# Filing Threshold / Renounce / FBAR without taxes



## gopostal (Sep 4, 2014)

Hi,

My wife is a US citizen by birth and birth only (born in USA while Canadian parents were temporarily living there). I am a Canadian only. 

She does not work, but we have a modest RRSP in her name (~$5000). We're relatively young now, but are just on the cusp of starting to really intentionally start saving money in retirement accounts. Being a US citizen makes that needlessly complicated (as you're all aware...ugh).

Question 1: Tax Compliant?
FACTA news woke us up to the whole US Citizen Based Taxation stuff that we were not aware of. So, we were looking at getting her on track via the Streamlined Program, but I've been thinking that she isn't actually out of tax compliance. Other than the RRSP income, she has no income to her name, so she's been under the filing threshold anyway. Would that be correct, or does the fact that she has a mutual-fund-type RRSP mean that she would have to file anyway? Basically, is she currently tax compliant even though she hasn't filed any US taxes?

Question 2: Renounce without filing?
The second part of the question has to do with renouncing. We've been exploring it, and it seems like it could work well for us. We're still deciding, but let's assume that she is going to pursue renouncing. To the best of my knowledge, she needs to prove she's been compliant for the past 5 years. Usually, this is proven by having filed at least 5 years of tax returns. But, given the fact that she has fallen underneath the mandatory filing threshold, would she be deemed tax compliant without needing to file?

Question 3: FBAR Streamlined without Taxes?
While I'm here: the streamlined process is 3 years taxes and 6 years FBAR. If we don't need to file taxes, should I worry about FBAR? We actually did file it for 2013. The penalty for FBAR has to do with reasonable cause. It seems like we had reasonable cause for being unaware of the filing requirements, and once we knew about it we acted accordingly. Thoughts?


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## Nononymous (Jul 12, 2011)

Quick replies, a bit loose on the details because although I have the same status as your wife, I'm consciously ignoring compliance:

1. Yes, it sounds like your wife would have had no tax filing requirements, so she is in fact compliant, unless there's something needed for the RRSP (which at this point you could safely ignore because it's not FATCA-reportable).

2. I suspect that she could renounce with five years of FBAR and no returns because they weren't needed, then just the exit-year return thing, but her returns would be dead simple so it's no big deal if she did have to.

3. FBAR is separate from taxes. If interested in renouncing, she should probably back-file for five years, assuming that she was required to (she has individual or joint accounts exceeding $10k in total at some point in the year). No fines appear to be assessed to anyone who was ignorant of the requirement so there's near-zero risk here.

Of course the other option is to ignore this and stay off the radar (as I'm doing) though there are a few wrinkles to consider: her need to have (and renew) as US passport when crossing the US border with a US birthplace would hypothetically require her to divulge her existence; you've already filed a 2013 FBAR so you're on the books; Canadian financial institutions might catch wind of the birthplace and report under FATCA.

On edit:

She basically has four courses of action:
- become tax compliant and preserve the US citizenship; should still be able to use RRSPs but more complex investments could be problematic, and once on the radar, always on the radar
- renounce the citizenship, do the full set of tax and FBAR filings to exit properly (probably not much work in her case)
- renounce the citizenship and ignore the tax stuff because there probably won't be follow up and she probably didn't need to file anyway
- ignore it all and stay off the radar


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## maz57 (Apr 17, 2012)

Question #1: Assuming she would file MFS (married filing separately) the threshold is relatively low (I think about US$ 3950 for 2014, but even lower for previous years). Any year her income was lower than the threshold she was not obligated to file. Income within an RRSP doesn't count because it is exempt from US taxation until there is a withdrawal (or distribution as the IRS likes to call it). The need to file a return even if below the threshold has gone away now that Form 8891 has been eliminated. There is no obligation to file the other FATCA form (Form 8938) if you are not obligated to file a return. Sounds as if she would be below the threshold for 8938 anyway.

Question #2: After renouncing she would file Form 8854 (the exit tax form). This is the form upon which one certifies the 5 years of US tax compliance and technically she could make that claim but it seems like it would be better to have actually filed the 5 years of zero balance owing returns just to prove it. Curiously the expatriation process doesn't mention FBAR, only tax compliance. This might be a moot point if the streamlined program is used because it requires 6 years of FBAR anyway. Also a moot point, but she wouldn't be subject to the exit tax no matter what her net worth because she was born dual.

Question #3: If she decides on the streamlined program she should do it "by the book". FBAR is totally separate from taxes. If she is over the $10,000 threshold she should file one; if not, she can skip it, but no harm done if she does file one. The whole purpose of this ridiculous exercise would be to exit the US tax system cleanly and forever so a streamlined submission which is "abnormal" in any way would just attract unwanted notice. She doesn't want that. (Imagine a streamlined submission missing a few FBARs or tax returns because the account values and incomes are below the thresholds. What would be the point?)

To sum up: If she decides to go for renunciation she should probably do it now and go for the whole nine yards. If she can get an appointment this year she would file a 2015 tax return with Form 8854 by June 2016. This leaves ample time to put together the streamlined submission (2000, 11,12,13,14 + the 6 FBARS) in the meanwhile.

She could probably safely ignore any US obligations for the present, but this could change in the future. It may impair her banking, mortgage, and investment options. If she truly wants to shed US citizenship now's the time while the getting is good. If she has no intention of using that citizenship it is nothing but a liability. Sounds like she is already on the radar because she has a SSN and has filed an FBAR.

All the tax returns and FBARs should be dead simple and can be done yourselves; the only cost would be the $2350 renunciation fee. Given the US government's recent track record the process will only get more complicated and cost more money as time passes. Good luck.


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