# Complex Issue -- Multiple relocations and complex financial situation



## Xrso

Hello all,

I wanted to describe a more complex situation than I tend to see on these forums.

I moved out of the US with my ex-wife (still not official) in 2011. I have moved to Geneva and then to Asia and back to Geneva. I work for a large non-US multinational (Asia-based).

We stopped filing our returns after my spouse left the US (she stayed behind for about a half year after I moved abroad). The last year she partially lived in the US was the last year we filed out taxes as I understood we would not have to.

I have recently had a consultation with a tax professional here in Switzerland who informed me that I would owe something to the tune of 30K USD per year to the government plus fines for late filing plus not submitting FBARS (i was also under the impression that the financial institutions I was working with were sending the information to the US and that therefore I didn't have to do the extra step of filing these).

Obviously, I am extremely concerned about this situation. To make matters more complex, I have a fair amount of money sitting in a brokerage account in the US and a property in the US where I house my sick father, paying his expenses and a small mortgage (about 100K).

In order to minimize my risk after coming forward to the IRS, I would like to do the following:

1) Liquidate my brokerage account and use the proceeds to pay off the note on the mortgage thereby improving my cash flow (for health reasons I don't expect to be employed much more than another year or so). Obviously, this would trigger capital gains which I'm assuming I could just send a check to the IRS for or just leave in the account knowing they will seize it at some point.

2) Transfer ownership of the property in the US to a 3rd party (non-US citizen) under the condition that my father is to be able to live in the property indefinitely. This will minimize risk to him and will minimize my exposure to capital gains taxes.

My questions for folks here are:

1) are either of these actions likely to trigger an interest in me by the IRS?

2) Is it legal to transfer ownership of a property (sell it for a nominal sum) if the 3rd is only compensating me by allowing a relative a place to inhabit indefinitely.

3) Does the IRS have any way of knowing I'm actually employed (working for a foreign subsidiary of a non-US company). Have they assumed that I just dropped off the radar? Presumably my banks are sending data to them and I had another real estate transaction close earlier this year with proceeds deposited into a foreign account.

4) I will soon be getting re-married to a european and will be eligible for permanent residency. What are your thoughts on renouncing once in possession of permanent residency (would need 3 years to apply for citizenship).

Apologies in advance for all the information but, as you might expect, the recent discussion with the tax adviser coupled with the horror stories I've been reading online have really gotten me into a panic.

Thanks so much for your help,

Xenia


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## Bevdeforges

Oh dear, this really IS rather complicated.

First of all, I'm assuming you are a US citizen and that is the reason for your US filing obligation. How about your ex? Is she a US citizen? Has she been filing US taxes in these years, and if so, has she filed as married, filing separately or as single or some other way (filing "jointly" would require your signature, so unlikely).

Your plan to transfer property in the manner you're considering is very likely to arouse suspicions from the IRS. 



> 1) are either of these actions likely to trigger an interest in me by the IRS?


In a word, "yes."



> 2) Is it legal to transfer ownership of a property (sell it for a nominal sum) if the 3rd is only compensating me by allowing a relative a place to inhabit indefinitely.


It may depend on the state where the property is located, but the IRS could consider that your condition of allowing your father to remain in the house rent free constitutes "compensation" and would need to be figured into the cost of the transfer.



> 3) Does the IRS have any way of knowing I'm actually employed (working for a foreign subsidiary of a non-US company). Have they assumed that I just dropped off the radar? Presumably my banks are sending data to them and I had another real estate transaction close earlier this year with proceeds deposited into a foreign account.


No on knowing your foreign employment status. But the banks may very well be sending them your account information and if something comes up and there are no FBARs to match up to the banks' reporting, you could be in for problems. Then again, it depends on the magnitude of the bank balances.



> 4) I will soon be getting re-married to a european and will be eligible for permanent residency. What are your thoughts on renouncing once in possession of permanent residency (would need 3 years to apply for citizenship).


You can't normally renounce until you have a second nationality. There is an international concern about leaving people "stateless" - and permanent residency is not a substitute for nationality. If you were to renounce before you were eligible to take nationality, you could be refused naturalization or even have problems getting or renewing a residence permit even as the spouse of a local national.

Back to the drawing board, I fear.


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## Xrso

Thank you Bevd, for your insights.

This is a shame. Yes, I am a US citizen. My former spouse was not a US citizen and has not been filing her taxes in the US. She gave up her greencard a few years back partly because of these hassles. Nevertheless, she was not filing before then either as we didn't know it was necessary.

It breaks my heart (and probably my bank account) to see how far we've allowed the US government to run our lives with impunity. This is a deeply unjust situation and it is shocking to me that the expat community isn't more vocal about it.

Do you know of any data which suggests the 'velocity' of delinquent filers coming under scrutiny? For example, we've been delinquent evidently since 2012 ... and data on the average duration that expats are able to fly under the radar?

Thanks again!


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## Bevdeforges

To be honest, it's really difficult to even figure out how many overseas US (potential) taxpayers there are, much less their rate of compliance with the filing requirements. 

But your likelihood of "getting caught" does seem to relate to whether or not you have financial assets in the US (where the reporting back to the IRS is much more tightly regulated and controlled). Financial assets in the US can be seized by the IRS even on mere suspicion of tax irregularities. They don't have that power outside the US.

One complication is that most likely the vast majority of overseas taxpayers don't owe anything anyhow, even if technically they are "supposed" to be filing. Big example is those who would normally file "married filing separately" (usually because they are married to a non-US-citizen who doesn't have to file). The rules now say you must file if you have more than $5 of income (yeah, right - that's not a typo) - yet it's highly unlikely anyone has ever been tracked down overseas for failure to file if they owe $0.

Then, due to the somewhat bizarre laws in the US on nationality, there are potentially millions of "accidentals" who have no idea they are "supposed" to be filing - whether because they were born in the US when Mom and Dad were there for a short time (as students or for work assignments) or because they just happen to have a US parents who meets the requirements for having passed on their US nationality at the time the person was born overseas.


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## Nononymous

Global compliance rates are probably under 10 percent. (Estimated 6-9 million non-resident US citizens; last IRS data we have suggests approximately half a million returns filed from outside the US.)

First the good news: the IRS will have no information about your employment income; nobody yet attempts to match up FATCA and FBAR data to find US persons who have not been reporting their accounts; there is really no IRS campaign to find and punish non-compliant US persons abroad; the IRS has very limited means to punish a US person with no US assets (they can only demand collection assistance against US persons in Canada, Denmark, France, Netherlands, Sweden, but only if a person is not a citizen of the residence country, so duals are excluded). In short, the vast majority of US persons outside the country do not file anything and will suffer no consequences for their failure to do so.

Now the bad news: you're in Switzerland, which is pretty strict with the FATCA reporting, and potentially denying banking and investment services to US citizens, due to its recent history; you have US assets to worry about.

In general, the IRS won't come looking for you (at least it has shown no signs to date of hunting down US persons). The horror stories you hear are typically tales of self-inflicted misery, people who entered the US tax system and got screwed. There is no known instance of the IRS finding and penalizing someone who has remained outside the US tax system. 

However, you have US assets, so may wish not to simply ignore the issue, like the happy (and mostly ignorant) 90 percent.


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## Xrso

And what are your thoughts on my plan to limit my US exposure by paying off the mortgage with the bricked age account and transferring the house to a non-US 3rd party?


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## Xrso

Xrso said:


> And what are your thoughts on my plan to limit my US exposure by paying off the mortgage with the brokerage account and transferring the house to a non-US 3rd party?


Edited


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## Nononymous

Xrso said:


> And what are your thoughts on my plan to limit my US exposure by paying off the mortgage with the bricked age account and transferring the house to a non-US 3rd party?


In my case, none. No idea.


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## Bevdeforges

Xrso said:


> And what are your thoughts on my plan to limit my US exposure by paying off the mortgage with the bricked age account and transferring the house to a non-US 3rd party?


Why involve a "non-US 3rd party"? I would think that would just expose him or her to the vagaries of US taxation of non-resident aliens. Not a nice thing to do to anyone.


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## NickZ

Unless the US has some weird rules they'd use fair value to calculate capital gains. 

Gifting the property means you're subject to whatever gift rules are. 

You can't just transfer things and have a side deal. Way too easy.


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## NickZ

https://www.irs.gov/faqs/capital-ga...e-of-home-etc/property-basis-sale-of-home-etc


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## Bevdeforges

NickZ said:


> Unless the US has some weird rules they'd use fair value to calculate capital gains.
> 
> Gifting the property means you're subject to whatever gift rules are.
> 
> You can't just transfer things and have a side deal. Way too easy.


Don't underestimate the vagaries of US tax law. A "gift" really does have to transfer with nothing of "value" rendered in exchange. Any sort of agreement to allow Dad to remain there throws the "gift" into question. Also, the fact of giving something to 1. a foreigner and 2. a stranger (i.e. non-relative, no other relationship) can muddy the waters considerably.

Gift taxes are a sub-set of inheritance/estate taxes, and the exceptions/exclusions very often don't apply if the heirs are foreigners (even between spouses where one of the spouses is a US citizen and the other one isn't). It's a real mine field.


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## Moulard

> I have recently had a consultation with a tax professional here in Switzerland who informed me that I would owe something to the tune of 30K USD per year to the government plus fines for late filing plus not submitting FBARS (i was also under the impression that the financial institutions I was working with were sending the information to the US and that therefore I didn't have to do the extra step of filing these).


First step I would suggest is breath and don't do anything rushed. Not trying to convince you to an alternative path if it is thought through and well considered.

First remember that a tax professional is really a compliance industry professional. As such they tend to make the most conservative and risk avoiding (for them) positions. Its why so many US people are facing late filing penalties on trust accounts (3520 and 3520A) and the like for things that probably should never have been reported as a trust account in the first place.

I am going to assume that the scaremongering threat of 30k USD penalties mentioned by the tax professional in question are FATCA or other filing requirements related, but there are a huge host of 10k penalties (its the default for everything and anything). As to unpaid tax, penalties tends to be limited to the amount of interest on the tax amount due.

Not saying the risk isn't real, not saying that it should be ignored, just making the observation that sometimes one must treat the advice of a tax professional in whose interest it is to make things sound as scary and risky with a bit of circumspect.

For example did said tax professional provide you advice on the Overseas Streamlined Offshore Filing Procedure which is in place to allow you to avoid penalties. Assuming that is one wanted to come into compliance.



> Does the IRS have any way of knowing I'm actually employed (working for a foreign subsidiary of a non-US company).


No. Unless or except if there is an active request for information under a mutual exchange of information request via a tax treaty. Indeed there is very little evidence that any info provided under FATCA agreements is actively used as a trigger for investigation particularly for non US residents. Slightly different story for US residents. But it appears that the FATCA stuff to FinCen only comes into play once the IRS already has you in their sights.


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## Jca1

I mostly want to second what Moulard said. If you decide you do need to begin filing, there are programs that would allow you to avoid all penalties, and owing $30k in US tax per year sounds rather odd (but not impossible depending on all the circumstances) since you're living in a country with an income tax, and an income exclusion or foreign tax credit would be available to you. I have heard second-hand accounts of tax professionals who were blatantly spreading misinformation to scare people, and additionally, due to IRS regulations, certain tax professionals cannot take a practical approach and advise you of all your options, just on how to comply.

If you pursue one of these programs, I'd just make sure you fully understand any ongoing filing obligations you're signing up for for all of your non-US assets and income sources, what can go wrong, and be sure you aren't working with someone who will leave you worse off.

Regarding moving assets to another asset class or transferring ownership, I can't provide a detailed answer, but I would be surprised if this helps you as the IRS would probably see through this in the (probably very unlikely) case that you were investigated.


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## Xrso

Hi everyone. Thanks so much for your perspectives.

I have done a little digging and it appears that my bank has indeed been sending account information to the IRS. The last such document was in march of 2019.

My questions specifically is this: will the IRS have tried to match those bank documents to specific FBAR filings or tax filings?

It seems like a no-brainer if I were in the IRS to say: hey look this lady has a bank account but we have no record of him filing FBARS etc.

Is it really plausible that they lack even this level of sophistication?

Thanks guys you’ve been a great help!


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## Nononymous

Xrso said:


> Hi everyone. Thanks so much for your perspectives.
> 
> I have done a little digging and it appears that my bank has indeed been sending account information to the IRS. The last such document was in march of 2019.
> 
> My questions specifically is this: will the IRS have tried to match those bank documents to specific FBAR filings or tax filings?
> 
> It seems like a no-brainer if I were in the IRS to say: hey look this lady has a bank account but we have no record of him filing FBARS etc.
> 
> Is it really plausible that they lack even this level of sophistication?
> 
> Thanks guys you’ve been a great help!


As you are in Switzerland, it's to be expected that you are subject to FATCA reporting. The Swiss are very strict about this now.

Banks send the following information to the IRS: your name and address, your SSN if you've given it to them, year-end balances for every account, interest/dividend income for every account. (There are minimum thresholds below which banks are not required to report, but banks are also free to ignore these guidelines and report everything.) They do not send full transaction records, nor can they share any information about employment income.

At present, we have no indication that the IRS does anything proactive with its FATCA data. It is not currently willing or able to match up FATCA records against FBARs (which report high balance, not year-end balance, funnily enough) or tax returns. There are no reports of the IRS contacting non-compliant US persons who have been identified by FATCA reporting.

That is the current situation. We do not know what the future holds. The pessimists say it's only a matter of time before the IRS has the capability to match records and begins terrorizing non-compliant US persons. (In your case, at its most extreme, this could mean seizure of US assets and loss of US passport.) The optimists, on the other hand, believe that the IRS is overwhelmed and knows full well that there's very poor ROI in chasing non-residents, so it will never look for non-compliant US persons reported under FATCA, unless the amounts involved are huge.

Come back in ten years and you'll know whose prediction was correct. I tend to the optimist camp, but I also believe in protecting one's self from FATCA reporting by not disclosing US citizenship to financial institutions. This is possible in countries like Canada where enforcement is extremely loose, but not so easy in other parts of the world.

In your case, you're not in the best position: single US citizenship I assume (as you've not mentioned a second passport); US assets at risk; living in a country known for FATCA enforcement thanks to its dark past.

PS on edit: If you do decide it's in your interests to file returns and become compliant, I expect you can do a whole lot better than $30k per year as advised by your Swiss expert. There are a number of apparently reputable online practitioners, I would get another opinion or two.


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## Jca1

As mentioned, as far as an ordinary person outside the IRS can know, the IRS currently has no automatic matching of data of reported by foreign financial institutions and tax authorities and data in individual tax filings. There are GAO reports with more information about why this matching doesn't exist.

I noticed the Swiss IGA also has some of the usual exemptions for what types of accounts aren't required to be reported by the financial institutions based on <$50k balance and other rules. It's difficult to know what actually gets reported in practice, though, as these rules appear to be non-requirements to report, not requirements to not report. Just to be clear, these are rules for what Swiss banks have to report to the IRS, not rules about what an individual taxpayer has to report, which are broader.

Edited to add: if you want, you can see the form banks in model 2 IGA countries like Switzerland use to report here.


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## Jca1

Jca1 said:


> As mentioned, as far as an ordinary person outside the IRS can know, the IRS currently has no automatic matching of data of reported by foreign financial institutions and tax authorities and data in individual tax filings. There are GAO reports with more information about why this matching doesn't exist.
> 
> I noticed the Swiss IGA also has some of the usual exemptions for what types of accounts aren't required to be reported by the financial institutions based on <$50k balance and other rules. It's difficult to know what actually gets reported in practice, though, as these rules appear to be non-requirements to report, not requirements to not report. Just to be clear, these are rules for what Swiss banks have to report to the IRS, not rules about what an individual taxpayer has to report, which are broader.
> 
> Edited to add: if you want, you can see the form banks in model 2 IGA countries like Switzerland use to report here.


Actually -- I can't edit this anymore, but some of the above might be inaccurate as it appears Switzerland switched to a model 1 IGA at some point.


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## Moulard

If the FOI release in Australia related to the amount of information being sent by the ATO to the IRS is anything to go by then they must be drowning in data globally.

https://fixthetaxtreaty.org/2018/02/08/what-did-we-learn-from-our-ato-foi-request/

this page indicates what the ATO provides to the US...

A glimpse into FATCA reporting…. – Let's Fix the Australia/US Tax Treaty!

Again, I would assume that other governments are reporting in a similar format with similar constraints and limitations


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## 255

Xrso -- You've had some good discussion, on this thread, thus far. I'll just throw out a few addidtional items for your consideration. Consider what your long term goals are and develop a plan to reach those goals. In your order:

1) Closing your brokerage account (in fact closing all U.S. accounts appears to be a good idea) and paying off your mortgage on your property, that your father lives in, makes a lot of sense.

2) Is it legal to transfer property to a 3d party (after the mortgage is eliminated) -- yes, it is your property, you can do with it as you wish. Your stated goal is to provide living arrangements for your father, might I suggest a better arrangement: transfer the real estate into an irrevocable trust (onshore or offshore) for your father, for the duration of his life and hire a trust company to manage the trust (you'll also have to contribute some cash so the trust can pay taxes and insurance.) You can make an additional gift to top-up maintaneance funds, as needed. You can transfer the house into the trust wholly, with incremental gifts (under the gift tax exemption) or transfer money into the trust to purchase the house from you. I'll leave it up to you and your chosen estate tax attorney. The current lifetime gift/inheritance tax exclusion is quite high, so I doubt you'll have to worry about hitting it with the transfer. Once the house is in the trust, it is no longer owned by you and is therefore not part of your estate. You can futher determine the disposition of the trust and it's property at the conclusion of its usefulness.

3) The IRS probably does not know of your foriegn employment. The U.S. tax system was designed to be self-reporting, even though the U.S. Government have developed numerous "information" sources/returns over the years to keep better checks. As has been stated, the IRS probably have visiability of what your banks are reporting, but actually doing something about it is another issue. The IRS is notoriously short staffed and unless their computers are matching what you report and seeing something very different from one of their information sources, there's a good chance nothing will come up.

4) As has been stated before, you need to be a citizen of somewhere else, to be able to renounce (and end your IRS reporting requirements for good, unless you'd be a "covered expatriate.") There are many jusistictions in the Caribbean where you can purchase a so-called economic citizenship for about $100K, but will take about 6 months to process for most countries. You did not state the nationality of your fiance, but immigration rules change quite often. A few examples: in Switzerland, you must have lived in Switzerland for five years and have been married for three to qualify for "facilitated naturaliztion;" in France you, you also have to be married for three years, but there is no requirement to have lived in France; in the UK, you'd have to be resident in the UK for three years. These rules, for many countries, are constantly changing, as different political parties are elected and take power.

You have many options, depending on your personal financial situation. Become compliant or not. Utilize a stream lined program or not. If your income was under the limits for the foriegn earned income exclusion, you probably didn't owe any U.S. taxes anyway -- so you'd just have a monkey drill to file with zero taxes due. Not the same situation, but I had a friend that hadn't filed corporate taxes for nearly 20 years. I went with her to visit a tax attorney/accountant. He gave three options: a. ignore it, b. wait 4 years and file 7 zero income zero expenses returns (the corporation had been shut down three years earlier, without filing any recent returns,) or c. file immediately for the last 7 years and bring the accounts up to date (hard to do since many records were lost and irretrievable.) She waited 4 years and talked to a different tax attorney who advised to ignore it or if she didn't feel comfortable with that to file the last 7 years of zero income tax returns. She did the later and hasn't heard anything from the IRS for over 5 years. I think she's safe! Good luck. Cheers, 255


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## Nononymous

255 said:


> The IRS is notoriously short staffed and unless their computers are matching what you report and seeing something very different from one of their information sources, there's a good chance nothing will come up.


Note - the OP is reporting nothing at all, so it's less about matching than receiving FATCA data for someone who stopped filing returns many years previously. Currently we've heard no reports of the IRS attempting to find such people.


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## Xrso

*Follow up*

Hi everyone. 

Apologies for coming back on this old thread but I’ve been doing my diligence and wanted to follow up. 

I have indeed decided to liquidate my investments in the US and will use proceeds to pay off my outstanding mortgage. 

I will also continue not to file as I don’t plan on ever going back to the US. 

My question is now one of how to prepare for what I assume will be backlash from the IRS. I assume that the sale of equities will trigger reporting to the IRS and that they will before long, come looking for their share. Is this a safe assumption?

Is there anything I can do to avert this? For example just sending them a check for capitol gains in advance?

Thank you all so much for your help!

Xrso


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## Bevdeforges

Selling off investments will generate some form of reporting document (possibly a 1099) from the brokerage or holding company to the IRS (assuming they have your US SSN on file). But other than that, it really does depend on the $ value of the gains or losses being reported as to whether or not they'll ultimately do any follow up.

If you're serious about doing this, 2020 might be the year to go for it, given that these "economic impact payments" seem to have completely overwhelmed the IRS so that they aren't processing tax returns (or doing so very slowly).


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## Xrso

Thanks for the reply. I’d estimate a cap gains tax of something on the order of 20 to 30k usd.


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## 255

Xrso -- You can always have your brokerage firm withhold any estimated taxes. Cheers, 255


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## Jca1

Having them withhold sounds like a potentially better approach. I'd still be a little concerned about the 1099 matching causing the IRS to eventually file a Substitute for Return that assesses taxes, interest, and penalties based on the worst possible assumptions about the applicable tax rates. They can't do much to collect if you have no US presence but maybe it could cause trouble in the future if your plans change. Also, one way to handle that would be to simply pay what the SFR says you owe. I also wonder if the tax debt might show up in an international background check that covers your US activities.


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## Nononymous

Xrso said:


> My question is now one of how to prepare for what I assume will be backlash from the IRS.


Do you have another citizenship besides US? I don't recall from the earlier post. 

If not, be aware that, in theory, the IRS can demand that your US passport be revoked if you owe in excess of $51,000.


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## Xrso

I do not. Though I am about 3 years away from getting one. I wonder if i should just bite the bulletin and wait three years then do all this.


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## Nononymous

It would certainly be safer to not disturb things - i.e. don't sell US assets without paying capital gains - until such time as you can afford to do without your US passport.


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## 255

Xrso -- Another option might be to transfer your assets at your brokerage firm, in-kind, to a broker outside the U.S. That way there would be no capital gains (you'll still own the assets,) so no sales. Cheers, 255


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## Xrso

Hi folks,

I thought I’d post an update if anyone is interested.

In the end our brokerage unilaterally closed our account and cut a check for the liquidated assets. This was obviously not an ideal outcome but we were not using a VPN all the time to access the account and we paid the price. 

Regardless, we have elected to use the proceeds to pay off the mortgage balance on the aforementioned property. We haven’t yet heard from the IRS on owing taxes on the brokerage balance capital gains but I’m expecting to at some point this year. 

In the mean time, does anyone have any advice on actions we could take in the near term? I am still two years out from being able to apply for a second citizenship. My gut tells me just to send all my assets to my spouse’s accounts but I’m also concerned that this might result in flags or other checks.

Any advice would be appreciated.

Thanks!

Xrso


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## Bevdeforges

Generally speaking, the IRS won't come after you about these things. They expect you'll dutifully report whatever gains, income or other items might affect your taxes. The brokerage should be sending you some sort of official statement - like one or more 1099s or other forms that are basically a copy of what information they have sent to the IRS regarding the transactions involved in closing your accounts for you.

But depending on just when all that happened, you either should have received something (for 2020) or you will have to wait until after the end of the year (if they closed you out in 2021). Up to you to report it - though if they don't send you anything I suppose it's up to you what you report and how.


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## Nononymous

My gut tells me it would take the IRS more than 2 years to figure out that you owed it money and then jump through all the various hoops necessary to revoke your US passport. Particularly this year with the plague having thoroughly gummed up the works. But I would also not procrastinate when it comes time to obtain your new citizenship.


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## 255

Xrso -- Bev is right, you should receive a 1099(s) from your brokerage for the year the account was closed and the balance disbursed, either 2020 or 2021. These 1099s will also be sent to the IRS.

You can certainly transfer the money into your spouses account, to eliminate future FBAR reporting requirements (assuming, you didn't maintain control/signature authority.) If the transfer is over $10,000.00, within the U.S. system, the banks have a reporting requirement (IRS form 8300.) This is only an information return and unless the IRS expects something untoward -- nothing should come of it. The only issues, I have personally heard about, is if someone makes multiple transfers, under the limit. The IRS calls this "Structuring" and view it as a strategy to hide money. Sending money to yourself or your spouse, should not be an issue and would be easily explainable, if flagged. Note, that other countries have similar rules.

If you decide to come into compliance for a couple of years, utilizing the streamlined method now would be a good time, since you already have an $1,800 Recovery Tax Credit for 2020 and $1,400.00 (so far) for 2021, on the books. This would help to mitigate any taxes owed for those years and you'd receive a refund for anything left over. You could utilize, any of you stimulus refund received to off set your expatriation fee. Cheers, 255


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## Xrso

To clarify, my objective here is not to avoid capital gains taxes. Given the complexities of my situation would it be wise or unwise to simply cut a check to the IRS for the capital gains taxes when the documentation is eventually provided to me by the brokerage (the account is closed in 2021)? 

My biggest worry is being sucked into a quagmire which could ultimately put my father (who still resides in the US in a home I own) into troubles. 

Sadly, we are not liquid enough to pay the estimated back taxes (estimated 100-150k).


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## 255

Xrso -- It would definitely be unwise to just cut a random check to the IRS! Normally capital gains taxes are paid via your annual income tax submissions. I guess you could calculate your quarterly taxes for 1st quarter 2021 (due April 15) and make a submission of what you calculate you owe utilizing IRS form 1040-ES. 2021 Form 1040-ES (irs.gov)

Your best bet to eliminate your father's situation is to get the house out of your name! As I recommended last year, you might want to transfer title to the house to an irrevocable trust. As I'm sure you are fretting -- if the IRS decides to come after you, they are notorious for putting liens on real property owned by debtors. You should read up on "fraudulent conveyance rules." If they catch up with you within two years, they can have a Judge nullify the transfer. Perhaps a better idea would be to form a company (maybe an LLC, where the property is located, or a Swiss company, depending on U.S. or Swiss CFC rules) perhaps owned by your wife to "buy" the house from you to get it out of your name, personally. Use proper contracts and trackable sales at "fair market value," if you do this. Personally, I would form two companies, an LLC where the property is located, that would be 100% owned by a Swiss company.

I question the estimate your Swiss Tax Preparer gave you. First you have the "Foreign Earned Income Exclusion" (FEIE) of over $100K each year and the new "Standard Deductions" are also quite high. Most overseas filers don't pay anything (or very little,) to the IRS. Congratulations, if your earnings are enough to generate over $30K in federal income taxes annually, assuming you qualify for the FEIE, but that seems incongruent with your lack of liquid assets. You can also goose your deductions with the "Foreign Housing Exclusion or Deduction." I recommend you go to Internal Revenue Service | An official website of the United States government (irs.gov) , and fill in your numbers for 2017, 2018, 2019 & 2020 (the old forms are on the website) and prove to yourself what you owe -- you might be pleasantly surprised!

The IRS has procedures, if you can't pay: What if I can’t pay my taxes? | Internal Revenue Service (irs.gov) 
I've been involved with all four methods listed above, and they all went swimmingly. You could also include an "Installment Agreement Request" with your latest tax filing. Form 9465 (Rev. September 2020) (irs.gov) The only caution -- if you make an agreement, keep your word! Cheers, 255


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## Xrso

Hi 255 — thank you for the detailed response. I appreciate the help.

Looking into the fraudulent conveyance rules was not a heartening endeavor. To my reading, it appears the IRS can even go back 10 years, breaking trusts and even assessing liens and penalties on subsequent owners of property. 

I will try to get a better estimate of why my overall liability might be as well.

If you wouldn’t mind, can you help me understand why having a GMBH or an AG purchase the property from a US LLC would be better than transferring the property to a trust and having my spouse as the beneficiary? My guess is all of this would require a fairly specialized lawyer to conduct the transaction — i.e. a run of the mill family law attorney for example might not be able to handle such a request?


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## 255

Xrso -- The reason I would sell the property to a company in an "Arm's length" transaction (at fair market value,) over a trust is to eliminate any question of fraudulent conveyance and to provide some measure of liability protection. If the property is in your, or your wife's name personally, then _*all*_ of your assets are technically at risk. As I'm sure you know, the U.S. is the most litigious country in the world. If the property is owned by a company, limited in it's liability -- only the company assets are at risk, if, let's say a little old lady(or man) falls and fractures a hip and subsequently sues you personally. In an extreme case, I have an acquaintance that retired from his regular job and put all of his lifetime savings into buying rental properties and kept all the properties in his personal name. There was a gas leak in one of the properties, it exploded and killed a 9 year old girl. At the time, he had 26 rental properties and lost everything (millions,) in a law suit! He had to "start over" at a fairly advanced age.

My son is a professional real estate investor and has multiple properties. Each individual property is in a separate LLC where the property is located, but taxed as a disregarded entity, being owned by a Wyoming LLC, taxed as a partnership (so only one tax return,) acting as a real estate holding company. If something happens to a single property, his losses will be limited to that one LLC. This way, he won't lose his entire livelihood and net worth with one lawsuit.

My son uses standard "Operating Agreements" for his LLCs (drawn up by a real estate attorney,) but actually either forms the companies himself or utilizes one of the budget venders that specialize in this field. He is organized to maximize his business, but it is a typical structure for RE investors in the U.S. If your goal is to sell the property, when your Dad's situation changes, one entity may give you all the protection you need (especially if you're not the owner of that company.) If you do form a company, you'll need to do the normal corporate "care and feeding" ( that is required meetings, minutes, resolutions, bank account, books, etc.)

For all intents and purposes, there is no restriction to owning real property in the U.S. -- so whatever entity fits your needs is OK. If you are not renting the property, you're not conducting a business -- you won't have to register as a foreign entity in the state where the property is located (whether NV, WY, DE, FL or CH.) He holds the properties in LLCs in the jurisdiction where the properties are located to facilitate potential success in any law suit.) He also has the holding company as an additional buffer, protecting him in potential roles as an officer or manager.

Additionally, Switzerland doesn't have any trusts (although they do recognize trusts in other jurisdictions.) Trusts also tend to have punitive tax rates, whereas LLCs and corporations typically have more beneficial tax rates (at least right now, in the U.S.)

Forming a company in most jurisdictions is fairly easy. I suspect most attorneys can carry it out or refer you to a someone that is in business to form companies. Of course you can also do it yourself; I was with my son when he formed a NM LLC, a few years ago, he filled out one form and paid a $25 filing fee. The last time I formed an WY C Corp, I paid $150.00 total, including a year of resident agent services (required, if you don't live in the jurisdiction.) My view is that most U.S. attorneys will form a company for about $600 to $3,000 USD. CH attorneys may be higher.

Nothing specialized required -- just routine contract law and filing out a few forms.

Assuming your ultimate goal is to become Swiss and relinquish your U.S. citizenship, I would recommend talking to a local attorney to determine the best structure for you and your wife. There are all kinds of tax decisions you need to make, depending on what you do with the property and how you own it. Cheers, 255


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## Xrso

I see what you are saying now 255. Thank you.

Unfortunately, we are not liquid enough to have my spouse ‘purchase’ the house at fair market value (even if the money comes back to us less capital gains taxes (the house was originally transferred to me for 1$ many years ago).

Seems we are up a creek!


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## 255

Xrso -- Consider getting a loan based on the value of the property. You could immediately pay it down/off or keep it and invest it (mortgage rates in the U.S. are really low right now.) It is not a bad idea to keep a property encumbered anyway, to make it less attractive to attorney's looking to sue on behalf of clients (they put their efforts where the "money" is.)

Alternately, you could "sell" the house to your father, while you maintain it, on his behalf. When he passes, you could inherit the house, with a stepped up basis. This would do two things: a. get the house out of your name and b. eliminate future capital gains tax (just be aware that the current Administration is proposing to eliminate "stepped up basis" on death, but it hasn't happened yet.) You can always adjust your situation, if some new (adverse) law(s) pass that would affect your plans. Cheers, 255


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## Jca1

It seems like you have some non-imaginary concerns about not being compliant with US taxes, and an exit path from US tax law in a couple years if you want one. I would have thought you'd be a good fit for the streamlined foreign offshore procedures, and that that would be much safer and easier than trying to use gifts, trusts, and corporations to protect your assets (which might make sense anyhow for unrelated reasons, but might not be effective against tax authorities).

Going back to the beginning of the thread, it sounded like your main concern with becoming US tax compliant was that someone told you you'd owe about $30k/yr in US tax. Are you sure that's correct? I don't see how it's possible unless you have at least around $100k/yr in income that isn't taxed anywhere, in addition to the roughly $105k of income that you can exclude with the foreign earned income exclusion. Normally with foreign tax credits (and the FEIE where the FTC is insufficient to erase tax liability, or a combination of both where it makes sense) you should not owe any US on earned income unless you live in a very low or zero-tax state. The other possibility, I guess, is that the extra tax due was due to something like PFICs or incorporated business income that can be taxed on unrealized gains in the US.

If needed I can privately recommend some competent and reasonable people who can do the SFOP for probably several thousand in legal and accounting fees. I have no financial or other connection to them.


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