a few tax scammers is a flat out lie.

If not, what is the preferred method?

How about just doing what every other country does, and tax people on the money they earn in their resident nation. How about that?

The US tax laws are completely ridiculous. Every single developed nation on earth does it differently--there are no industrialized nations anywhere on earth that tax their citizens on worldwide income. So the US is the only one that does it right, and 8 billion other people are doing it wrong? Let's be real. Who else forces the disclosure of foreign bank accounts for nonresident spouses? What possible reason is there? Especially since the US government can access all our information without a warrant now, anyway.

It's an absolute invasion of privacy, and the whole idea that the disclosures are to catch a bunch of terrorists, or a few tax scammers is a flat out lie.

Forget about terrorists or scammers. Maybe it's just market supply and demand. The US gauges it can charge a premium for maintaining citizenship status of foreign residents.

But they consume less government (taxpayer) provided resources.