# Streamline or just start filing?



## avril gee (Feb 20, 2010)

Hi there,

US citizen here, living and working in France for the past several years. 

I've only managed to file my FBARs for the past 2 years, never did anything beyond that. I'm trying to become compliant by also filing to declare my foreign income (1040s and such) starting with the 2017 declaration but am aware of the "Streamline" process, where you can submit the past 3 years plus past 6 for FBARs. 

I'm not planning on moving back to the US anytime soon, and was hoping I could just start filing ''normally" from here on out. Before I do, though, I wanted to check to see if it makes sense to deal with the additional hassle of going through the streamline process? 

I don't want to pay a tax accountant to handle this. Just want to do it on my own. I make an average salary in France, not more than 50K and have less than 100K in my savings accounts in France. I'm almost 100 percent certain I don't and never have owed taxes to the US since I've been living abroad. 

Any advice?


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## Bevdeforges (Nov 16, 2007)

If you open up this question in the Expat Tax section, you'll get a whole range of responses - everything from advice on how to file absolutely "perfect" returns to the suggestion to just "forget about it" and continue flying under the radar, along with the odd mention of renouncing and being rid of the whole question. 

To be perfectly honest, any one of that whole range of suggestions will probably work for you - but it's up to you to assess your particular "risk profile" to decide what works best for you. There is nothing to suggest that the IRS is "coming after" anyone overseas simply for "failure to file" and even if they do, it's only likely if you somehow come to their attention as having a significant balance of back taxes (and the associated interest and penalties). There are a few caveats to that, however, most notably this FATCA business whereby foreign banks are expected to report on accounts held by "US persons" along with the customers' US SSNs. So far there is no indication that the accounts reported by the banks are being compared to either FBAR reports or tax filings, but you never know. (There are also lots of perfectly logical reasons why account that are reported to the US like that may not generate any income that needs to be reported on tax filings.)

Several things to consider when deciding if and how to file:

If you were born in the US, you can expect to receive a request from your bank for your US SSN so that they can report your account(s) as they are supposed to. But, here in France, most banks are specifically stating that they do not report the various "tax free" accounts, under provisions of the Bilateral agreement https://www.treasury.gov/resource-c.../BilateralAgreementUSFranceImplementFATCA.pdf

If you have worked in the US and paid into the US SS system, you will probably be eligible for retirement benefits when you hit retirement age. Even if you only worked a few years in the US, thanks to the Social Security treaty, you can get credit for years worked in France toward the 40 quarters you need to qualify. It's not necessary to have filed to receive your retirement benefits, but it might go easier if you have and there is no way to know how the regulations could change in the future. 

If all you have is salary income and bank interest, it should be fairly easy to file (either just going forward or going Streamlined, if you prefer) without having to hire a tax adviser. Where it gets complicated is if you have any PFICs (and unfortunately, most folks say that any sort of investment fund or assurance vie is a PFIC). There is always the option to simply report an investment account like a bank account (especially if it's through your bank) and let them get in touch with you if they decide it is an PFIC.

If you should ever decide to return to the US with a foreign spouse in tow, you will have to show that you've filed your tax returns - possibly for as much as 5 years - in order to sponsor your spouse's Green Card.

As far as your salary goes, the IRS has no way of knowing anything about it unless you file a tax return. 

As I said, the choice is up to you.
Cheers,
Bev


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## avril gee (Feb 20, 2010)

This is really helpful, Bev, thanks for your reply. The main reason for wanting to get compliant is for the chance that I might return to the US in the future, even if it's not in the next few years (and most likely with my partner in tow). So it's good to know about needing to file for 5 years straight for the green card deal. I think I'll go ahead and try the streamlined approach.

I've been refused the right to open an Assurance Vie here due to my US nationality. I was able to open a PEL (Plan d'Epargnement de Logement) with my bank, but I have declared this as a savings account and not an investment fund, or whatever, in my past FBARs. I think I'll continue doing so, as it seems really blurry if this account would be considered an investment fund or not. I'm happy to try to keep it as simple as possible and if the IRS has a problem, they can contact me (hopefully they won't!)


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## Nononymous (Jul 12, 2011)

I will chime in by saying that, untypically perhaps for me, this seems like a good situation for compliance. Thoughts of returning, only a few years missing, not a huge income so nothing owed, and presumably only single US citizenship. Plus your willingness to simplify matters and file straightforward returns yourself means low costs.

If you decide to stay in France permanently and your financial affairs grow more complex then you may need to change the calculation, if restrictions on banking, or potential tax bills make it difficult or expensive to live with US citizenship.


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## Bevdeforges (Nov 16, 2007)

Nononymous said:


> If you decide to stay in France permanently and your financial affairs grow more complex then you may need to change the calculation, if restrictions on banking, or potential tax bills make it difficult or expensive to live with US citizenship.


One other thing to consider would be the nature of any financial accounts or investments in the US - or the likelihood that you might need or want to have accounts or investments there in the future. For many folks I know here, the fact of having a US IRA or 401K account does sort of limit your options.
Cheers,
Bev


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## avril gee (Feb 20, 2010)

Bevdeforges said:


> One other thing to consider would be the nature of any financial accounts or investments in the US - or the likelihood that you might need or want to have accounts or investments there in the future. For many folks I know here, the fact of having a US IRA or 401K account does sort of limit your options.
> Cheers,
> Bev


Yikes, there are so many complexities and restrictions, it's very frustrating...

So I'm trying to tackle my 2017 filing for now and I do have a question. I earned a bit over 1000 Euros in interest from one of my French accounts. From what I understand I need to declare this in the 1040 under "taxed interest" but what exemption do I use to not have to pay taxes on it? I don't think it fits under the FEIE (foreign income exclusion). Do I also need to file a Foreign Tax credit form (1116) to offset any potential tax on this interest?


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## Nononymous (Jul 12, 2011)

I'm not an expert on this because I refuse to file US tax returns, but I believe that interest income is not excluded by the FEIE because it is not "earned"; to avoid double taxation you would need to claim a credit for French taxes paid.

There are situations where interest income is tax-exempt in your country of residence but the US still considers it taxable. Retirement accounts are generally not a concern, but in Canada there are a number of other tax-protected savings vehicles for education, disability etc. that the US does not recognize.


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## avril gee (Feb 20, 2010)

Nononymous said:


> I'm not an expert on this because I refuse to file US tax returns, but I believe that interest income is not excluded by the FEIE because it is not "earned"; to avoid double taxation you would need to claim a credit for French taxes paid.
> 
> There are situations where interest income is tax-exempt in your country of residence but the US still considers it taxable. Retirement accounts are generally not a concern, but in Canada there are a number of other tax-protected savings vehicles for education, disability etc. that the US does not recognize.


Ok thank you. That's what I was starting to suspect regarding how to handle the interest...getting a bit more tricky as I continue sorting through it all! 

Yes I have heard about the US considering certain interest incomes as being subject to taxation where it's not so in the country of origin.


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## Bevdeforges (Nov 16, 2007)

Whoa - while the matter of "tax-free" accounts is always a problem, don't forget that once you "exclude" your salary income using the FEIE, your AGI consists entirely of your bank interest. For 2017, you still get to reduce your AGI by a personal exemption and by the standard deduction - so even filing as "married, filing separately" you have something like $10,000 of income that is not subject to taxation before you have to start looking for foreign tax credits to offset any US tax liabilities.

Next year (i.e. 2018 taxes) is a different ballgame, as I understand the standard deduction will be almost doubled, but the personal exemption is going away. One year at a time....
Cheers,
Bev


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## avril gee (Feb 20, 2010)

Bevdeforges said:


> Whoa - while the matter of "tax-free" accounts is always a problem, don't forget that once you "exclude" your salary income using the FEIE, your AGI consists entirely of your bank interest. For 2017, you still get to reduce your AGI by a personal exemption and by the standard deduction - so even filing as "married, filing separately" you have something like $10,000 of income that is not subject to taxation before you have to start looking for foreign tax credits to offset any US tax liabilities.
> 
> Next year (i.e. 2018 taxes) is a different ballgame, as I understand the standard deduction will be almost doubled, but the personal exemption is going away. One year at a time....
> Cheers,
> Bev


Ahh ok! Phew. That seems a bit more reasonable. Thanks.


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## DavidMcKeegan (Aug 27, 2012)

One thing to consider is because you are living in a high tax country, the foreign tax credit is likely a better option than the FEIE. It is more complicated to complete, but you could potentially have excess foreign tax credits that you build up and carry forward each year. If you go that route, you should start with the oldest tax return and work your way forward to the 2017. Then you can properly carry forward any excess tax credit. 

Another thing you will want to be careful of is the letter you write (Form 14653) along with your Streamlined filing. As you already filed FBAR's in the past, it might be hard to say your lack of filings was not "willful". Often if one knows about the FBAR they will know about the need for tax returns, so you could run into trouble qualifying as non-willful. However if that was not the case for you, just explain that well when preparing the 14653. 

Best of luck!


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## Bevdeforges (Nov 16, 2007)

Just to clarify - while France is considered by many to be a "high tax country" many people here find that for nominal incomes and simple situations, you actually pay far less income tax here than you would in the US with the same income. And, you have to remember that the FTC only allows you to apply "like to like" - even if you used the FTC for your salary and wound up with a big carry over, you can't apply that carry over to your retirement income (and anyhow, in France, the tax treaty makes French retirement payments taxable only by France - with US SS and IRAs, etc. taxable only in the US). The FTC is a lot trickier than it looks and may not deliver much in the way of benefits anyhow.

If you can use the FEIE to get your AGI down to the point where you don't owe any tax don't worry about getting fancy. (Besides, it gets even trickier to allocate "your" portion of any French income tax you can apply to the FTC if you are filing married, filing separately for your US returns.)
Cheers,
Bev


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