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Mail Bag #4 - Green Card/FBAR In Year Of Expatriation/IRA Withdrawals/Undeclared ISAs/UN Allowances

Mail Bag #4 - Green Card/FBAR In Year Of Expatriation/IRA Withdrawals/Undeclared ISAs/UN Allowances
Ines Zemelman, EA
20 July 2017

1. Green Card

I am unsure if I was meant to file a tax return for this tax year.

I was a legal permanent resident of the US, until the beginning of March of this year, at which point the abandonment of my status was approved.

I assumed that this meant I no longer needed to file, but my friends in the US have just advised me that I should confirm whether this is the case with an accountant.

You will be required to file tax return for this year, even if you were a legal permanent resident for one day.

For selection of filing period, you have two options. You may file a resident tax return for the entire year because the default end of U.S. tax residency date is December 31 of the calendar year. Alternatively, you may file a dual status alien return with the end of U.S. residency on March 31. You qualify for the earlier end of U.S. tax residency because you left the United States after that date and maintain a closer connection to your home country.

During the course of tax preparation we will be able to advise which is most advantageous to you.

If you were a permanent resident longer than 8 years, see situation 3 for further detail.

Green Card

2. Streamlined Help

In the Streamline progam must I report all accounts under 10,000 Dollars?

For any FBAR filing, if your aggregate non-US accounts exceed $10k at any point in the year, you must report all applicable accounts. For example, if you have 4 non-US financial accounts (checking, savings, retirement, and cash value of life insurance) each with $3k highest balance, your aggregate highest balance was $12k and FBAR must be filed, reporting all of these accounts.

Streamlined Help

3. FBAR In Year Of Expatriation

I renounced in March so I know I have to file my final taxes but do I have to do a final FBAR too?

This is a gray area, but we recommend that you do. In the year you expatriated, you were a dual resident and a US person for part of the year. As such, you should file FBAR and FATCA (form 8938) in the year of expatriation.

FBAR in year of Expatriation

4. Giving Up Green Card

I am a Green Card holder and your regular customer since 2012.

I have now decided to give up my Green Card.
I have been having the Green Card since October 2011, so I am not a long-term resident and I am not required to file Form 8854 as far as I understand.

So, my question is if I cease being a US person for taxation purposes and start being non-resident alien:
1) once my Form I-407 is received by the US Embassy
2) only after I have filed my dual-status tax return and FBAR for 2017?

Will IRS issue any certificate confirming that I am no longer a US person which I can use in my new home country in contacts with state authorities and / or banks if needed?

If you are not a Long term GC holder (less than 8 years), simply file form I-407. Your final return (assuming you file form I-407 in 2017) will be your 2017 return next year.

Note - as a GC holder, you can file either as a full year resident for 2017 (Form 1040), or Dual Status Return (1040 + 1040NR from the date of giving up your GC until Dec 31). This can allow you to simplify your filing for 2017. However, if you have a large amount of non-US income after giving up your GC, it gives you flexibility to improve your financial position by filing a dual status return and not paying tax on this income as a non-resident.

Respectively, the date when you cease the US tax residency is either the date when you signed the form I-407 or December 31 of 2017 - depending on which filing option will be taken.

The IRS may issue a confirmation that you are no longer the US tax resident or they may not do so.

You will file form W-8 where you self-certify under penalty of perjury that you are a non-US person and present that form to whom it may concern.

Giving up GC

5. UN Allowances

I work for the UN and receive certain allownances such as an annual leave to visit my family (Home Leave), Danger Pay, and an Assignment Grant - are these taxable?

International organizations such as the UN offer a range of allowances and benefits to their employees. Any allowance (whether it is rent subsidy or paid home leave) should be added to base wages for calculation of earned income on US tax return. Those allowances may be further excluded on form 2555.

UN Allowances

6. Undeclared ISAs

A couple years ago I went through the process of getting back into tax compliance with the USA through the streamlined filing procedure and have been filing ever since in line with what my advisor had suggested including all FBARs. At the time of filing under the procedure I had completely forgotten about a stocks and shares ISA I had opened before I started the original process (it was a £200 a month standing payment that I made and never received any dividends on). I did not realise until recently that not only did I need to file for this, but also that it is far more complicated than I thought as it is not really a savings account as I had viewed it when I first opened it. I closed the ISA last year October but had rolled it into my existing cash ISA (which I had reported on) so thought that was sufficient as the money was accounted for. I now think that I actually need to do several years of back filing to both notify the US of the ISA and pay any possible taxes on it. The total value of my investment was low (£11,000 total) and I received about £1000 in interest total at closure. The investment was open from March 2012 to October 2016.

In addition to dealing with this, when I spoke to my advisor when filing under the streamlined procedure I asked about my pension and they didn't seem to think it was necessary to file it because I was not claiming any income on it yet, but I now think that because my company has been contributing to my pension as well that I should declared this but I don't know how to go about it. I have not purposefully tried to hide anything but am now worried that even though it was a very small amount I have a tax liability I didn't know about because I thought all my earnings fell under the Foreign Tax Credit limits.

I have contacted the company I held the Stocks and Shares ISA with and my pension company and asked for full records of all my holdings for the life of both accounts. Can TFX guide me on what forms I need to complete and whether I can do this through an amendment to my last 5 years tax forms?

You needed to report your ISA on your FBAR/FATCA. If there was interest (1000 gbp over 4 years from your email) - this needed to be reported on your form 1040 as this was unreported income.

If your ISA had OEICS - this becomes more complicated and requires PFIC reporting

Now - next steps:

a. To be fully compliant, you should file amended tax returns to report the unreported income, and you should file re-file your FBARs to include any unreported accounts.

b. A proactive, yet less compliant task, would be to re-file the FBARs to declare all accounts, but not amend the tax returns. This opens you up for the possibility of being contacted for unreported income, but it is a small amount, and the filing costs of refiling amended returns for those 3 years may shift the risk-reward against doing it.

I recommend to definitely re-file the FBARs. To be fully compliant you should also amend the tax returns, but please note comments above.

Undeclared ISAs

7. IRA Withdrawals

My husband also has an IRA account. He is 55 years old at the moment. I know that he has to wait till 59.5 in order to withdraw without 10% penalty. But my question is: is there any advantage or disadvantage to withdraw from IRA as one off lump sum or better to spread withdrawals over several years? Is there any advantage to start withdrawing before 59.5 years old? Hypothetically, lets assume that there is $ 1 mil. in IRA account.

You're in luck - we just wrote an article on this very topic - How Much should retirees withdraw?

IRA Withdrawals

8. Green Card & Living Outside of the U.S.

My wife filed USA tax returns for more than 8 of last 15 years, however, she only lived in USA for 3 years. When not in USA she was living and working in South Africa, where she is a citizen and there is a tax treaty with usa. Would this then mean she was not a 'long term resident for tax purposes' (even though she still held a greencard)?

Your wife is a Long-Term resident, even though she lived most of the time in South Africa. Long term residency is determined by the number of years the Green Card was effective.

GC outside of the U.S.

Ines Zemelman, EA
Founder of TFX