The IRS has published a new revision to the annual reporting form for FBAR – Foreign Bank Account Report – Form TDF90-22.1, revised March 2011.
The form warns not to use earlier versions of this form when reporting the existence of any NON-US bank or broker accounts in which the balance – or combined balances – exceeds US$10,000 for as much as a single day in the year (in this case, 2010).
If you have already reported for 2010 using the previous version of TDF90-22.1, I would think it reasonable that the US Treasury (to whom this form actually goes) would not have any problem about it at this writing (May 19th). Except that they – via the IRS - have not been very reasonable in the administration of the program ever since they started ramping it up in 2009.
Please know that this form is due no later than June 30, 2011 – and this means THEY MUST HAVE ARRIVED AT THE US TREASURY’S POST OFFICE BOX BY JUNE 30TH. Draconian fines for being late or not filing at all.
There isn’t any good news when it comes to FBAR; it is a pain in the patoot burden to millions of US taxpayers who own or have signing authority over a non-US bank or brokerage account (and some foreign trusts) with draconian fines for non-c0mliance or incomplete compliance.
For more on this unfortunate topic, check out our webpage on FBAR and FATCA at: http://www.globaltaxhelp.com/fbar-new-enforcement. You can also find the newly revised forms – short or long – of TDF90-22.1 PDF for download or printing. Filing address is shown on the form. Good luck.
There are very few news or journal articles about the IRS’s FBAR (Foreign Bank Account Reporting) initiative – their Voluntary Disclosure Program (VDP), a controversial and troubled program in which thousands of US taxpayers find themselves.
For the most recent newpaper article on the current status of the program see “Navigating the latest US Tax Maze” from Gulf News (based in UAE) which was published last week on January 29th.
One interesting recent article found on the Forbes website, “FBAR Penalty: One Court Pushes Back Against the IRS,” shows that – even when a taxpayer is hardly the model of good behavior - the penalty process is contentious.
Our website has more recent articles with additional information on both FBAR and the new FATCA (I’ll talk more about this one in future blogs!). If you’re interested click on the “FBAR and FATCA” webpage on the site.
Q: In July 2009, we “walked away” from our Ohio home, deciding to leave it to foreclosure. As we are officially homeowners in the state of Ohio, until such time as foreclosure occurs, does Ohio still consider us as residents and subject to Ohio state taxes?
A: Residency, especially if you don’t have any economic ties to the state, is up to you. If you don’t intend to return to Michigan then you can renounce your statehood.
Q: I am a US citizen living in England. If I were to win the UK lottery (which is tax free) – would I still be liable to pay taxes to the U.S? I file U.S. taxes each year along with the foreign earned income form.
A: Yes, foreign lottery winnings are taxable by the IRS in the US (though they are generally exempt from the particular state income tax). Do remember that if the aggregate value of of your foreign bank accounts exceed $10,000 at any time during the calendar year you have a legal requirement to file form TD F 90.22.1– please see the IRS FAQ page on FBAR (Foreign Bank Account Reporting).
The IRS has made yet another change to what’s known as FBAR– they have “temporarily suspended the requirement to file a Report of Foreign Bank and Financial Accounts for the 2009 and earlier calendar years, for people who are not U.S. citizens, residents or domestic entities”.
Announcement 2010-16 (PDF) temporarily suspends the requirement to file Form
TD F 90-22.1, also known as the FBAR, as the IRS tries to clear up the definition of “United States person.” In addition, the IRS issued Notice 2010-23 (PDF), which provides FBAR filing relief for some persons with signature authority and who own commingled funds.
. . . After receiving a significant number of public comments, the Treasury Department published proposed FBAR regulations to provide taxpayers with guidance on who is required to file FBARs due on June 30, 2010, and how to answer FBAR-related 2009 federal income tax return questions.
The IRS and the Treasury Department now believe it is appropriate to provide the following administrative relief: The requirement to file an FBAR due on June 30, 2010, is suspended for persons who are not U.S. citizens, U.S. residents, or domestic entities. Additionally, all persons may rely on the definition of “United States person” found in the July 2000 version of the FBAR instructions to determine if they have an FBAR filing obligation for the 2009 and earlier calendar years. The definition of “United States person” there is: (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.
This substitution of the definition of “United States person” applies only with respect to FBARs for the 2009 calendar year and to earlier calendar years.
All other requirements of the 2008 version of the FBAR form and instructions, as modified by Notice 2010-23, remain in effect until changed by subsequent guidance issued by the Treasury Department, including the IRS.
- excerpted from WebCPA – Feb 26, 2010
Q: This is my first year abroad and I have been away since April 2009. I was a resident of Oregon in the beginning of 2008 then California as of May 2008. What do i need to do/know to file taxes? Do I automatically get the extension for filing or do i need to file by April 15th since its my first year?
A: From your email it looks like you will need to file Part Year Resident returns in both states. It would depend on income generated in each state, if any, etc.
All US citizens are required to report their worldwide income to the IRS on their tax return. The two primary forms required for expat returns, in addition to the usual Form 1040, etc., are Form 2555 (PDF) – Foreign Earned Income Exclusion (instructions) and Form 1116 (PDF) – Foreign Tax Credit (instructions).
Yes, you get automatic a 2 month extension until June 15th. However, if you want to extend until October you will need to file for extension by April 15th. Make sure to check with each state to see if they accept the federal extension or whether you need to file an extension with the state as well. Filing an extension is never a bad idea for expats—gives you time to decide what you are going to do.
Q: I am a US expat living abroad and I was wrongly informed that I did not need to file a return if I didn’t earn more than a certain amount per year and lived outside the US as there is an exclusion. This was some years ago, I cannot recall the last year I filed a return and I am now very worried as I have recently been informed that I may have been required to fill in a form each year. I don’t know where to begin now.
I don’t know how to find out when my last return was filed and do I need to file a return for all the years I haven’t filed? What forms do I need? Can I file forms retroactively? Should I contact the IRS for help or should I file all years before contacting them?
A: You can look at your situation on the bright side: at least you are getting back into compliance when you are under no pressure! You never know if it might have come back to haunt you at a time when you could least afford it.
Your situation is not as bad as it appears. Regardless of when you last filed, what you need to do is file the most recent three years. This is what we always recommend to our clients. Technically, the IRS requires six years, but the unspoken rule is three. Then, if the IRS requests additional years the taxpayer can provide them.
Your tax return will use the same forms you would have used if you had been in the US with the addition of two forms that are specific to most expatriates: Form 2555 (PDF) – Foreign Earned Income Exclusion (instructions) and Form 1116 (PDF) – Foreign Tax Credit (instructions). The way the tax system works in the US is that a taxpayer must declare all income regardless location.
For information about basic expat tax filing requirements – as well as income exclusions, housing deductions and foreign tax credits available to US expats – please visit our Expat Tax Basics page.
Q: My family and I are now living in Denmark. We moved to Denmark from New Jersey back in January 2009. I have been looking on the Internet for answers to some tax questions and the IRS web site was not much help. I have a few basic questions to start.
#1 – I was told by others, friends of mine (I have not seen this in writing) that after I am living and working out of the country for 9 consecutive months, I fall into a tax-free status. What do they mean by this, and is this a true statement?
#2 – Even though I am living and working here in Denmark, my employer is is in the states and my salary is being paid (deposited) into my local checking account in New Jersey. Does this effect my tax-free status? My salary is not being paid by a foreign employer, does that make any difference tax wise?
#3 – If any of the above is true and correct, do I continue to pay (have my federal income tax) deducted from my salary and then file for a refund? Or, do I file a new W-4 claiming that I am tax exempt? This one really scares me because I was in India for four years working for the US government and I did this while I was there and I had a very hard time convincing the IRS that I paid income taxes in India for the last 4 years and that I did not have to pay both. They (the IRS) wanted back taxes for the 4 years that I did not pay (2000 to 2004). This took me well over a year to get that all sorted out.
My employer is deducting my Social Security and Medicare taxes every other week. I’m listed as a New Jersey resident so I do not deduct or have to pay any state income tax. I pay no taxes here in Denmark at all.
A: I will answer your questions in the order you sent them.
1. The information you received from your friends is completely untrue. All US citizens are required to report their worldwide income each year. That does not mean you will owe tax, depending on your circumstances, but there is no “tax free” status just because you are out of the US. Please visit our Expat Tax Basics page on our main site for more information.
2. The fact that you have a US employer would not matter because you are required to report your worldwide income. The next question is –do you have a state filing obligation? The answer to this can be more complex than the federal rules.
3. Without further information I would say that leaving it as it is would be the most simple and most conservative. Depending on all details of your return I can see a situation where you might want to file IRS Form 673(PDF). This allows your employer to stop withhold federal income tax (does not apply to SS or Medicare).
Q: I am an American living abroad. My family has supported me for years, and have paid all of the taxes on the money they have given me. It is my understanding that due to this, I am their dependent, and do not owe additional taxes on that money. In 2009 I earned the equivalent of $3,200 US. Do I need to file a return on this amount? Or is it too small? How does it work with the money I have received from my family? Do I actually owe taxes on that as well, or is the fact that they have paid all taxes on it to date sufficient?
A: When your income is below the minimum filing amount you are not required to file a tax return. And, you are correct – you don’t have to declare gifts from your family. The minimum filing amount for 2009 is $5,700. However, if you have unearned income, interests, or dividends totalling more than $950 you would need to file.
The IRS has a page with further information.
Q: I’m an American expat living in Australia with my wife who is a citizen of New Zealand. I do not work, I’m residing in Australia as her spouse. I’m not sure if I must pay US taxes. I have not filed or paid taxes in 10 years. Would you be able to assess my case and advise as to what it would take to get me back on track? Thank you.
A: First off, it depends on how long you have lived in Australia. If you have been there for the last decade and not worked at all then you likely don’t have any filing obligations unless one of the following exceptions applies to you.
Exception One - you have sufficient passive income such as rents, interest, dividends, stock sales,
partnership interests, etc. In this case you do have a filing obligation.
Assuming your wife has no exposure to the US system then you will be required to file as Married Filing Separate if you have a filing obligation.
If you were to need to file, we recommend that our clients file the most recent three years of returns and then, if requested, an additional three– for the IRS, the rule is that the most recent six years be filed in order to be in compliance. Again, this is only if you meet minimum filing requirements.