Problems With Us Irs

[thaihome]

Great Thread.

Main life lesson:

Do not get into argument with the IRS.

Secondary livf lesson:

If you do get into argument with IRS, do not ignore it. It will not go away.

TH

Edited December 8, 2006 by thaihome

[lanny]

To Lanny or somebody:

On the irs webpage there is tool to determine if you need to file a return. If you make under a certain amount (under $9000 US I think?) it will tell you that you are not required to file. For a couple of years I have worked only part of the year here (but lived here the whole year) and did not exceed the above amount, so I didn't file. I have no income in the US other than a tiny bit of interest paid to my savings account. I do have thai tax returns for those years backing up the above. Am I in the clear?

Probably! If your incme from all sources (not just salary) is less than the combined amout of your standard deduction and personal exemption, IRS really doesn't want you to file. I've had clients in the past who have gotten letters actually asking them not to file!

Please note: This is not the same as having income of less than the foreign exclusion. The exclusion is optional! You must file a return to claim it and, if you don't and IRS contacts you about the return, you may be barred from making the election!

[PeaceBlondie]

Also, there is usually (never say 'never') a prohibition on a late filed return, to claim the foreign earned income exclusion, if tax is due on that return. In other words, if you don't file for a year or two and end up owing money, you probably can't take the FEI exclusion. However, you may be able to take the exclusion in a subsequent year if you quote the right regulation. That's only one example of why you should file timely. People who are abroad on April 15 get an automatic extension to file.

I'm too cheap and proud to pay somebody here to file my return, so the last time I had a really technical question, I called the taxpayer service line. Yes, it cost me some baht on my mobile 1-2-Call card, but the advice was well worth it.

To add to what Lanny said about US Tax Court. The IRS doesn't send you there; they just send you a Statutory Notice of Deficiency, and you can choose to take your case to a court (generally, Tax Court, but possibly, District Court). But it's extremely doubtful that you'll have a trial; you and the IRS should settle out of court (or limit the arguments by stipulations). It's never a jury trial (in tax court), and the IRS seldom loses.

I'm out of practice on these things; the law may have changed and my memory may fail me.

[taxout]

Remember that dealing on a timely basis with these issues is important and that's one reason you have to make sure the IRS has your current address.

In particular, once the IRS issues a Statutory Notice of Deficiency you have to petition the Tax Court within 90 days of issuance if you want to contest the assessment. After that, if you have not filed a petition, the IRS will assess the tax and you must pay it. If you don't, the IRS can put liens on your US bank accounts and other assets and make life miserable for you.

If you think the IRS is wrong but you didn't timely petition the Tax Court, then after paying the assessment you can sue for refund in a Federal District Court and raise your legal objections.

Note too that there are various exceptions to the normal three-year statute of limitations on assessments.

But since the IRS generally must assess tax within three years or lose the right to do so, if they believe there's a problem with your return but can't find you, then they'll usually automatically assess additional tax before the statute of limitations expires in order to protect the Treasury's position.

Edited December 9, 2006 by taxout

[tutsiwarrior]

can we say...that if the IRS has started charging interest on a perceived deficiency that an 'assessment' has already been made? If the assessment was made in 2002 why have I not yet received the statutory notice of deficiency?

'oh, how unlucky can a poor boy be?...seems like everywhere I go the IRS is followin' me...' (cut to wailing blues guitar/blues harp solo...)

[lanny]

can we say...that if the IRS has started charging interest on a perceived deficiency that an 'assessment' has already been made? If the assessment was made in 2002 why have I not yet received the statutory notice of deficiency?

Did you move and not send IRS a change of address? The process of assessing additional tax and sending notices is completely computerized. IRS computers work on a 5-week cycle and each cycle the computer sends the next scheduled notice, including the notice of deficiency.

If, at a later date, you give them a new address, only subsequent notices go to that address. IRS assemes, and this is in the law, that you received all previous notices. Also, the IRS is not required to send notices of deficiency in all cases. Only when they make a substantive change to the income and deductions claimed on a return is a notice required. If they make a corrections to the math or tax computations because you made a mistake, there is no need to send a notice of deficiency.

[PeaceBlondie]

The statute of limitations for the IRS to make an assessment (impose additional tax due) has traditionally been 3 years after the return was FILED. On a 2001 return filed by a taxpayer who was overseas, that person probably filed in mid-2002, and the statute would expire in mid-2005. A return that was filed much later, would have a longer period for tax increases.

However, the mere issuance of a statutory notice extends the deadline by (usually, a maximum) 150 days. Once as a manager, I blew the whistle because I couldn't sleep - I had shared responsibility for about 35,000 statute cases that were somewhere between the 60 day and 150 day extension period! And if you file a petition to the court, the statute is extended again, until the court disposes of the case.

Since I retired, I think there's a new law that suspends interest at some point during the audit process. I don't know the details.

[tutsiwarrior]

can we say...that if the IRS has started charging interest on a perceived deficiency that an 'assessment' has already been made? If the assessment was made in 2002 why have I not yet received the statutory notice of deficiency?

Did you move and not send IRS a change of address? The process of assessing additional tax and sending notices is completely computerized. IRS computers work on a 5-week cycle and each cycle the computer sends the next scheduled notice, including the notice of deficiency.

If, at a later date, you give them a new address, only subsequent notices go to that address. IRS assemes, and this is in the law, that you received all previous notices. Also, the IRS is not required to send notices of deficiency in all cases. Only when they make a substantive change to the income and deductions claimed on a return is a notice required. If they make a corrections to the math or tax computations because you made a mistake, there is no need to send a notice of deficiency.

I did change addresses end of 2002 but did not notify IRS...one presumes that one does not live in a Big Brother/IRS environment. I presume that the IRS attempted to notify me of my 2001 tax year discrepancy but it got lost. However they had notification of my new address with my next tax return. I don't understand why they did not attempt to send other notification of this discrepancy with this information until now 4 years later.

The IRS is a racket designed to garner as much dosh from the unsuspecting public as they can to finance an outrageous government budget deficit and murderous military adventures in foreign lands. We work, pay our taxes and go home...why are we expected to know the details of tax law to get on with our lives?

Being a permanent expat with all my assets overseas I'm not worrying but I am willing to service a discrepancy if it truly exists but the burden of proof is on me with all the associated effort and bullshit...nobody likes to be bullyed...

Lily Tomlin in the US had a sketch about being an operative with 'the phone company' and always signed off by saying with a shit eatin' grin 'we're the phone company and we can do what we want'...what was she truly talking about?

Edited December 10, 2006 by tutsiwarrior

[Inspector 2211]

Being a permanent expat with all my assets overseas I'm not worrying...

Maybe you should worry.

Can the IRS make deductions from your Social Security checks once you file for Social Security?

I'm almost sure they can.

Experts?

Can they have you arrested at the airport of entry if you ever enter the U.S. again, for, say, attending your father's funeral?

Experts?

Quite a few of us owe the IRS some money (Hi, girlx) or will do so in the future (note to self: Say 'Hi' to self) .

It is just unclear what the long term consequences are.

Can somebody knowledgeable chime in?

[Gumballl]

Being a permanent expat with all my assets overseas I'm not worrying...

Maybe you should worry.

Can the IRS make deductions from your Social Security checks once you file for Social Security?

I'm almost sure they can.

Experts?

Can they have you arrested at the airport of entry if you ever enter the U.S. again, for, say, attending your father's funeral?

Experts?

Quite a few of us owe the IRS some money (Hi, girlx) or will do so in the future (note to self: Say 'Hi' to self) .

It is just unclear what the long term consequences are.

Can somebody knowledgeable chime in?

I think that the IRS can also contact the US Dept of State, which will withhold issuing you a new passport when your existing one expires.

[lanny]

Being a permanent expat with all my assets overseas I'm not worrying...

Maybe you should worry.

Can the IRS make deductions from your Social Security checks once you file for Social Security?

I'm almost sure they can.

Experts?

Can they have you arrested at the airport of entry if you ever enter the U.S. again, for, say, attending your father's funeral?

Experts?

Quite a few of us owe the IRS some money (Hi, girlx) or will do so in the future (note to self: Say 'Hi' to self) .

It is just unclear what the long term consequences are.

Can somebody knowledgeable chime in?

1. Yes, IRS can levy against your SS benefits. They cannot levy against SSI disability benefits. I've never had a client with a levy on SS benefits, so I can't speak from experience. However, any levy would not take the entire benefit.

2. Unless you have been convicted of a tax crime, i.e. filing a fraudulent return, etc., IRS has no authority to arrest you at any time. So, no, they cannot arrest you on entry.

3. Generally, if you owe IRS money, they have 10 years to collect. At the end of the 10 years, they can go to court and get a judgement against you and then they have an additional period of time to collect, just as any judgement creditor would have. I've never seen them do this so I assume they don't go to the trouble and expense unless the amount is substantial (for them) and they have reason to think there will be assets they can reach.

Once a tax has been assessed, IRS does not have to go to court to enforce collection. They have administrative authority to sieze assets and to levy against income. If you have assets in the US, IRS can take them to satisfy back taxes -- bank accounts, brokerage accounts, real estate, etc.

Finally, for expats, IRS can put a flag on your account and the State Department will not issue or renew a passport until it is removed.

[girlx]

if you owe back taxes and you set up a payment plan with them, is it ok to pay the minimum on that for the rest of your life? they add so much ridiculous interest and fees on top of what i really owe that i will never ever catch up with them otherwise.

[PeaceBlondie]

if you owe back taxes and you set up a payment plan with them, is it ok to pay the minimum on that for the rest of your life? they add so much ridiculous interest and fees on top of what i really owe that i will never ever catch up with them otherwise.

One of the arrangements you can sometimes make, an Offer in Compromise, reduces the total amount owed, to an amount you might be able to pay. But in any event, they're not going to enter into a repayment plan that doesn't even cover accrued interest and penalties. You can't repay a million dollars at two cents per year. The payment plan will establish a minimum that actually repays the total, and I'll bet it has to be repaid within ten years or less (but that was never my specialty).

I have seen some debts to the IRS written off as 'uncollectable' by the revenue officer, based on official criteria that is set by the Collection Division (or whatever it's called now). If the officer visited you and saw you were wheelchair bound, blind and deaf, penniless forever, they'd write it off. You never know their exact criteria.

[Jingthing]

One other detail of interest to some I imagine.

Yes, it is true, that if your income is less than a certain amount, you do not need to file, in fact, you are not supposed to file.

However, if you have investment income and sell some investments during the tax year so that it looks like you might go over the minimum amount, you should file.

For example, sale of a stock mutual fund of 20K with a long term capital gain of 4K.

How does the IRS know you don't have a capital gain of 20K unless you file and claim the true capital gain? They don't.

[tutsiwarrior]

for those that are interested, I called the IRS to find that they never received my return for tax year 2001 hence the confusion. However, keep the thread goin' as there's some useful information here...

[PeaceBlondie]

If you never file a return for a year, but the IRS gets reports that you had substantial income (Forms W-2, 1099, currency transaction reports, stock market sales, etc), the law requires the IRS to file a return for you. Then, they file the worst possible return - married filing separate, no FEI exclusion, no dependents, etc.

So, if you did send the return in and have a copy to prove when you mailed it in, you're in better shape.

[taxout]

1. A warrant can be issued after you've been indicted for criminal tax violations and you can be arrested on this warrant when entering the US or anytime thereafter. Thus the risk of arrest begins when you're formally charged with criminal acts, not when you're convicted.

2. The Federal criminal statute of limitations generally doesn't run while you're outside the US.

3. Different divisions of the IRS have different personalities and the collection people are there to get their money, period. If you have legal grounds for not paying, you need to raise them before your case gets in their hands. Procrastination is fatal when dealing with the IRS. But yes, if you really can't pay they are, like most creditors, open to compromise.

4. You can be denied renewal of a passport if there's a Federal felony warrant out for your arrest and on certain other grounds, but being in arrears on your Federal income tax payments isn't one of them.

http://a257.g.akamaitech.net/7/257/2422/12.../22cfr51.70.htm

[old wanderer]

Very intresting thread:

I work for Boeing in CA at this time, and should transfer to Singapore in a few months. As I understand this thread, I will get my foreign residence exemption, BUT I want to withdraw 6 million baht from a 401k. If I understand this my 1st $82000 will be exempt, but I will have to pay at 28% to 33% tax on the 401k withdrawl..... I had counted on about a 15% tax libility when I schemed up this transfer.

I am building a home, and buying some land, and with the baht getting so strong, I thought I had found a way to make up for the big diffrence between when I planned these projects and when I was going to pay them off.....

Do you happen to get a double exeption if you are married?? Or could I find a tricky way for my wife to file seprately for the 401k income and I just file my salery?

(Wife is Thai by the way but living with me in the USA right now).

Looks like I better set down with a CPA and for what ever it cost, it is better than donating my money to the USA just so it can support a bunch of illegal Mexicans that have invaded my home city.

[thaihome]

Very intresting thread:

I work for Boeing in CA at this time, and should transfer to Singapore in a few months. As I understand this thread, I will get my foreign residence exemption, BUT I want to withdraw 6 million baht from a 401k. If I understand this my 1st $82000 will be exempt, but I will have to pay at 28% to 33% tax on the 401k withdrawl..... I had counted on about a 15% tax libility when I schemed up this transfer.

I am building a home, and buying some land, and with the baht getting so strong, I thought I had found a way to make up for the big diffrence between when I planned these projects and when I was going to pay them off.....

Do you happen to get a double exeption if you are married?? Or could I find a tricky way for my wife to file seprately for the 401k income and I just file my salery?

(Wife is Thai by the way but living with me in the USA right now).

Looks like I better set down with a CPA and for what ever it cost, it is better than donating my money to the USA just so it can support a bunch of illegal Mexicans that have invaded my home city.

No double exemption and probably no way to file separately. Don't forget the 10% penalty for early withdrawal from 401(k). Also, be sure your CPA is aware of the changes in how the tax is calculated on remaining income after the exclusion as well as limitations on the housing allowance exclusion (which will now be far less than actual housing costs in Singapore). I also assume you have figured your Singapore income tax into your plan.

TH.

[PeaceBlondie]

Is there an assumption that the 401(k) withdrawls relate to the foreign earned income exclusion? I doubt it. Although in one sense the money in a 401(k) or an IRA is like 'deferred compensation,' it would not be considered foreign source income if it was originally earned within the US. In other words, old wanderer, the 401(k) withdrawls would not qualify for the earned income exclusion, if that's what you were thinking. They just add to your gross income and aren't excludible, and they raise your taxable income (usually, to higher levels, depending what your highest rate would have been before adding in the withdrawls). And, if you're under age 59.5, there would be the additional tax for premature withdrawl.

....I always want to spell 'withdrawl' with a drawl...

[lanny]

To qualify for exclusion, deferred compensation payments must be made with two years of the year in which they were accrued. Further, the exclusion is based on when earned (accrued) and not on when paid. So, if you make more than the allowable exclusion and then, a year later, receive a deferred payment, it would be in excess of the exclusion and thus fully taxable.

Withdrawals from retirement plans are never excluded. The exclusion is for income EARNED in the year for which the exclusion is claimed. Distributions from IRAs, 404Ks, etc. are not earned income.

The exclusion is based on your own income. On a joint return, both husband and wife are entitled to their own exclusions but cannot share. So, if one spouse makes $100,000 and the other makes $40,000, the exclusion is $120,000, not $140,000. For this reason, I have advised clients who operate a business to pay a spouse more and stay under the $80,000 for each of them.

[lingyai]

Very intresting thread:

I work for Boeing in CA at this time, and should transfer to Singapore in a few months. As I understand this thread, I will get my foreign residence exemption, BUT I want to withdraw 6 million baht from a 401k. If I understand this my 1st $82000 will be exempt, but I will have to pay at 28% to 33% tax on the 401k withdrawl..... I had counted on about a 15% tax libility when I schemed up this transfer.

I am building a home, and buying some land, and with the baht getting so strong, I thought I had found a way to make up for the big diffrence between when I planned these projects and when I was going to pay them off.....

Do you happen to get a double exeption if you are married?? Or could I find a tricky way for my wife to file seprately for the 401k income and I just file my salery?

(Wife is Thai by the way but living with me in the USA right now).

Looks like I better set down with a CPA and for what ever it cost, it is better than donating my money to the USA just so it can support a bunch of illegal Mexicans that have invaded my home city.

or....maybe your tax dollars goes to the Air Force and other branchs of our armed forces that buy Boeing planes...or to universities that churn out engineers to build those planes...or to trade delegations so china, thailand, and other nations buy boeing planes......naaah I am sure the whole budget goes to those ###### mexicans...

[old wanderer]

Thanks for all the info....

I am over 60 so no 401k penalty.....but I earn over $100k/yr and my wife earns about zip.

I have talked over the tax situation in Singapore, and looks like I can avoid some by:

A. Having my residence here in Thailand, and comming home most weekends.

B. I do a lot of international travel working, so that amount is also excluded.

( I was told I was liable only for income tax in Singapore on moneys I made while actually in Singapore).

Also I can tele-comute some days.

There was an intesting article on the Drudge Report this evening on the ever increasing number of people giving up USA citizenship because of the taxes. The article focused on a US citizen living and working in Geneva for the past 16 years, and had dual citizenship. They actually had to shop around to find an embassy for an appointment as a lot of countries USA embassies were booked up for 3 months. The article pointed out how the USA was the only country that taxed its citizens throughout the world, and also the recent change in the IRs rules that eliminated a lot of the deductions and how income was taxed which you alluded to earlier in the post.

I can see my taxes will need a profesional to prepare next year. (At least I am getting out of the stock market so no more 20 page stock trade reports to do.)

I do have the option of working as a consultant for Boeing, which would give me better deductions, but less benifits.

I have not asked anyone yet, because I do not think I can, but I have $400,000 long term loss carry over that I have only been able to use $3000/yr of. Can this be used to offset the gains in my 401K??

[lanny]

Working as a consultant, rather than as an employee, may not be a good idea. As a consultant, your income is subject to the self-employment tax -- both halves. As an employee, you pay 7.5%, as a consultant, you pay the full 15%. As long as you are subject to US taxes, you have to pay this tax. The foreign exclusion applies to income taxes, it does not apply to social security taxes.

Furthermore, if your compensation is adjusted to counter this, you may lose out on the exclusion. The exclusion applies to GROSS income and any related deductions are prorated between the excluded and non-excluded income. This can result in a smaller net exclusion.

As for the capital loss carryforward, you are out of luck. Such carryovers offset capital gains $1 for $1 but are limited to $3,000 against other income. Gains or losses in any tax deferred plan (such as your 401K) become ordinary income when withdrawn. Whether the deferred account has capital gains is immaterial, all distributions are ordinary income. As such, they are not available to offset capital losses (other than the basic $3,000.)

Also, as I think has already been pointed out, any distribution from the 401K is not considered current earned income and is not elibible for the foriegn exclusion -- even it the original contributions were made from excluded income!

Edited December 18, 2006 by lanny