Please help - how to start filing after missing several years

There haven't been many times I could feel grateful for being in a low paid job and having no assets to speak of. But it certainly makes things feel less complicated and dangerous at the moment. I find this whole situation perplexing. How is the US the only country left on earth, save apparently one tiny African dictatorship, that expects citizens who live, work and pay taxes in a different country to still need to be accountable to them? When this is all done and dusted, I feel ready to sever ties with the US completely.

There haven't been many times I could feel grateful for being in a low paid job and having no assets to speak of. But it certainly makes things feel less complicated and dangerous at the moment. I find this whole situation perplexing. How is the US the only country left on earth, save apparently one tiny African dictatorship, that expects citizens who live, work and pay taxes in a different country to still need to be accountable to them? When this is all done and dusted, I feel ready to sever ties with the US completely.

You are not alone in your frustration about Citizen Based Taxation. The origin of CBT is quite interesting and we have Lincoln to thank for it as it was introduced during the Civil War so that Americans couldn't avoid contributing to the war effort by moving abroad. So America got income tax and CBT and abolished slavery, when you think about it that way, it isn't such a bad deal. Of course after the Emancipation Proclamation it might have been better to go to a residency based approach.

I never intend to go back there to live, so I don't see why I need to be a citizen anymore, really. Assuming I can get through this Streamlined Process relatively easily, will I then have to file for 6 years (providing the needed 6 years of tax records) before I could renounce? I'd like to get it done well before retirement.

Getting into tax compliance is the first step to renouncing your US citizenship. There's plenty of advice here and online just google "renouncing US citizenship"


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Assuming I can get through this Streamlined Process relatively easily, will I then have to file for 6 years (providing the needed 6 years of tax records) before I could renounce? I'd like to get it done well before retirement.

The requirement for form 8854 is the most recent 5 years of tax returns. If you file for 2015, and back file via Streamlined for 2014, 2013, and 2012, you will have 4 years already.

I'll disagree with nun slightly here. There are two separate definitions for American citizens. The first is your immigration status, your citizenship. The second is the IRS definition of tax liability. Again, the two are separate. You may renounce your US citizenship without paying any heed to the tax requirements (for now). If you do proceed in this manner, you will become a covered expatriate. Travelling to the States as a visitor may become a risky situation. It would also have consequences, upon your death, for any beneficiaires you leave funds to who are resident in the US.

I'd also point out that in January 2016, the US presented its new 'model tax treaty' which it intends to use as guide when replacing all existing treaties. There are a number of alterations when compared to existing treaties. In the new treaty, the saving clause not only concerns US Persons, but now includes the term "former citizens" as well. It would appear the US is taking steps to make it more difficult for those who renounce but avoid filing 8854.

If you wish to exit the US system cleanly, then filing the past 5 years of tax returns would be advisable.

 

I am not in a rush to renounce, so I will take care of the Streamlined business first and then seek advice in a year or two, I guess.

Your timetable could be like this. During 2016 you file under streamlined your income tax returns for 2012,13,14. You file online any FBARs you need for 2009--14. You also file FBAR and 2015 tax return as normal this year. You renounce in January 2017. File returns for 2016 as normal during 2017 (and now you have the required 5 years of returns). Finally, you file 8854 and your last (dual status) tax return, for the tax year 2017, filing that by the deadline in 2018.

Alternatively, as theOAP says, if you are not concerned about becoming a covered expatriate, it is perfectly possible for you to renounce immediately, and not bother with the expense of streamlined. If you have no US situated assets or any desire to travel to the US, then that seems quite possible. (I doubt whether even with the 2016 new model treaty the US would go as far as trying to tax a former citizen who has had no US situated assets.)

If you do proceed with streamlined you should get more than one accountant's quote. I have heard a very wide range of charges. It does of course depend on the complexity of your circumstances. I was talking to a friend yesterday who has not filed US taxes for 30 years, and even has no SSN. He has no US assets, but substantial UK assets and earnings. He has just been quoted £700 by a London US-tax specialist firm for preparation of the package of all 3 years of tax returns under streamlined.

Thank you to Nun, OAP and RW for such thoughtful responses. I appreciate it!

After 4 days I have not received a reply from British American Tax, even though I was specifically asked to email them. So I have sent along enquiries this morning to American Tax Returns and Westleton Drake. I'd like to begin the process soon. Do you have any advice for what I should be gathering while I wait for a reply? P60s and ISA statements?

Specialist tax preparers will charge you a lot of money and you will still have to do a lot of work gathering all the information. For someone on a low income and without complex finances, it doesn't make sense. Summon the courage and do it yourself.

Start with 2015. The FBAR just needs you to collect account information - it's not that complicated. Use tax software (Taxact may be best) to prepare your return. Do not submit these yet but the experience will make it much clearer what you need for the previous years.

As long as your returns have no obvious errors, they will attract no attention from the IRS who are busy enough already. It's quite unlikely that you owe anything other than a big pile of forms. Come back here to ask questions. Stay resolute when tax industry people try to scare you. Other people have done it and so can you.

Thanks for that. Could you provide a list of the big pile of forms I need to get?

Do you have any advice for what I should be gathering while I wait for a reply? P60s and ISA statements?

I just saw the reply from Weller.

For someone on a low income and without complex finances, it doesn't make sense. Summon the courage and do it yourself.

I agree many could probably do it yourself, especially if your earned income is less than $108,000 so that all of that can be excluded using the Foreign Earned Income Exclusion. One tax preparer I know always tells his potential clients to try to do it themselves and recommends the software TaxAct.

I was in the process of writing a reply to say that this is a busy time of year for the industry as they are hearing from existing clients and building up an inventory of new clients. Probably they are very busy as many people like you are hearing of FATCA and wanting help.

In fact, if you make a request for an extension, you have until December 15 this year to file you streamlined returns for 2012,13,14 and regular return for 2015. So the tax preparers know they have plenty of time to get back to you. To tell a story, I once wrote to a tax preparer when I was in your position a few years ago. I had an initial talk on the phone but then no reply to any other email I sent to him for two months, and then suddenly one day an email arrived detailing all the things I should send to him. By that time I had given up hope on this firm and had contacted someone else.

If you have had more that $10,000 in financial accounts in any of the years 2012,13,14,15, you will need to file an FBAR for that year. You can easily do this yourself on line. Ask here if you need any help with this once you have had a look at what you need to report. http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

When you do get around to preparing the returns (either yourself or with the help of a preparer) you will need these things:

Details of your employment income and UK tax withheld for calendar years 2012, 2013, 2014, 2015. You can get this from your monthly payslips if you are salaried. You will need to supply the gross amount, before deduction of National Insurance or your pension contributions. P60s are helpful, and the tax preparer will want to see these too, but they show income in the UK tax year 6 April - 5 April. The US tax year is the calendar year, so one cannot just copy the income from the P60s.

Employer and employee pension contributions for the same calendar years. Again, you an get this from your monthly payslips if you are salaried.

Details of other sources of income for these years. You will know what you have, but it can include:
  Pension income ?
  UK state benefits received ?
  Bank interest ? (you want the gross amount, before any UK tax deduction)
  ISAs ? (interest paid cash ISAs, or accounts for stocks and shares ISAs)
  Dividend income ?
  Self-employment income?
  Buy-to-let income ?
  Capital gains (sale of property or shares) ?
  Any other income you can think of, e.g. lottery winnings.

Information about your home and mortgage payments if you own a home.

If you have been making Self-Assessment returns then copies of the returns which you made for the past years.

I imagine you would like to get this all underway as soon as possible, since that will help you to feel less anxious. But there is plenty of time (until December 15) and I can assure you that it will all be fine in the end. Try not to feel worried.



 

Thank you for all of this information. How do I prepare a return for 2015? Should I wait and send in 2015 with the Streamlined procedure, or go ahead and do it first, then do the Streamlined after? When should one request an extension? If I request an extension, would that not bring me to the attention of the IRS and cause problems for me? In other words, what is the best timing for all these things?

Here is a copy of a recent post which I contributed to Facebook which answers a lots of your questions. You probably need only the first few forms mentioned (1040, Schedule B, 2555, 8965). I recommend you prepare the 2015 return first. That will teach you how to do it, and then you can subsequently prepare the 2012-14 for streamlined. You will send the package of 3 streamlined returns to Austin TX, separately from the return for 2015. You get an automatic extension to June 15. Read here for information about how to extend this to October 15. https://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad

Here begins the quote from Facebook:

You can do it yourself. That is quite feasible. I know at least one tax professional who says that he always recommends that potential clients see if they can do it themselves first. --- If so, great. Here is a bit more information about what you need to do if you want to become compliant and continue as a US citizen.

1. You can read about the streamlined offshore procedures here https://www.irs.gov/.../U-S-Taxpayers-Residing-Outside...
You will need to file 3 years of IRS income tax returns, say 2012, 2013, 2014, and Form 14653. You will send these in a single envelope to Austin TX. You will also file six years of past FBARs, 2009-14, which you can do online. The 2015 needs to be done by June 30, so this is your first important deadline.

2. You separately file 2015 FBAR and 2015 1040 return (not via streamlined) and continue to file these returns each year for the rest of your life, or until the year after you renounce. [**You will need to be careful about your financial planning going forward so that you do not mistakenly invest in things that are sensible from a German point of view, but could someday incur nasty US tax. If, for example, you were to win the top prize in Euromillions that would be US taxable.**]

3. To prepare your IRS income tax returns you will need various forms. Which forms you need will depend on your circumstances. If your circumstances are really simple you might not need any software program and can just download the forms you need from the internet and read the instructions that come with them. Google, for example, "1040 instructions 2013". In more complicated circumstances I recommend buying the download version of TaxAct Plus ($29.99), which has all the forms, calculates the tax, and makes printing them easy. They also sell the programs for past years. Here is a list of forms you might need. If your circumstances are simple you may need only a the first few. Maybe others can suggest other things and advice. But I am trying to keep this simple

1040 (this is the top page of your tax return and your main return)
Schedule B (bank interest and dividends);
8965 (health care exemption, exemption type C);
2555 (exclusion of foreign earned income up to $100,800), and/or
1116 "passive", "general" & "resourced by treaty" versions (to claim foreign tax credits for German tax you have paid);

8938 (report of foreign accounts, if you have >$200,000 in such);
8833 (to claim a treaty position on a foreign pension plan);
Schedule A (itemized deductions, such as mortgage interest, though it may be simplest just to ignore this and take the standard $6,300 deduction);

Schedule C (own business);
Schedule D (capital gains);
Schedule E (other income, such as rental property income, book/music royalties).
8621 (foreign mutual funds subject to 1291 fund PFIC tax);

Ask here and on the Facebook page "US Expat Tax Questions". There are lots of people who are willing to help.

It would be useful to compile a list of FAQs and other points. Here are some with which to start.

(a) Take the IRS quiz. Do I Need to File a Tax Return. https://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

(b) Read the IRS advice here: https://www.irs.gov/.../Internati.../Taxpayers-Living-Abroad

(c) You don't have any W2 forms with which to report your wages. Work from your own payslip records. Convert your foreign country wages to dollars using the exchange rates here: https://www.irs.gov/.../Yearly-Average-Currency-Exchange...

(d) The above can be considered US EXPAT TAX 101. For those who are up to the challenge of US EXPAT TAX 201, there some other forms to understand. But if you need these then you probably need professional help.

5471 (you own 10% of more of a company regarded as a Controlled Foreign Corporation)
3520 (you are involved with foreign trusts)

(e) Phantom currency gains. Suppose you take out a £100,000 mortgage when the $/£ rate is 1.50. The IRS see you as having borrowed $150,000. Some year later you pay back £10,000, but the $/£ exchange rate is now 1.40. The IRS see this as costing you only a $14,000 repayment, so you have profited by $1,000, which is now US taxable. On a repayment mortgage this sort of thing can happen with each monthly mortgage payment. Never mind that no real dollars have ever been involved.

Just to clarify regarding the $10,000 threshold for filing FBAR.

It's not a question of having physically held more than $10,000 during the year, it's whether the sum of the maximum amounts (at any time during the year) in your accounts exceeded $10,000.

For example, you have 2 non-US accounts.

Account 1- High balance $5,000

Account 2-Previous balance $1,000. You transfer in the $5,000 from account 1 so your new high balance is $6,000

Even though you only physically have $6,000, your combined high balance is $11,000 so you would be required to file.

Does anyone have any idea how I'm supposed to determine the highest balance of the year for previous years?? Do I have to look at monthly statements for each month of the previous years to do this?