New IRS Voluntary Disclosure – Not a Criminal? Don’t Join!

John Richardson interviews Virginia La Torre Jeker on the new – November 2018 – IRS Voluntary Disclosure Practise.

Virginia - US TAX TALK

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Chapter 22: To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse? – Reporting edition

In Chapter 15 – To Be FORMWarmed Is To Be FORMArmed, we discussed the number of forms, complexity of the forms and the exposure to penalties that impact Americans abroad.

Two of the most common forms are the FBAR and Form 8938. Each of these forms requires Americans abroad to report to the U.S. Government information about their financial accounts. The reporting requirement extends to reporting accounts that are held jointly with the non-citizen spouse. This is NOT a small thing. It means that the U.S. spouse is required under threats of fines and penalty to transmit the financial information about the non-citizen spouse to the U.S. Government. The way to avoid this is for the U.S. citizen spouse to NOT hold accounts jointly with the non-citizen spouse.

The reality is that, in the case of joint accounts, this means that the U.S. citizen will report the bank accounts of the spouse to the U.S. Government. Different people have different views of this.

The following discussion take place on Keith Redmond’s American Expatriates Facebook group. This is a closed group (meaning that you would have to join the group to read the post).

The reality of life for many Americans abroad is three-fold:

1. It is common for Americans abroad to marry non-U.S. citizens;

2. Americans abroad are (with few exceptions) required to report to U.S. Financial Crimes (Think Mr. FBAR) bank accounts that they either have signing authority over or where they can control the disposition of the funds.

3. In some countries, because of FATCA, it is very difficult for U.S. citizens to be able to obtain and maintain bank accounts. This is due to a perception (rightly or wrongly) that banks do NOT want to deal with U.S. citizens.

You will see from the Facebook discussion (which assumes all three of the above points), that many Americans abroad are very reluctant to share bank and financial accounts with their non-citizen (AKA “alien”) spouse.

Possible Conclusion: At the very least you understand the implications of a U.S. citizen holding joint accounts with an alien. Separate accounts would ensure that financial information about the alien will NOT be transmitted to the IRS.

The Facebook discussion referenced in the above tweet is very interesting.

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Chapter 16: Most “Form Crime” penalties can be abated if there is “reasonable cause”

This will be the shortest chapter. I am certain that after having read Chapter 15 about “Form Crime” and the possible penalties (usually $10,000 a form”) you will want to know how get “Form Crime Relief”.

Speaking of $10,000 – the “Standard Form Crime Penalty”

It is important for you to know that:

– “reasonable cause” does exist as a defense; and

– If you were truly ignorant of the form (who wouldn’t be?) then you it may work for you.

First, “Form Omissions” are generally what the IRS would call “Delinquent Information Returns“.

Second, what’s “reasonable cause” anyway?

Remember, …

Many “Form Crime” penalties can be abated based on “reasonable cause”.

Chapter 13: “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Americansabroad

Marriage is a difficult relationship. That said, there are two kinds of marriages that have particular difficulties resulting form the “circumstances of a U.S. birth”.

Type 1 – A U.S. citizen married to a non-U.S. citizen

Type 2 – A non-U.S. citizen married to a U.S. citizen

(Yes, they are the same.)

I call these kinds of marriages an “FBAR Marriage“.

The problems of the “FBAR Marriage” begin with filing a tax return at all. They continue from there.

(Both the U.S. citizen and the alien need to fully understand the problems that U.S. citizenship will cause in various aspects of the marriage! Perhaps specialized pre-marriage counselling is desirable. )

See the posts referenced in the following two tweets.

Chapter 9: Receiving U.S. Social Security – #Americansabroad and entitlement

Introduction:

The above tweet references the following comment on a Wall Street Journal article:

Social Security is a separate program that people “pay into” every year. In return for “paying in” the U.S. agrees to “pay out” when he reaches a certain age. How is his citizenship or residence in any way related to that?

Self employed Americans abroad (unless they live in a country with a “Totalization Agreement”) are required to pay the Social Security Tax ON INCOME EARNED OUTSIDE THE UNITED STATES. Surely you would agree that they should receive the benefits even if they live outside the United States.

How is it that the “U.S. provided a livelihood” for him? Maybe he provided a “livelihood” for Americans. Maybe he “put food on the table of American families”.

Your comments remind me a little bit of President Obama’s “You didn’t build that that …”

Finally – “never getting citizenship …” There are many reasons people don’t acquire U.S. citizenship. In some cases they are citizens of countries that don’t allow dual or multiple citizenships.

This man worked. He paid into the system. He should be presumptively entitled to the benefits.

Listening in … An interesting Facebook discussion …

_______________________________________________________________________________

An identification of and “breakdown” of the issues …

 

General rule …

In general, Americans abroad are eligible for U.S. Social Security and eligible for having their payment sent to their country of residence. Nevertheless, because it’s the United States of America, there are always issues …

Understanding the issues …

The U.S. Government Social Security Site – Start here

This post includes a number of tweets which will reference you to “third party posts” about U.S. Social Security. Nevertheless, I strong recommend that you begin with the Official U.S. Government Social Security site. This site includes a specific “International Section“. Obviously it will always remain current. In fact, I urge you to make the Official U.S. Government site your most important “stopping point”. The site even includes an amazing tool to determine your entitlement to benefits.

An introduction:

Let’s break the “issues” into the following categories:

1. As an American Abroad, are you entitled to U.S. Social Security at all?

2. What if part of my working life was in the United States and part of it was abroad? – The impact of “Totalization Agreements”

3. As a U.S. citizen abroad, does my country of residence affect my entitlement to U.S. Social Security?

4. What if I renounce U.S. citizenship. How does that the fact that I am no longer a U.S. citizen and am now a “Non-Resident Alien” affect my entitlement to U.S. Social Security?

You become a “Non-resident alien”. Your eligibility for benefits is determined here:

See also:

Taxation of Social Security Benefits Received

5. Okay, great I am receiving U.S. Social Security payments but am living outside the United States. How are these U.S. Social Security payments taxed by the United States and/or my country of residence?

In general:

In Canada:

6. How much U.S. Social Security do I receive anyway? I have heard that there is a “Windfall elimination provision”. Is that true?

Yes it is.

http://www.ssa.gov/pubs/EN-05-10045.pdf

See here:

EN-05-10045