Tag Archives: Form 5471

Dewees 2: Why did he participate in the 2009 #OVDP Horror Show?

In an earlier post I explained why the Canada Revenue Agency assisted the IRS in collecting a $133,000 U.S. dollar penalty on a Canadian resident. The bottom line was that he was presumably NOT a Canadian citizen and therefore did NOT have the benefits of the tax treaty. This post is to explain where the penalty came from in the first place.
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Green card holders, the “tax treaty tiebreaker” and reporting: Forms 8938, 8621 and 5471

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

Now, on to the post.

The “Treaty Tiebreaker” and information reporting …

The Internal Revenue Code imposes on “U.S. Persons” (citizens or “residents”):

1. The requirement to pay U.S. taxes; and

2. The requirement to file U.S.forms.

All “U.S. Persons” (citizens or residents) are aware of the importance of “Information Returns” AKA “Forms” in their lives.

What is a U.S. resident for the purposes of taxation?

This question is answered by analyzing Internal Revenue Code S. 7701(b). If one is NOT a U.S. citizen, a physical connection to the United States (at some time or another) is normally required for one to be a “tax resident” of the United States..

What happens if one is a “tax resident” of more than one country?

The “savings clause” ensures that U.S. citizens are the only people in the world who have no defence to being deemed a tax resident of multiple countries. U.S. citizens (“membership has its privileges”) are ALWAYS tax residents of the United States. U.S. citizens who reside in other nations, may also be “tax residents” of their country of residence.

In some cases, a U.S. “resident” (which includes a Green Card holder) may be deemed to be a “nonresident” pursuant to the terms of a U.S. Tax Treaty. A Green Card holder “may” be able to use a “Treaty Tiebreaker” provision to be treated as a “nonresident”.

Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?
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Green card holders: the “tax treaty tiebreaker” rules and taxation of Subpart F and PFIC income

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

Now, on to the post …

The Internal Revenue Code of the United States imposes (1) requirements for taxation (determining how much tax is payable by various individuals) and (2) requirements for information reporting returns. For “U.S. Persons Abroad” the “information reporting requirements” are far more onerous.
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Form 8621 and Form 5471 are required even if the tax return is NOT!

The Internal Revenue Code of the United States requires two things:

1. The calculation of taxes; and

2. The reporting of information.

The Internal Revenue Code of the United States is based on three basic principles:

1. A dislike of all things “foreign”. (If you see the word “foreign” a penalty is sure to follow.)

2. A hatred of all forms of non-U.S. “tax deferral”

3. An attempt to stop the “leakage” of “U.S. taxable assets” from the U.S. tax base. (Examples include the U.S. tax treatment of the “alien spouse” and the U.S. S. 877A “Exit Tax” that may be payable when one makes the decision to renounce U.S. citizenship).

“Forms” AKA “information returns” are for the purpose of forcing disclosure of information relevant to  “foreignness”, “deferral” and “leakage”.

The above tweet references an earlier post describing many of the “forms” required of Americans abroad. The post also describes the significant penalties which can be potentially imposed for the failure to file those forms.

For Americans abroad the information reporting requirements are extensive, burdensome and penalty laden. Normally (but not in all cases) the “forms” are filed as part of the tax return (1040 or 1040NR).

NEVER FORGET MR. FBAR – THE NEW SYMBOL OF U.S. CITIZENSHIP – AND THE POTENTIAL FBAR PENALTIES FOR FAILURE TO FILE THE FBAR! THOSE WHO HAVE FAILED TO FILE MR. FBAR SHOULD BE CAUTIOUS ABOUT HOW THEY “FIX THE FBAR PROBLEM“.

(Interestingly, Mr. FBAR has been used as a model for Russia which now has (for lack of a better term) the Russian FBAR.)

Many people do NOT understand that they may be required to file “information returns”, even though they may NOT meet the income thresholds to file a tax return!
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How #digitalnomads use the #FEIE to avoid paying income tax anywhere

The above tweet references a post by Virginia La Torre Jeker describing the “Foreign Earned Income Exclusion” found in Internal Revenue Code S. 911. Her description of the Foreign Earned Income Exclusion includes:

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Forms required by #Americansabroad 101 – The Explanation

The above tweet references a comment that I left on a medium.com post written by Rachel Heller titled “Why I renounced my US citizenship” (Hint: It’s not because I’m avoiding taxes!“.

The article was well written, interesting and attracted responses from Homeland Americans. (It was reproduced here and attracted even more comments.) The comments from U.S. residents demonstrated again that they do NOT understand the problems experienced by Americans abroad. Although Rachel DID mention the problem of “forms” as a contributing factor to her renunciation, at least one comment – ” indicated “disbelief” that “forms” could be a contributing factor to the renunciation of U.S. citizenship.

It is clear that this person, well intentioned as he/she may be simply does NOT understand what forms mean in the lives of Americans abroad. It’s as though he/she thinks that filling out a form is akin to completing a customer satisfaction survey.

As I result, I wrote a reply in the hopes of inviting him/her to understand what forms really mean in the lives of Americans abroad. (This post is a modified version of that “reply”.)

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Thoughts from a conversation: Green Cards – Dangers of moving to America and moving from America

How could  somebody possibly not  know about  FBAR?

In our case my wife hailed from the Republic of Ireland. We were married in the early 1990’s. As any immigrant knows it is a hard road. Homesickness, difficulties with the Immigration Service, it’s an enormous adjustment. In our immigration packet of hundreds of documents I recall one that was quite frightening. It was from the US treasury and said that if you have more than $10K in assets you need to file an FBAR or you could lose half of what you owe. Thankfully we didn’t owe anything. At that time there was not 1040 tax requirement to list all overseas assets. That came in a few years later, about 1998. By 1997 my wife received a small lump sum pension. It put her over the limit, but by then we had plenty of other issues consuming us that drove the FBAR issue out of our line of sight. She was suffering from a mysterious illness that was weakening her by the month, she was homesick and I was struggling on a new job. I work somewhere else now. It was a very difficult time and difficult times can leave you open to mistakes.


Eventually somehow around 2000 I was reminded of the FBARs but realized that we were already in deep trouble. Had the first offense been in any way reasonable I would have paid up and gotten into compliance. The penalties however were far too harrowing. Today, you look on the internet and there are articles by the hundreds about filing an FBAR. Back then, because the government wisely didn’t enforce the FBAR rules and their draconian penalties, except for the most egregious offenders there simply were no reminders out there.
Fast forward to about 2010 and FBARs suddenly were pressing news, but for many it was simply too late.


There are several problems with the current scheme. Number one the penalties are insanely draconian for people who often owe less than $1K in taxes over the past 8 years. In our case that translates to $10K to a lawyer (the IRS highly suggest you get one) and $29K in IRS penalties. Any way you cut it that is a $40K penalty for less than $1K in back taxes. In fact it is possible that my attorney didn’t include foreign tax credits which could have brought our back taxes down to $0K. Because he is afraid of the Big Bad IRS, he doesn’t want to irk them and get penalized worse or rejected from the OVDP program. Another crazy thing is that if the IRS owes YOU in back taxes for previous years that doesn’t count by their reckoning. The only thing that matters is what you owe them. Therefore if they owe you $5K over the past 8 years but you owe them $3K over the past 8 years – are you ready for this accounting trick ? Therefore you owe them $3K over the past 8 years. They forgive themselves for the $5K that they owe you over the past 8 years. Therefore if in the Real World if you were owed $2K by the IRS thus strengthening your hand in opting out of the OVDP, think again. They only count what you owe them and you cannot carry forward what they owe you to cancel out what you them. How freaking convenient is that ?


This is a very dangerous trend. When truth and common sense are not the basis for our laws and regulations then we cease to live in a free and democratic society.


As I mentioned previously, every day, you and I are either heading to the light or to the darkness. We choose. We make the same choices with our country. It is “We The People” that is the conscience of our government. If we are too indulgent of our government, it is our fault if our government grows perverted, out of control and rapacious. We The People are our countries disciplinarian. We The People make our own collective breaks in what type of government we must live with. Silence is not Golden. It’s Golden only to tyrants.

 This post was prompted  because …

Today I had a brief conversation with somebody who was moving to America. I thought I would share some thoughts from the conversation. After all, tens of thousands of people move to the United States each year. Some move there as U.S. citizens. Some move there on Green Cards. Some move there on another type of U.S. visa.

The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple. Here goes:

Moving to America

1. Asset Reporting

If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for penalties.

Please remember that if you are:

– a U.S. citizen – Internal Revenue Code – S. 7701(a)(1)(50)

– a Green Card holder – Internal Revenue Code – S. 7701(b)(1)(A)

– a person who meets the substantial presence test – Internal Revenue Code – S. 7701(b)(3)

that you are required to file FBARs, FATCA Form 8938s and possibly more forms and reporting requirements. Those who are leaving behind a limited company may meet the requirements to file Form 5471.

The failure to meet these reporting obligations has caused untold misery for may immigrants to the USA. Remember how many immigrants to the U.S. were damaged by the OVDI program in 2011. (The hyperlink in the previous sentence leads to a post with 382 comments!)

2. Make sure that you know the fair market value of any assets that you own at the time of your move to the USA. This (depending on your status at the time you entered the U.S.) may have implications for future taxes (including the S. 877A Exit Tax).

3. If possible do NOT enter the U.S. on a Green Card and do NOT acquire a Green Card.

If you acquire the Green Card you are one step away from being subjected to the S. 877A Exit Tax if you decide to leave America!

Green Card Holders Moving From America

Potential problems exist for those with a Green Card who move from the USA.

A partial list includes:

1. Read S. 877A of the Internal Revenue Code. You will see that if you held a Green Card for 8 of the last 15 years, you will be a “long term resident” and subject to the S. 877A Exit Tax rules.

2. You are deemed to be a tax resident until you File I-407 (or other reasons that are less common). In order to cease to be a “U.S. tax resident” you would file your I-407. But, be careful!  The filing of your I-407 may (depending on whether you are a “long term resident”) may trigger the Exit Tax rules! To put it simply: If you file the I-407, and you are a “long term” resident, you will be subject to the S. 877A Exit Tax rules. Extreme caution is warranted!

Moral of the story! Be careful. You will avoid many problems by avoiding the Green Card.

Conclusion:

To be forewarned is to be forearmed!