FATCA - tax for US expats. Advice please!

[GabrielB]

Hey guys, wondering if anyone can advise on FATCA. My situation is that I basically did not know what this was until last week. Apparently all this time I've been away I was supposed to be filing with the IRS, and a friend tells me I could be looking at a hefty fine for non-compliance?

Kind of confused about it to be honest, I have been living in Asia on and off for a few years, mainly in Thailand (where I currently am), and only go back home to the states about once a year, so not overly keen to pay taxes to the us govt.

I'm not currently working, but have done in the past (yes I had the correct visas/wp etc) so I paid taxes in Thailand. Now I am told I was supposed to be filing US taxes too. Does anyone know anyone about this?

Although I know I will have to face up to this, I am reluctant to speak with the IRS before I fully know my situation.

Thanks in advance.

[GabrielB]

ah, ok thanks. yeah i wasnt sure if i was in the right forum

[Thanyaburi Mac]

Time for some Googling for you, FATCA is just one part of the equation.

You'll probably have to file IRS 1040 returns for prior years to get straight with them, might incur a penalty for later reporting, too.

Here;s a blurb on the U.S. Embassy's www page: http://bangkok.usembassy.gov/acs_taxes.html

You might also want to pay for a U.S. tax adviser for this initial filing to get out of the hole.

Suggest doing a Google for: bangkok u.s. tax advisors

Some good leads pop up.

Mac

[GinBoy2]

It's always worth filing a 1040 regardless of income, even if you don't actually make in the income threshold, sorta keeps the IRS off your back.

Now the other thing you need to think about is State. I don't know where you were/are resident but the States, at least some of them are pretty diligent about NOT letting you go.

I changed my state residency from CA to SD a few years back for that very reason, since California if you try to renew your drivers license or register to vote, regardless of whether you actually live there believe they are due a cut of your income.

[The Dancer]

FATCA is separate from your tax return. It's about declaring financial accounts/assets (e.g., bank acs.) you hold abroad. The form is simple to fill but you really need do it because (1) this law has teeth - the penalties are awful, and (2) non-compliance is easy to detect because, e.g., if you used a US passport to open an ac. in Thailand then they're treaty-bound to send your data stateside.

As others have said you need to straighten these things out asap. If there's one thing worse than pissing a Thai babe off, it's pissing off the IRS. Don't.

Edited November 18, 2015 by The Dancer

[SpokaneAl]

If you have US based income, retirement income/Social Security etc, depending on the amount of that income, you could be liable for US income taxes.

[Nomyai]

You definitely need to file Federal.

You need to be domiciled in a no state income tax state! Just as mentioned earlier some states find it hard to let you go. You have to actually leave and establish domicile. Seems the easiest is South Dakota!

[hhgz]

www.irs.gov

[gentlemanjackdarby]

GabrielB,

The United States taxes its citizens on world-wide income, ie; it doesn't matter WHERE one earns one's income, Uncle Sam takes his bite.

The Internal Revenue Code does have a foreign tax credit (within certain limits) for income tax paid to a foreign country on income earned in that country so, unless one is earning big money, one only pays income tax once.

One should ALWAYS, ALWAYS file an income tax return even if one's income is below the filing threshold or, if for some other reason, one is not required to file a return.

The reason for this is because of the statute of limitations for auditing a tax year and assessing additional tax, penalties, and interest. The statute of limitations for U.S. federal returns is 3 years from the date of filing of the return or 3 years from April 15th if the return is timely filed prior to April 15th, assuming the return is not fraudulent.

Until a return is filed (and that return is not fraudulent or frivolous) , the statute of limitations does not begin, so the tax year is open for audit.

States (and cities) with with personal income tax also have similar statutes of limitations.

Generally speaking, if one has not filed tax returns for a number of year, the big shock, beyond the tax due, is how much is due for interest and penalties.

Depending on factors specific to your situation, such as the number of years for which returns were not filed, the amount of the tax liability, the complexity of your tax circumstances, etc. it would be wise to consult a CPA in your state of residence or legal domicile. You can contact your state society of CPAs and they can recommend qualified CPAs with whom you can discuss your situation.

It is advisable to consult a qualified professional because, depending on the amount of tax due, interest, penalties, etc. the IRS may accept an offer-in-compromise, which is essentially a "deal" to get you on the straight-and-narrow and your case off the IRS agent's desk.

[1BADDAT]

If you have US based income, retirement income/Social Security etc, depending on the amount of that income, you could be liable for US income taxes.

The income does not have to be US based. The US gov't does not care where the income comes from, they will tax you regardless.

[BudRight]

If you have US based income, retirement income/Social Security etc, depending on the amount of that income, you could be liable for US income taxes.

The income does not have to be US based. The US gov't does not care where the income comes from, they will tax you regardless.

You are forgetting, or perhaps choosing to ignore, the Foreign Income Exclusion of around $100,000 of overseas income.

That said, I believe as many do that taxing citizenship rather than residency is a human rights abuse and should be taken before the UN.

[1BADDAT]

If you have US based income, retirement income/Social Security etc, depending on the amount of that income, you could be liable for US income taxes.

The income does not have to be US based. The US gov't does not care where the income comes from, they will tax you regardless.

You are forgetting, or perhaps choosing to ignore, the Foreign Income Exclusion of around $100,000 of overseas income.

That said, I believe as many do that taxing citizenship rather than residency is a human rights abuse and should be taken before the UN.

I don't know all the tax laws, but I am sure KPMG does and they do my taxes. I work in Thailand and was taxed on my US salary at the same rate as if I was living in the US. Maybe this is because I still work for a US based company.

[vaultdweller0013]

First off, the best thing would be to discuss with an accountant or tax attorney in the US to come up with the best coarse of action to take.

Generally, there will be two things you will need to do.

First, you will need to file tax return for previous years or amend the returns you did file to take into consideration your income from outside of the US. If you were out of the US for more than 330 days in the years where you worked, then unless you were making over $100,000 you should end up owing no taxes. As for the penalties, if you owe no taxes, then they should be small or none, but consult an accountant to be sure, especially if you need to file/amend taxes from more than 3 years ago.

Second, you will likely need to file FBARs with the US Dept. of Treasury (not the IRS). FBARs are required if you had more than USD 10,000 or foreign currency equivalents at any point during the year totaled across all of your non-US bank accounts and other financial instruments (e.g. life insurance in some cases). For example, if you have 3 bank accounts with maximum balances of $3000, $4000, and $2999, then you don't need to file a FBAR. However, if on one day of the year, the balances were $3000, $4000, and $3001, then you do need to file an FBAR. Failing to file FBARs can have very severe penalties, even if you did not owe any tax due to the non-reported assets. Moreover, the programs that that are in place to allow "proper" filing of past FBARs all come with some sort of penalty (less severe than if the government catches you, but still fore-fitting part of the previously undeclared assets). Some people are trying silently submitting delinquent FBARs. The US government recommends against this, but given the penalties for voluntarily stepping forward, it is an acceptable risk to some people. In either case, consult an accountant or tax attorney to discuss your options.

As an aside, FACTA is more of a concern if you haven't filed FBARs than it is for not filing taxes. Prior to FACTA, there was no way for the US government to easily check on the accuracy of the FBAR information or whether someone who should have been filing FBARs was not. Now with FACTA, they should be directly getting the account information, so it will be easier to check on inaccurate or missing FBARs.

[BBrandon]

Hi GabrielB,

I've recently had a similar worry - I'm also a US citizen and have been living in Thailand. I think its a real problem how few people are aware of this.

This video was pointed out to me recently - https://youtu.be/9lYQSeLK0YU - and I thought it was good intro, but also wanted to mention it here as the guy mentions a woman who was unaware of needing to file and was subsequently filed a million dollars.

I personally dont have enough floating around in any of my bank accounts to worry about a million dollar fine, however it shows that they mean business and that seriously big fines can happen!

Part of me wonders if the IRS secretly like the fact that so few Americans don't understand FATCA, as they get to fine people big time. Sad but possibly true!

[JimGant]

Hey guys, wondering if anyone can advise on FATCA. My situation is that I basically did not know what this was until last week. Apparently all this time I've been away I was supposed to be filing with the IRS, and a friend tells me I could be looking at a hefty fine for non-compliance?

It's doubtful FATCA even affects you, unless you had $200,000 in certain foreign assets (not to include your house or rental property), and are filing single ($400k threshold filing jointly). If that applies, file FATCA Form 8938 with your Form 1040. Otherwise, forget FATCA. (And your friend probably meant "FBAR," not "FATCA")

Moreover, the programs that that are in place to allow "proper" filing of past FBARs all come with some sort of penalty (less severe than if the government catches you, but still fore-fitting part of the previously undeclared assets).

Nope. If taxes were paid on income from FBAR assets -- or wasn't owed at all, because your Taxable Income was below threshold ($10,150/$20,300 single/married for 2014), just go on-line, file back FBARs electronically, and check the "I didn't know" button.

http://www.forbes.com/sites/stephendunn/2014/07/20/all-you-need-to-do-is-file-your-delinquent-fbars/

Of course, if you also forgot to file your Form 1040 tax returns, and you indeed owed taxes on FBAR related income, it gets a lot messier.

[JimGant]

Now with FACTA, they should be directly getting the account information, so it will be easier to check on inaccurate or missing FBARs.

Not necessarily. Thai banks won't have to report US person accounts that (in aggregate) don't exceed $50,000. Since that would exclude probably 90% of us expats, no huge data dump to the IRS. Yes, they do have the option to report every US person's account, if somehow deciphering $50k aggregate thresholds proves difficult. But I really can't imagine that scenario, with its related significant cost increase for so much reporting. Relax. Do your annual FBAR reporting (easy). And, of course, declare that Thai interest on your Schedule B. So much unwarranted aggravation over a program meant to catch tax cheats -- unless, of course.......

[JimGant]

I work in Thailand and was taxed on my US salary at the same rate as if I was living in the US. Maybe this is because I still work for a US based company.

No, tax rates and brackets are uniform for all earned income, whether derived abroad or in the US.

Edited November 21, 2015 by JimGant

[taxout]

Maybe he meant all-in, including Social Security/Medicare taxes. These generally aren't paid if you work for a foreign company, but if you work for a foreign branch of a US company (or a foreign affiliate of a US company that's made a special election), then they're paid at the same rates as in the US, with no exclusion for foreign earned income.

Since he mentions KPMG, another possibility is that he works for a US multinational that has a tax equalization program; in this case, the employer adjusts the employee's after-tax income so that it always remains the same, whether working in the US, Thailand or elsewhere. In this case, while actual tax rates may vary in different countries, from the employee's viewpoint there's no change because the employee's after-tax income is automatically adjusted to account for tax rate changes. Multinationals often hire firms like KPMG to handle the mechanics of these adjustments.

Edited November 21, 2015 by taxout

[JimGant]

another possibility is that he works for a US multinational that has a tax equalization program

Interesting. Had not heard of that.

[taxout]

"The tax equalisation programme is designed to ensure that the home country tax positions of employees on temporary foreign assignments will be neither advantageous or disadvantageous. The Firm is responsible for actual home country and host country taxes with the exception of inheritance tax, estate tax, wealth tax and taxes related to extraordinary income such as sweepstakes or gambling winnings. In return, expatriates pay a hypothetical tax to the Firm. The expatriate has the responsibility of paying hypothetical tax to the Firm even though no actual home country tax liability may exist."

From Morgan Stanley Euopean Tax Equalisation Policy:

http://www.sec.gov/Archives/edgar/data/895421/000119312512215012/d343889dex105.htm

[JimGant]

That said, I believe as many do that taxing citizenship rather than residency is a human rights abuse and should be taken before the UN.

Actually, tax treaties even-out this dilemna -- deciding whether home country or country of residence gets first dibs on taxes owed. And subsequent credits, if having to file in both countries, smoothes the deal.

But, I see where you're coming from, at least as regards Thailand, who is not taxing retired expats. Wouldn't it be nice if I didn't have to pay taxes to anyone.

I guess you're not necessarily an American, since most 1st world countries do tax their citizens wherever they live (at least on income derived in home country). And most expats' income is mostly home country derived -- so they're not so much different than Americans when it comes to taxes -- except their tax rates are considerably higher than US rates.

So, not sure your trip to the UN is because you're an abused taxpaying American, or what. Suffice to say, most American expats here in Thailand aren't getting screwed in comparson to their fellow European expats -- unless they're living off significant income from Thai sources.

Edited November 21, 2015 by JimGant

[1BADDAT]

Maybe he meant all-in, including Social Security/Medicare taxes. These generally aren't paid if you work for a foreign company, but if you work for a foreign branch of a US company (or a foreign affiliate of a US company that's made a special election), then they're paid at the same rates as in the US, with no exclusion for foreign earned income.

Since he mentions KPMG, another possibility is that he works for a US multinational that has a tax equalization program; in this case, the employer adjusts the employee's after-tax income so that it always remains the same, whether working in the US, Thailand or elsewhere. In this case, while actual tax rates may vary in different countries, from the employee's viewpoint there's no change because the employee's after-tax income is automatically adjusted to account for tax rate changes. Multinationals often hire firms like KPMG to handle the mechanics of these adjustments.

you are exactly correct. I am on tax equalization.

[Langsuan Man]

I would suggest that the OP read the below article that explains the differences and similarities between the FBAR and FATCA reporting requirements

He may only be subject to one and not the other or both

http://www.jaffeandco.com/fbar--fatca.html

[phuketrichard]

It's always worth filing a 1040 regardless of income, even if you don't actually make in the income threshold, sorta keeps the IRS off your back.

Now the other thing you need to think about is State. I don't know where you were/are resident but the States, at least some of them are pretty diligent about NOT letting you go.

I changed my state residency from CA to SD a few years back for that very reason, since California if you try to renew your drivers license or register to vote, regardless of whether you actually live there believe they are due a cut of your income.

HUH?

i have held a ca driving license since 1973

have not filed state income tax there since 1974

and have renewed my license numerous times ( last time was 2 years ago in person in Napa)

[SpokaneAl]

It's always worth filing a 1040 regardless of income, even if you don't actually make in the income threshold, sorta keeps the IRS off your back.

Now the other thing you need to think about is State. I don't know where you were/are resident but the States, at least some of them are pretty diligent about NOT letting you go.

I changed my state residency from CA to SD a few years back for that very reason, since California if you try to renew your drivers license or register to vote, regardless of whether you actually live there believe they are due a cut of your income.

HUH?

i have held a ca driving license since 1973

have not filed state income tax there since 1974

and have renewed my license numerous times ( last time was 2 years ago in person in Napa)

I suggest caution. CA is notorious for its aggressiveness in searching out those it feels should be paying state income taxes. At some point they may put the pieces together.

If I was in your position as a resident and not having filed a state income tax return since 1974, I would be very nervous.

Take care.

Edited November 22, 2015 by SpokaneAl

[taxout]

Of course you can get a California driver's license even if you're not filing a California tax return; many Californians don't make enough to require the filing of a return.

But move back to CA and start filing returns again and there's a reasonable chance you'll hear from them asking about your income in prior years when you didn't file a return.