# UK v US tax years: 'Streamlined' back taxes



## GregoryN

I must also start this ‘Streamlined’ procedure and file back US taxes. As a dual UK/US citizen who has lived all his adult life in the UK, the US tax code seems pretty daunting. The first problem I face is that the UK tax years are April 6 to the following April 5, whereas the US’s are January 1-Dec 31. I would have preferred to take my income and tax data from the UK’s HMRC system (as it is all accurate) and move the income etc to the corresponding year in the IRS’s system, but the years are ‘shaped’ differently – will I really have to go through all the monthly income for the past 4 years ‘reshaping’ my income and taxes while attempting to reconcile the different types of income and taxes etc ? How is this normally handled ?

The streamlined forms are required by the IRS in paper format, so I was assuming I would need to do it manually, but people here have been talking of software systems. Is that feasible? 

As 2 of my back years had low and straightforward incomes I thought of applying the Foreign Earned Income Exemption method, while as the other 2 included some dividends I thought to use the FTC method as I gather that will cover dividend payments. Does anyone have any guidance on these several points?


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## Bevdeforges

Technically speaking, you probably should go back and accumulate your income over the US tax year. Practically speaking, there's probably no harm done if you use the UK tax year, as long as you do so consistently - however, be very careful if you use your UK tax documents. For the US tax forms, you must report your "gross" income, before any and all deductions or adjustments for taxes or social insurances paid. (Don't know how the UK system works, but in a couple of EU countries I do know, what is reported to you as "taxable income" for the year has been adjusted for social insurance payments that are excluded from your income.)

As for doing the actual preparation, you can use either TaxAct or Tax Slayer - both are programs available online (google the names of the software) and are free, at least for the current tax filing year. Not sure about Tax Slayer, but the back years for TaxAct only cost about $15 each. (And yes, you need the software for each year you need to file because the forms and rates tend to change.)

You can actually take both the Foreign Earned Income Exclusion and the Foreign Tax Credit, depending on what kind of income you have each year. The FEIE applies only to "earned income" - basically salary and wages. The FTC has to be applied by income type (i.e. passive vs. active) so if you've already excluded your salary income using the FEIE, you can then apply taxes you paid to the UK on passive income (investments, bank interest, dividends, etc.) to any tax liability you may have incurred on those items for the US. 

Just be careful, because there are some restrictions on switching back and forth on FEIE and FTC for your salary income from one year to the next. But, if your passive income only amounts to a few thousand dollars, you may only have to exclude your salary using the FEIE and then the "allowances" (standard deduction and personal exemption) could give you a $0 tax due result, without having to find your way through the FTC forms at all!
Cheers,
Bev


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## GregoryN

Reading in your paragraph 3 "The FTC has to be applied by income type (i.e. passive vs. active) so if you've already excluded your salary income using the FEIE, you can then apply taxes you paid to the UK on passive income " I get the impressions that one can apply FEIE on the salary component of a year's income and then FTC on the passive element, but I thought that FEIE and FTC were mutually exclusive.
I really do not understand FTC - If proceeding with FTC for a year with significant dividend payments (yet an overall gross of about $30k) should I fill out 1116 once for passive income and once for general income (only the 2 apply to me) for the same year?


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## BBCWatcher

GregoryN said:


> ....I thought that FEIE and FTC were mutually exclusive.


1. The Foreign Earned Income Exclusion, Foreign Housing Exclusion, and Foreign Tax Credit are all optional. You are not required to take any of them even if you qualify. (But see #3 below.)

2. If you do take the Foreign Earned Income Exclusion it appears that you must take it for all eligible income, up to the FEIE limit. You can't say, "Oh, I'll take the FEIE for this $15,000 of foreign earned income that qualifies but not for this other $5,000 of foreign earned income that qualifies." (I've seen certain tax preparers argue otherwise in order to help their filers qualify for certain refundable tax credits, notably the Additional Child Tax Credit, but they are wrong as far as I can tell.)

3. The IRS has certain rules that limit your ability to flip back and forth year to year between taking and not taking the FEIE.

4. The FEIE and FTC are mutually exclusive _on the same income_, not within the same tax return. For example, if you received $269,500 in gross earned income (income from work) in 2014, and if you elect to take the Foreign Earned Income Exclusion, then your first $99,200 of earned income is within the FEIE, but you can still take the FTC on the $170,300 of earned income above the FEIE limit for that tax year.

As another example, if you have gross earned income of $25,400 and combined gross dividend and interest income of $5,800, and if you elect to take the FEIE, the FEIE applies only to your earned income (and all of it -- $25,400 is well within 2014's $99,200 limit). You can still take the FTC on your passive income.

5. Let the tax preparation software, even the free stuff, do its job. Answer the software's interview-style questions. The software is generally very good at figuring out which forms to generate and what numbers to put on particular lines on those forms.


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## Bevdeforges

Put very simply, if you have $20,000 of "earned" income (i.e. salary) and $10,000 of investment (i.e. "unearned") income, you take the FEIE on the $20,000 and you take the FTC on the investment income.

Now, that assumes that you have UK income taxes you paid on the investment income. What you paid to Her Majesty is credited dollar for dollar (yeah, you have to convert) against whatever tax obligation to wind up with on the investment income.

Depending on your filing status, however, your combined personal exemption and standard deduction may be sufficient to wipe out that $10,000 anyhow. Things will become clearer when you take a run through one of the software programs.
Cheers,
Bev


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## JustLurking

GregoryN said:


> I really do not understand FTC ...


I have a horrible feeling that you are about to discover that neither the FEIE nor the FTC protect you from a real US tax liability on interest and/or dividends from an ISA, NS&I tax-free bonds, VCTs, EISs, and so on. If you have recognized any capital gains during the streamline period, including inside an ISA, you will also discover that the US has no equivalent to the UK's £11k/year capital gains allowance, perhaps leaving you with a further real US capital gains liability.

The only bright spot may be pensions. These are _probably_ covered by the US/UK tax treaty. They still require (duplicative) reporting, though.

So sorry you have to go through all this. US tax law is a quagmire. Doubly so for non-US residents.


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## GregoryN

BevdeForges - I am effectively retired now (due to lack of work) and living with my wife in China where unfortunately the tax software does not work !! Although I shall be in NZ in February I really want to understand the workings now so I dont have a problem coming up to June.

Working on your $20k/$10k example, I would complete both 1116 and 2555 for the respective elements of that year's income would I and that would be acceptable ?


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## GregoryN

JustLurking - I read your earlier posts with trepidation. I havent gotten as far as ISA'sa yet! But I don't have much of them and the recent 'China crash' has not done much for my 'Capital Gains'. However I am sure I wont be so flippant when I get further along this process.

TO ALL BLOGGERS and MODERATORS HERE - Thank you very much for this lifeline - I had a london firm of USUK tax accountants quote me £18,000+ (abt $27,000) for these streamlined accounts ! !


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## Bevdeforges

Using the $20K/$10K example, you would first fill out the front of the form 1040 - then fill out the 2555 (short version if you're eligible to use it). At the end of that form, they tell you to enter the number you get in parentheses on a line on the 1040 form. (Parentheses mean you subtract the figure rather than add it.) The number should be equal to the salary income you entered on line 7 I think it is.

The last number on the front of the 1040 form should be just your "passive" income.

(Probably a good idea to fill out Schedule B to the 1040 at this point - or earlier, since it helps you tally up your passive income, and then you have to check the appropriate boxes at the bottom of the form anyhow for foreign bank accounts.)

Now, flip over the form 1040 and follow it all down the back side. Depending on the filing status you have, you may find that your subtractions on the back page exceed the income left over. If that's the case, then you're done! Congratulations! No taxes due.

If not, then you go to the 1116 form.

Do download IRS Publication 54 for help on both the 2555 and the 1116 form. And for the full story on US taxes for individuals, take a look at Publication 17 (though it's far too big to download, IMO). 
Cheers,
Bev


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## BBCWatcher

GregoryN said:


> BevdeForges - I am effectively retired now (due to lack of work) and living with my wife in China where unfortunately the tax software does not work !!


I'm not quite following, GregoryN. Are you referring to "Great Firewall" problems accessing U.S. tax preparation software/Web sites?

If you are having such problems, there are perfectly legal alternatives. For example, TaxACT's free edition (2014 as I write this) is available directly from Amazon.com (Microsoft Windows version at this particular link). There's also an iPad version and an Android tablet version, and at least Apple's should be accessible in China without incident.


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## GregoryN

Yes, the whitepage problem when trying to run software I assume is down to the "Great Firewall" slowing it - this does happen here !!

Thanks tho' .... I shall look into Amazon.
Thanks for the info re applying FEIE and FTC within the same year - that will help alot !!

Until later (I am afraid)


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## HelenaP

Hiya lovely folks. I am desperate for some help. I know, this is totally last min call before Oct 15, but silly me I thought it would be easier. (doh!) 

I obviously don't know how to fill these forms, to short this story...I am eligible for 2555 and 0 taxes, but how to fill it? 

Where 0 amounts should be on 1040? Line 37 got to be super low, but I am not getting there. :-(
Income only 25K US, I mean...what a nightmare. HELPPPP

Line 22 = line12-line21 ????
Line 37 got to come super low (less than 6200$) in the end to make 43=0, but how?

"At the end of that form, they tell you to enter the number you get in parentheses on a line on the 1040 form. (Parentheses mean you subtract the figure rather than add it.) The number should be equal to the salary income you entered on line 7 I think it is."


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## Bevdeforges

Don't try to do it yourself - use an online tax prep program (preferably a freebie): https://www.taxact.com/ or https://www.taxslayer.com/ These are the two most reliable for expat returns. And, I believe you can simply print off your returns from the programs for filing by mail. (It's possible to e-file for free, too, but those of us filing from overseas too often run into problems with e-filing. If you can do it, fine. But better to have the print ability as a backup if things go wrong.)
Cheers,
Bev


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## HelenaP

Thanks Bev...I did start with TactAct but then there is no Form 2555 attached to it and I need that in order to get to the 0. 
And back in April I rushed and paid 4K just in case, so that money need refunded, but first I need to submit it.


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## HelenaP

Ok, I found 2555 form on Tax Act and doing it now... hope to see 0 amount in the end.


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## HelenaP

Bev was right...THANK YOU. I was able to perform this 2555 via Taxact. 

Loads of minuses in that 1040 and yes, 0 to pay. 

BUT I can not see Schedule C and Schedule SE at all? As expats can we pay separately Social Security or that should be done with this 1040 filing? I am paying SS because I didn't pay here in NL, so I don't have any proof to show SS tax, and figured better pay to SS in USA. 

Sorry for sounding insane. This last minute filling is making me properly mad. 
Please help if you can. :-(


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## Bevdeforges

Are you self-employed in the Netherlands? Because that's about the only way that you would have to (or should have to) pay "self-employment" tax (which is social security). If you're working in a regular type job, then you don't have an option to pay one or the other.

One advantage of being an expat is that you don't need to have any "proof" for things like your salary and/or the social insurances you did or didn't pay.
Cheers,
Bev


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## HelenaP

Thank you Bev for all your help this night. It's tough at this late hour and last minute to stay composed and do it all. 
So yes, I submitted via e-filing and hope to get approved, well via email at least.  

I was super confused with this bone-fide definition as I became resident in August 2014, so not a full year. But from Sept 2013 - Aug 2014 I just travelled extensively and didn't establish residence anywhere really. I am out of US since Sept 2013. 

So in the end I didn't file as bone-fide but as physical presence...
And I did pay that SS in the end, although I don't get the rate charged, for 20K I had to pay 3192$ for SS and I did say no to medical. 

Also super confused with form 2210 that got filled out. ???? ( underpayment, penalty, what ??)

And, yes I am self-employed here as you rightly guessed.  

I only hope US will accept all this and won't bother me anymore. Well, they don't send any letters anyways, only if you call them for some questions, they remind you of things. Madness! 

Also to say, I was absolutely shocked with quotes I got from some US NL based accountants (anywhere from 150EUR - 250EUR per hour) !!!!! No comment, really. 

SO THANK YOU BEV AGAIN...and good night to all good people reading all my ramblings here.


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## BBCWatcher

For future reference, there's no penalty for late filing if you genuinely owe zero U.S. tax. Try to avoid waiting until the last minute next year, but you can relax a bit more throughout the process.

Congratulations.


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## Bevdeforges

The rate on the social security was basically double what you would have paid as an employee. It's based on your being self-employed, so you're paying both the employee and the employer share of the social security taxes. One reason why it's a good idea to enroll in the local social security system as a self-employed person if there is a social security treaty with the US. (As there is with the Netherlands. International Programs - Totalization Agreement with the Netherlands)
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> One reason why it's a good idea to enroll in the local social security system as a self-employed person if there is a social security treaty with the US.


That depends. If you are a U.S. person, if you work in a country that has a social security treaty with the U.S., and if that country gives you a choice of whether or not to participate in its social insurance system, simply compare systems then decide which one to choose. (You'll have to choose one as a self-employed individual.) You should compare contribution rates, and you should compare benefits. The U.S. system tends to compare quite well on both dimensions, so I wouldn't _reflexively_ choose the other country's system. Take your time to compare them.


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## HelenaP

Bev, I did enroll now, but not in 2014 as I was here only 5 months in 2014, which was wrong on my behalf. In NL EVERYONE got to pay SS, so I will be fined for it at some point for sure (when they realize it). I guess at that point I will pay them and get that paper from them that I did in deed paid SS in NL and then claim US SS back (not even sure I can do it?) . I couldn't get that paper from NL SS now which would give me an excuse not to pay US SS. I ve heard US SS is asking you to show them you paid in foreign country so you waived back home.
Retroactively paying SS is impossible in NL ... if you miss it, you will be fined first, then you got to pay. 

If I put 23K in online software to calculate SS taxes, part of the portion is medical, (which I opted out as I was out of US) but I still paid 3192$ instead of $2587...WHY?
Social Security: $ 2,587
Medicare: 605
Total: $ 3,192
Deductible Half: $ 1,596

BBCWatcher, I didn't have a clue about not being fined if 0 taxes owed. I ve read that if you late filling or didn't pay on Apr 15th, they can fine you. 

Thanks for all the input again. I only wish I joined this board earlier.


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## BBCWatcher

I think you're going to be OK if you contributed to either program across all applicable income. Just obtain and keep records of your social security contributions, and follow the rules as best you can going forward. If the Dutch system asks, show them the U.S. contributions. I tend to think they aren't going to argue too much over short cut-over periods when you're moving from Treaty Country A to Treaty Country B. (Many people aren't _sure_ they're going to settle anyway, so there's a little bit of tolerance in practice for that sort of thing.)

Unlike most other countries' tax systems, if you fail to file a U.S. tax return or file late, and if you genuinely owe zero tax (or if you are entitled to a refund), the penalty for non-filing or late filing is zero. The reason is that penalties are calculated based on the outstanding tax owed. No tax owed, no penalty. It's best not to _think_ that way, but that's the reality. Of course the IRS can send you a letter asking where your tax return is, but if you comply and if the above conditions hold, no penalty.

Careful, though. The Self-Employment Tax (U.S. Social Security contributions) is also a tax, so if you owe that and don't file or file late then yes, there's a penalty (plus interest). Also, non-tax _financial reports_ typically have their own separate filing obligations, and there may be penalties if you fail to file those reports or file them late. Notable examples include FinCEN Form 114, IRS Form 3520, and IRS Form 3520-A, as/if applicable.


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## GregoryN

I am glad that Helena has solved her problem, but I am just encountering new ones. Thanks for the TaxAct SW, I am progressing with that, but the US does have a complicated tax system compared to the UK's on-line system.

JustLurking foresaw some problems I was going to hit - I have just finshed keying my Foreign Assets in 8938 (a couple of pensions pots and ISA savings basically) - now do they want to tax me on the small gains these have made? Within TaxAct, the part that writes 8938 part 3 is asking for interest, gains/losses, deductions - presumably if my pension investment has gone up from 78k to 82k I have to enter 4k as a "gain" so they can tax it ?


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## HelenaP

Well, now I guess I can try arguing with Dutch that I paid US SS in 2014, but I am not sure how far that will take me. As you said, I ll see which SS bills bigger. Not sure I can get US SS refund though? hmm


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## Bevdeforges

You don't get the option to opt out of paying for Medicare while you're still working. When you hit age 65, there is a "free" portion of Medicare (part A) that you'll receive simply by signing up for it. (It's actually not a bad deal as it covers you for in hospital costs if you even just visit the US and have to be hospitalized. Travel insurance for trips back to the US gets much harder to get after the age of 65 - and having Medicare cover even if only for hospitalization can be a reasonable substitute.)

OK, and don't sweat the coverage certificate all that much. Normally, in the system there should be some way to get a standard certificate (in Dutch) that shows that you are up to date on your social insurance payments. (Often needed in your business for insurance or other purposes.) Just hang onto that in the off chance that either the IRS or SS asks for that "proof." (Yeah, yeah, I know what it says in the tax instructions, but generally, if you're in a country with a tax treaty they don't seem to come back on you very often.)

Be careful about the 0 "fine" for late filing. There is usually no penalty, but they still expect you to pay interest on any balances due starting from the date the original balance was due - not the date you got around to filing.
Cheers,
Bev


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## Bevdeforges

HelenaP said:


> Well, now I guess I can try arguing with Dutch that I paid US SS in 2014, but I am not sure how far that will take me. As you said, I ll see which SS bills bigger. Not sure I can get US SS refund though? hmm


No, if you were resident in the NL in 2014, you don't get to choose which system you pay into. If you were supposed to be paying NL social insurances, you will probably have to pay it up. Social security is not well known for refunding amounts paid in "error" but you can try. (Check the Social Security website rather than the IRS website to see if they have a procedure. I don't think you can reclaim through the IRS.)
Cheers,
Bev


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## HelenaP

Bevdeforges said:


> OK, and don't sweat the coverage certificate all that much. Normally, in the system there should be some way to get a standard certificate (in Dutch) that shows that you are up to date on your social insurance payments. (Often needed in your business for insurance or other purposes.) Just hang onto that in the off chance that either the IRS or SS asks for that "proof." (Yeah, yeah, I know what it says in the tax instructions, but generally, if you're in a country with a tax treaty they don't seem to come back on you very often.)


All I am hoping not to end up paying both US and NL SS. Time will tell... 

Thanks again for all the input .... back to GregoryN now!


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## Bevdeforges

GregoryN said:


> JustLurking foresaw some problems I was going to hit - I have just finshed keying my Foreign Assets in 8938 (a couple of pensions pots and ISA savings basically) - now do they want to tax me on the small gains these have made? Within TaxAct, the part that writes 8938 part 3 is asking for interest, gains/losses, deductions - presumably if my pension investment has gone up from 78k to 82k I have to enter 4k as a "gain" so they can tax it ?


You're going to have to check the relevant tax treaty, but I think there are at least a couple of UK based pension accounts that have specifically been excluded from taxation (basically more or less like a US IRA account, where the contributions and gains are exempt from taxation when made, but then all balances you withdraw from the account are then taxed as "ordinary income.")

But otherwise, you do have to report gains or interest/dividends as they are earned, even on accounts that are "tax free" in other countries. The one big advantage to this, however, is that if you paid tax on the gains over time, it means that when you withdraw the funds, it's considered just a withdrawal of capital and there is no need to even report the withdrawal on your US returns. 

(Yeah, the US tax code has some pretty bizarre turns...)
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Be careful about the 0 "fine" for late filing. There is usually no penalty, but they still expect you to pay interest on any balances due starting from the date the original balance was due - not the date you got around to filing.


That's not the situation I described. I described the situation when the genuine amount of tax owed is zero or less (i.e. you're due a refund). There are no penalties and no interest charges on zero (or less). Yes, of course, if you owe tax (a different situation) interest and penalties can and usually do accrue.

Note that you can be charged extra if you were required to pay estimated taxes but did not pay them correctly, in the timely quarterly fashion, even if at the end of the tax year (on April 15th) you owe zero tax or are due a refund. That extra charge will first come out of any refund you're owed. That particular situation doesn't apply to most people living overseas, but it applies to some (like me as it happens).


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## BBCWatcher

Bevdeforges said:


> But otherwise, you do have to report gains or interest/dividends as they are earned, even on accounts that are "tax free" in other countries.


Not quite. Interest and dividends, yes, agreed, but that's not usually a surprise. Unrealized capital gains, however, are reportable/taxable only if you're dealing with Passive Foreign Investment Companies (PFICs) and are (as you really ought to, since the alternative is worse) making mark-to-market elections. You can still take a Foreign Tax Credit if there is one to take, of course.

Many, many forms of savings are not PFICs, and there have been other threads in this forum about that topic. Non-U.S. mutual funds (also called unit trusts in certain countries) are PFICs, as one example.


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## JustLurking

Bevdeforges said:


> GregoryN said:
> 
> 
> 
> ...I have just finished keying my Foreign Assets in 8938 (a couple of pensions pots and ISA savings basically) - now do they want to tax me on the small gains these have made?...
> 
> 
> 
> You're going to have to check the relevant tax treaty, but I think there are at least a couple of UK based pension accounts that have specifically been excluded from taxation...
Click to expand...

If only it were that simple. Of course, it is not.

On pensions, there is a lengthy meta-discussion here about whether or not SIPPs and other perfectly vanilla UK pensions are protected until withdrawal by the US/UK treaty. Unfortunately, the discussions among professionals to which it refers has bit-rotted from the internet. But the conclusion, both of this thread and the one among professionals that started it is that _nobody knows_.

What is certainly simpler is to claim the tax treaty benefits of no tax until withdrawals. Probably form 8833 and nothing more. The alternative is _unbelievably_ complex and ugly -- form 3520 and perhaps also 3520a, maybe form 8621 (OMB estimates for that form alone exceed 40 hours to complete!) -- and may include double-taxation; for example, pay US tax on accruals now, then renounce US citizenship but be unable to get UK tax credit on withdrawals for US tax paid years or decades before on accruals.

On ISAs, well, the only good news there is that there aren't any unknowns. The bad news is that you are SOL with these and very likely end up with a US tax liability on any interest, dividends, and capital gains made inside them. The even worse news is that if you held non-US domiciled unit trusts, ETFs or other funds in them then you are also entering form 8621 land where there may be tax on unrealized gains.

GregoryN, once you are through all this you might want to review the sticky thread above about renunciation. Renouncing won't relieve you of the pain of getting up to date, but it will make it go away for the future. You already have another first-world citizenship, and if you have no foreseeable plan to live in the US at any point in future then your US citizenship might be more burden than asset at this point. Just sayin'.


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## Bevdeforges

OK, all that said, your exposure to the more dire side of the US taxation system depends greatly on your tax bracket (i.e. how much $$$ we're talking about), the exact nature of your investments, and any number of other factors, including your involvement with the US (i.e. trips, family or investments and other financial dealings based in the States).

The IRS never has (and most likely never will) come after overseas taxpayers for simple errors or good faith "misinterpretations" of the tax law or regulations. (And tax law in the US is particularly open to interpretation in any event.) They don't seem to even come after overseas taxpayers for "failure to file" except in cases involving large amounts of tax due and a certain level of notoriety. Obviously, that could change some time in the future, but for the time being it seems unlikely.

Renunciation is an option, of course, but that has certain consequences that need to be considered before taking that particular big step. But there are plenty of US taxpayers out there who choose instead a course ranging from quiet non-compliance to full compliance with paid accomplices, er, I mean a full army of tax accountants and lawyers to back up their every move.
Cheers,
Bev


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## GregoryN

*IRS Forms for growth of funds*

Can anyone help with a steer for particular forms? I now seem to be able to get the basic forms to work (1040, 1116, etc) but am unsure about some specifics:

ISA Stocks & Shares: sales transactions have been written to 8949 and 1040 Schedule D, but where should I be writing any unrealized capital gains? I had heard that such had to be done with ISAs

Pension Plans: Again, which forms do I set out the growth of these?

(I know the US will tax me on the growth of pension savings and later the UK will tax me on the payments out).


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## BBCWatcher

GregoryN said:


> ISA Stocks & Shares: sales transactions have been written to 8949 and 1040 Schedule D, but where should I be writing any unrealized capital gains? I had heard that such had to be done with ISAs.


Maybe. It depends on the holding(s) and whether they are Passive Foreign Investment Companies (PFICs). Check IRS Form 8621 and its instructions.



> Pension Plans: Again, which forms do I set out the growth of these?


See above. One further important point. If this is a traditional "defined benefit" pension, not held in your name but a promise your employer makes (and hopefully keeps) that you (and usually some of your peers) will receive some future annuity after you retire, then generally there are no immediate U.S. tax implications. In general the IRS requires income to be "constructively received" by you in order to be considered for tax. A defined benefit pension that the company sets up for its workers is not "constructively received." There's no account in your name -- not even a restricted one -- though there may be (hopefully is) a retirement fund, a pool of money, to which the employer contributes in order to then turn around and start paying those annuities to retired employees in the future. That's a traditional employer pension, and that type of pension you can generally ignore (on the U.S. side) unless and until you start receiving your pension income.

So what sort of "pension plan" are we talking about?

Other IRS forms that may be relevant are IRS Forms 3520, 3520-A, and/or 8833. The last one is relevant if the tax treaty with the U.S. has something to say about how to treat a particular account or income, and you want to take advantage of that provision in the tax treaty. You tell the IRS what tax treaty provision you used via Form 8833.


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## GregoryN

I should have been clearer about pension plans.

As in effect I am self-employed, these are not ones run by an employer, but are set up in my name and all payments into the fund are from myself: I have the ability to switch the funds the monies are invested in. I am not however allowed to take any money out, it has to remain within the fund until I choose to buy an annuity (I tried to read the treaty but I could not see any references to particular or types of investment/pension plans).

I know that when I get as far as Fincen 14 I will have to list these financial assets, but I assume they will have to be detailed in an IRS form for tax purposes, as I assume the IRS will check if any assets shown in fincen 14 have not been mentioned in the IRS papers.


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## BBCWatcher

Unless the tax treaty says otherwise, from the U.S. point of view that particular pension you have is the same as any other foreign financial account with the same holdings. You can thus safely ignore my comments about traditional defined benefit employer pensions.


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## JustLurking

BBCWatcher said:


> Unless the tax treaty says otherwise, from the U.S. point of view that particular pension you have is the same as any other foreign financial account with the same holdings.


It's all murky, of course.

The treaty itself doesn't specifically cover 'personal' pensions. However, the technical notes, if read carefully, suggest very strongly that the _intent_ of the treaty is for the term 'pension' to cover all types of ring-fenced retirement savings schemes, both known at the time of the treaty and (perhaps) invented later on.

GregoryN, form 8621 is the spawn of Satan. Purely to preserve your own sanity I'd suggest that you consider taking an 8833 treaty position on your SIPP, stakeholder, or other personal pension, meaning that you don't pay immediate US tax on gains inside your pension.

Let the IRS argue it if they want to. I'd say it's unlikely that they will -- they don't understand these treaty nuances any better than the rest of us, and even if they did there wouldn't be much in this for them -- and by filing all of this on an 8833, and duplicatively on FinCEN 114 and 8938 if needed, you're well covered against any allegation of less than full disclosure if they do.


----------



## GregoryN

FORM 8621

I suppose I am naive, but part of the instructions to 8621 read:

WHO MUST FILE 
Generally, a U.S. person that is a direct or indirect shareholder of a PFIC must file Form 8621 for each tax year under the following five circumstances if the U.S. person:
....
2. Recognizes gain on a direct or indirect disposition of PFIC stock,
3. Is reporting information with respect to a QEF or section 1296 mark-to-market election,
4. Is making an election reportable in Part II of the form
and in reply:
2:-In a SIPP Pension Plan I cannot dispose of stock and gain value, I can only dispose by switching to another fund in which case the value is the same.
3:-electing to do either of these two are optional in Part II and I choose to do neither (the keyword they use is “May”)
4:- again, Part II is full of choices, and point 4 infers an action of mine (which I chose not to take) makes an election reportable.

Makes sense or is dangerous ?


----------



## BBCWatcher

You're correct so far. The issue is that if you have non-treaty protected PFIC(s) and don't choose option #3 (mark-to-market elections, specifically), then the future U.S. tax implications often are onerous.

So yes, it's an option strictly speaking, but it's an option well worth taking if you have non-treaty protected PFIC(s).


----------



## JustLurking

BBCWatcher said:


> .. the future U.S. tax implications often are onerous.


To amplify, 'onerous' above means not only a mountain of expensive paperwork, but also a tax liability that may exceed 100% of your gain (source: this article).


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## GregoryN

RE PENSIONS
I think unfortunately I am going to have to delve into the treaty and notes. I have 2 personal pension funds which are not very exciting and I do not want the IRS to tax unrealised gains in the growth, so following the route outlined I should look into filing an 8833 position if possible.

Can someone confirm that the treaty is:
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf

and the 'notes' JustLurking referred to were:
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdfA

The ramifications are such that I probably shall get a UK/US Tax Accountant (unf again).


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## JustLurking

You seem to have the right locations for the treaty. There is also a 2001 'protocol' that might modify things, and a set of notes for that. You can find all of these linked from

https://www.irs.gov/Businesses/International-Businesses/United-Kingdom-(UK)---Tax-Treaty-Documents

Or from 

https://www.gov.uk/government/publications/usa-tax-treaties-in-force

The UK government appears to have done a better job of consolidating everything into one single source document.

Finally, remember that the treaty text only defines what was in force on the day it was signed. The US government in particular has a track record of reneging unilaterally on its tax treaties, so you'll want to watch out for that too.


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## BBCWatcher

JustLurking said:


> The US government in particular has a track record of reneging unilaterally on its tax treaties....


The more polite way to phrase that is that the U.S. interpretation of the treaty governs when you're filing a U.S. tax return. Likewise, the U.K. interpretation of the treaty governs if you're filing a U.K. tax return. So it's prudent to search for IRS notices, letters, etc. and relying on those if any exist.


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## JustLurking

BBCWatcher said:


> The more polite way to phrase that is that the U.S. interpretation of the treaty governs when you're filing a U.S. tax return...


Reneging is an appropriate description:


> verb re·nege \ri-ˈneg also -ˈnāg, -ˈnig; rē-\
> to refuse to do something that you promised or agreed to do


Congress regularly employs tax treaty overrides by passing local laws under the last-in-time doctrine. It is not just interpretation, but deliberate breaking of formerly agreed treaty terms.


----------



## ForeignBody

JustLurking said:


> Reneging is an appropriate description:
> 
> Congress regularly employs tax treaty overrides by passing local laws under the last-in-time doctrine. It is not just interpretation, but deliberate breaking of formerly agreed treaty terms.


Since none of your links work (for me at least) it is impossible to check out what you are saying.

Lawmakers everywhere change/update/revise laws all the time. That is somewhat different to reneging.


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## JustLurking

ForeignBody said:


> Lawmakers everywhere change/update/revise laws all the time. That is somewhat different to reneging.


Revising a law in such a way as to break a treaty agreement by overriding it is reneging. No two ways about it. From the introductory paragraph to the Infanti paper on SSRN:



> During the past quarter-century, Congress has “taken an increasing interest in the formulation and reformulation of tax policy, including the tax rules applying to international business and investment transactions.”
> 
> An unfortunate concomitant of this increased congressional interest in international tax policy has been the passage of legislation that is intended to override inconsistent provisions in existing (and, in some cases, even future) bilateral tax treaties. By enacting such legislation, Congress has been able to bypass the renegotiation process and unilaterally conform tax treaties to the now frequent changes in U.S. international tax policy. The utility and expediency of this legislative tool notwithstanding, treaty overrides constitute a breach of our obligations to our treaty partners as well as of international law. Legislative overrides damage the reputation of the United States as a member of the international community, undermine the trust of our treaty partners, and harm U.S. citizens and residents by hindering the Department of the Treasury in its efforts to obtain favorable concessions from foreign governments when negotiating and renegotiating tax treaties.


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## BBCWatcher

Does the U.K. government take the official position that the U.S. has reneged on its tax treaty?


----------



## GregoryN

ForeignBody said:


> Since none of your links work (for me at least) it is impossible to check out what you are saying.


The first link re 'Tax Treaty' works for me, and links to a 'University of Pittsburgh - School of Law' publication


----------



## JustLurking

BBCWatcher said:


> Does the U.K. government take the official position that the U.S. has reneged on its tax treaty?


This has no relevance to whether or not an individual _receives_ the actual treaty benefits previously _agreed to_ by the US.


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## BBCWatcher

JustLurking said:


> This has no relevance to whether or not an individual _receives_ the actual treaty benefits previously _agreed to_ by the US.


So the answer to my question is no? 

I'm highly confident there are only two parties to this tax treaty: the United States government and the United Kingdom government. A third party doesn't actually get to _decide_ what the treaty means or what either party agreed to or didn't agree to. The parties to the treaty decide all that (and perhaps redecide -- that's up to them). Anybody else can comment on or complain about the treaty, but those comments aren't relevant to taxpayer responsibilities.


----------



## JustLurking

BBCWatcher said:


> So the answer to my question is no?


No. Your question is irrelevant. From the already referenced paper:


> ... there is no effective remedy (either legal or diplomatic) under international law for breach of a tax treaty obligation,...


The US acts unilaterally, and with impunity, when breaking previously agreed tax treaty commitments. And it does this with apparent regularity. Individuals who are adversely affected have no recourse, no matter what the other treaty nation may or may not say on the matter.



BBCWatcher said:


> The parties to the treaty decide all that (and perhaps redecide -- that's up to them).


Right. And the process for re-deciding is tax treaty renegotiation. It is expressly *not* simply overriding a part of the treaty you no longer wish to adhere to with something you've dreamed up in domestic law.

See the Vienna Convention on the Law of Treaties for why. Specifically Article 26, "_Every treaty in force is binding upon the parties to it and must be performed by them in good faith_", and Art 39: "_A treaty may be amended by agreement between the parties._"

Change in US domestic tax law that breaks treaty commitments is not and cannot possibly be construed as "agreement between the parties."


----------



## Bevdeforges

Let me suggest a slightly different approach. Back in the day when I worked for one of the big international accountancy firms, the folks in the tax department referred to it as "taking an aggressive tax stance." You file the form according to your interpretation of the tax treaty (with or without filing the paperwork to formalize what you are doing) - and then you wait and see if the IRS reacts.

It depends on the amounts involved and what's on the rest of your return, but very often it'll fly (if only because it's not worth pursuing). And if it doesn't, there is always the Taxpayer Advocate. https://www.irs.gov/Advocate
Cheers,
Bev


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## BBCWatcher

JL, probably like Bev I'm straining to figure out any relevance to what a tax filer is supposed to do with that random writer's opinion. It sure sounds like "howling at the moon" for these purposes. The tax treaty is already a thin reed for U.S. persons due to the savings clause. Even if we assume that Congress and the President have done something that offends that writer (but not the U.K. government) with respect to the half dozen or so non-savings clause treaty provisions, is a tax filer supposed to send his/her tax return to city hall in Geneva, Switzerland? Or appeal to the Court of Geneva Appeals (which doesn't exist)?

Other than writing a letter to your representatives in Congress, I'm not sure what any tax filer is supposed to do with this writer's opinion.


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## JustLurking

BBCWatcher said:


> JOther than writing a letter to your representatives in Congress, I'm not sure what any tax filer is supposed to do with this writer's opinion.


There is nothing they can do. And that is _precisely_ my point.

The US congress regularly reneges on the few treaty commitments that it has previously agreed to. Constant vigilance is the only defence. Watch out for these and act according, whatever that means. Take it on the chin, complain to congress, renounce before things become even worse, whatever.

The sole point of the statement I made upthread was that even though it _should be_ safe, under both customary international and treaty law, to rely on the tax treaty, it is not because the US fails to abide by it in some areas. And where it fails there is nothing an individual can realistically do to obtain redress.

You seemed to take issue with that statement. Perhaps it was my use of the word 'renege' that set you off. Okay then, 'breach'. Same meaning.


----------



## iota2014

BBCWatcher said:


> Other than writing a letter to your representatives in Congress, I'm not sure what any tax filer is supposed to do with this writer's opinion.


A cat may look at a queen, whether the queen takes any notice or not. Tax treaties aren't concerned with equitable treatment of individual taxpayers, true, and individual taxpayers have no say in what's ruled or overridden; but pointing out the damage to individuals is nevertheless important, and may be heard in other quarters, and eventually lead to change. A tax filer unfairly affected by these legalistic/diplomatic shenanigans could for instance report the experience to the ACA, to be added to their database of evidence with which they are trying to argue the case for fairer treatment of US Persons abroad. https://americansabroad.org/issues/taxation/share-your-banking-or-tax-story/

Another paper on the same network takes a different view of overrides:
Tax Treaty Overrides: A Qualified Defense of US Practice by Reuven S. Avi-Yonah :: SSRN


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## BBCWatcher

OK, but do keep in mind there are only a half dozen or so U.S.-U.K. tax treaty provisions that apply to U.S. persons. The savings clause means that the vast majority of tax treaty provisions simply don't apply to U.S. persons. The U.S. Congress (both houses) and President don't have much scope left within the tax treaty to harm individual taxpayers even if they wanted to. There just isn't much treaty to undermine.

On the other hand, Westminster has a great deal more treaty scope it could affect. Moreover, a parliamentary majority is all that's required to enact legislation. There is no presidential signature/veto in the U.K. system. The chances that the U.K. government does actual treaty-related harm to individual taxpayers is much, much greater. I'm quite puzzled why the U.S. government would be singled out here for what is a most non-actionable hypothesis and a hypothesis that, even on its own terms, applies much less to the U.S. side thanks to the savings clause.


----------



## iota2014

BBCWatcher said:


> OK, but do keep in mind there are only a half dozen or so U.S.-U.K. tax treaty provisions that apply to U.S. persons. The savings clause means that the vast majority of tax treaty provisions simply don't apply to U.S. persons. The U.S. Congress (both houses) and President don't have much scope left within the tax treaty to harm individual taxpayers even if they wanted to. There just isn't much treaty to undermine.
> 
> On the other hand, Westminster has a great deal more treaty scope it could affect. Moreover, a parliamentary majority is all that's required to enact legislation. There is no presidential signature/veto in the U.K. system. The chances that the U.K. government does actual treaty-related harm to individual taxpayers is much, much greater. I'm quite puzzled why the U.S. government would be singled out here for what is a most non-actionable hypothesis and a hypothesis that, even on its own terms, applies much less to the U.S. side thanks to the savings clause.


Actually, much more harm is done to individual taxpayers by the US, simply because of the irrational pretense that domestic transactions become "foreign" if a US Person is involved. That drags individuals into the scope of tax treaties, who just shouldn't be there. And, since as you say, most tax treaty provisions don't apply to US Persons, US Persons end up uniquely exposed to the double taxation that the Treaty is intended to prevent. I agree, it's not the Treaty that's the problem, it's CBT.


----------



## JustLurking

BBCWatcher said:


> OK, but do keep in mind there are only a half dozen or so U.S.-U.K. tax treaty provisions that apply to U.S. persons. ... I'm quite puzzled why the U.S. government would be singled out here for what is a most non-actionable hypothesis and a hypothesis that, even on its own terms, applies much less to the U.S. side thanks to the savings clause.


You're taking too narrow a view.

In common with 95% of the people on the planet, I am not a US citizen and so not under the jackboot of the execrable 'saving clause'. The US has reneged on my treaty rights nevertheless, most recently with FATCA.

(Yes, the UK "agreed" to FATCA via the IGA but only under threat -- specifically, the threat of reneging on even more of the tax treaty -- so this isn't agreement in the normal sense in which it's understood.)

Unlike US citizens though, at least I have at least some actionable courses available to me that entirely cut the IRS out of my life. Avoid direct US investments, steer clear of US brokerages and banks, do not own US real estate. And keep a very close eye on the shenanigans of congress for rumblings of anything that will unravel this through breach of the tax treaty, and reorganize and divest of US investments where suitable.

Viewed from outside and as a non-US citizen, the US really does seem to go to extraordinary lengths to discourage inward foreign investment. It's genuinely hard to explain.

Anyway, all off-topic. My main objection was to your characterizing US breaches of tax treaty commitments as merely 'interpretation'. They are not. They are breaches of law, and you should recognize them as such.

Now we're down to arguing about whether or not breaches such as these are acceptable.

I'll say not acceptable, but that is because I have been on the receiving end of at least one override that Avi-Yonah would characterize as "unjustified". You'll say acceptable, because... whatever. Fine.


----------



## BBCWatcher

JustLurking said:


> You're taking too narrow a view.


I don't think so.

The next part I'm not following at all. If you're not a U.S. person and have no U.S. source income or assets, what U.S.-X tax treaty provision would ever apply (or not apply)?



> The US has reneged on my treaty rights nevertheless, most recently with FATCA.


Again, what treaty rights would you even have with no U.S. source income or assets and no U.S. personhood? The treaty simply doesn't apply to you.



> ....the US really does seem to go to extraordinary lengths to discourage inward foreign investment. It's genuinely hard to explain.


It does? Not compared to a reasonable survey of other countries with their requirements and restrictions. To pick a random example, foreigners cannot buy land or landed property in Singapore without per transaction government approval, and such approval is not frequently granted. Even if granted, the property is then significantly encumbered with severe restrictions on subleasing, in particular. In contrast, the U.S. government rarely even _reviews_ such transactions.

Or how about we simply look at the data. (An old fashioned idea, I know. ) The U.S. Council on Foreign Relations reports on foreign ownership of U.S. assets every calendar quarter, drawing from U.S. Federal Reserve and other data sources. The CFR characterizes foreign ownership of U.S. assets as a percentage of U.S. GDP, a very reasonable approach. By that measure foreign ownership has increased steadily practically every year since 1945. In 1945 the figure was about 5% of GDP, and now the figure is nearly 140% of GDP. Since 1985, foreigners have consistently owned more U.S. assets than Americans own foreign assets. Excluding Fed holdings, foreigners own 60% of outstanding marketable U.S. treasuries. Foreign holdings of U.S. corporate bonds and U.S. stocks (equities) are at record or near record levels as percentages of the total markets.

I can't find much if any support in the data for that particular hypothesis.



> My main objection was to your characterizing US breaches of tax treaty commitments as merely 'interpretation'. They are not. They are breaches of law, and you should recognize them as such.


It's not my role to "recognize them as such." Neither one of us is a party to the treaty. It's the responsibility of the parties to the treaty to decide whether either party has run afoul of the treaty terms. There is no other tribunal. There's not even a breach (except in the polemic, academic, hypothetical sense -- which isn't actually very interesting) unless at least one of the parties thinks there is.


----------



## JustLurking

BBCWatcher said:


> The next part I'm not following at all. If you're not a U.S. person and have no U.S. source income or assets, what U.S.-X tax treaty provision would ever apply (or not apply)?


I said I was not a US citizen, but where did I say I have no US source income or assets? I have, and must therefore be on continuous lookout for domestic tax legislation changes that will override my US treaty rights. If they occur, I have more options than US citizens.



BBCWatcher said:


> It's not my role to "recognize them as such."


Indeed. Each of us must make our own judgement. But neither should you minimize US disavowal of treaty commitments by characterizing as 'interpretation' something which is in fact direct breach of international law.

Now, I recognize that you personally can _never_ be convinced that the US congress is in the wrong here. Whatever source is provided you will discredit or disbelieve, and whatever argument is advanced you will reduce to straw-man, claim not to understand, or eventually dismiss as academic even where demonstrably not.

But it is not _you_ that I am trying to convince. Rather, it is other readers who may be under the impression that the US treaty provides them with more protection from US tax laws than it in fact does.


----------



## BBCWatcher

JustLurking said:


> I said I was not a US citizen, but where did I say I have no US source income or assets?


There was this remark:



> Avoid direct US investments, steer clear of US brokerages and banks, do not own US real estate.


Though now I see you were simply presenting a possible hypothetical. OK then, so decide as you wish. Clearly plenty of non-U.S. persons and other non-U.S. entities are quite comfortable holding U.S. assets, even without tax treaties never mind possible changes to U.S. tax laws and regulations -- and they're increasingly comfortable. But if you're concerned about those risks, no problem: simply divest your U.S. assets.



> I have, and must therefore be on continuous lookout for domestic tax legislation changes that will override my US treaty rights. If they occur, I have more options than US citizens.


Sure, just as you would if you held assets in any other country(ies). These are by no means unique risks. Indeed, the global consensus (as expressed by financial measures) is that the U.S. is _less_ risky than ever relative to the rest of the world in aggregate.



> Each of us must make our own judgement. But neither should you minimize US disavowal of treaty commitments by characterizing as 'interpretation' something which is in fact direct breach of international law.


Except there isn't any applicable international law here much less a breach of it. This is a simple, "boring," two party tax treaty. That Geneva "good faith" standard, for example, is entirely up to the parties to this treaty to decide. There's no United Nations or International Court of Justice that comes riding to the rescue here. Bilateral trade treaties and bilateral "friendship" treaties are of the same ilk. International law (such as it is) simply doesn't have much to say about such treaties.



> Now, I recognize that you personally can _never_ be convinced that the US congress is in the wrong here.


Both houses of Congress and the President have to act in concert to pass new legislation or to amend legislation, or Congress has to override the President's veto. It's a little more than Congress.

I'm rather easy to convince, but I don't need convincing, and whether I'm convinced or not simply doesn't matter. "Wrong" is _entirely_ a matter for the two parties to their agreement to decide, not anyone else. There is nobody else. The treaty doesn't provide for any tribunal, and there is no tribunal elsewhere (in another treaty, for example) that covers this treaty. If the two parties are happy (or at least raise no objections), that's _all_ that matters as a matter of law.

Said another way, if the U.K. government doesn't think Congress/President have done anything "wrong" with respect to this treaty, then they simply haven't as a matter of law. That's how this particular treaty works or doesn't work -- take your pick.

This is all slightly interesting as a philosophical sort of discussion, I suppose, but I'm still not sure what any of this has to do with tax filing.


----------



## JustLurking

BBCWatcher said:


> ... Except there isn't any applicable international law here much less a breach of it.


At least two US Professors of Law disagree entirely with you on that point. You would know this if you had read the academic papers referred to upthread.



BBCWatcher said:


> ... if the U.K. government doesn't think Congress/President have done anything "wrong" with respect to this treaty, then they simply haven't as a matter of law.


Or, again as pointed out in the papers you appear not to have read, the UK government may well think the US has abrogated some treaty commitments, but be unwilling to terminate the treaty because that's the main recourse and the ensuing damage would be worse than living with only a partially effective treaty.


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## JustLurking

BBCWatcher said:


> ... I'm still not sure what any of this has to do with tax filing.


The action point for individual investors here is that they should not place too much faith or trust in tax treaties, and should always have a plan-B. It's not about _filing_ but about _planning_ -- where and how to invest in the first place. Filing is merely tidying up paperwork after acting on prior plans.

Of course this is decent advice that applies across the board, no matter which country or countries are on the other end of the treaty.

However, special consideration should be paid to treaties where one party is the US because the US has a visible track record of reneging (yes, that word again) on tax treat commitments.


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## BBCWatcher

JustLurking said:


> However, special consideration should be paid to treaties where one party is the US....


The world's investors appear to disagree with you, or at least they don't seem to assign much risk premium to this particular hypothesis. Indeed, if tax treaty risks were significant or even non-trivial sources of concern then we'd expect to see European investors, in particular, reduce their U.S. assets since the bulk of the U.S. tax treaties are with European countries. If I'm interpreting CFR's data correctly (and I think I am), we see exactly the opposite. However, if you think your risk evaluation is correct, then it'd be wise to bet against investor consensus. If you're right and they're wrong you might be able to make a lot of money in the financial markets especially if you can figure out which financial assets are most treaty sensitive.

I'm not going to make that bet. I do not see any plausible explanation for how the U.S. would be a "special" outlier in this hypothetical respect compared to a random, typical tax treaty signatory. If anything it's harder for the U.S. political system to pass a new law or amend an existing one in comparison to the average parliamentary system or average absolute monarchy/dictator.

No, sorry, I don't take two random professors' opinions too seriously here. The official, expressed views of the U.K. government with respect to the tax treaty it signed I would take much, much more seriously. I would also take the views of other governments that have signed tax treaties with the U.S. seriously since many of the tax treaties are broadly similar. But where's the parade (or even trickle) of governments officially voicing objections or even concerns about U.S. conduct with respect to its tax treaties? I'm not finding such governmental criticisms, but maybe you can uncover government statements on U.S. tax treaty issues that I haven't been able to find.


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## JustLurking

JustLurking said:


> Whatever source is provided you will discredit or disbelieve, ...





BBCWatcher said:


> No, sorry, I don't take two random professors' opinions too seriously here.


No, of course you don't. But sure, keep on beating on that 'official, expressed views of the U.K. government' straw-man.


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## Bevdeforges

I really think we've beat this one into the ground.
:deadhorse::deadhorse::deadhorse:
Could we give it a rest for a bit?
Cheers,
Bev


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## GregoryN

Hi. My name is Greg. I started this thread. I got sufficiently scared of all this stuff to go to a UKUS tax firm and received this email this morning:
This concerns UK Personal Pensions:
+++++++++++++++++++++++++++++++++++++
1. The fee estimate does not include any time for PFIC analysis.

2. PFICs held through pension plans are not required to be reported. As long as you hold no PFICs outside the pension plans you do not need to send us any PFIC data and we do not need to analyze it.

3. If you do hold PFICs outside the pension plan, we would need your cost basis in any PFIC shares and number of shares held as of the beginning of the Streamline period as a starting point. If that was available on your broker statements as of the beginning of the Streamline period, or you could otherwise provide it, we could avoid incurring additional cost to analyze your broker statements prior to the Streamline period.


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## Bevdeforges

Greg, thanks for sharing that! I think it should help lots of lurkers here.
Cheers,
Bev


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## HelenaP

Ok guys....a quick update here. 

IRS did approve my forms and sent me a refund, BUT instead of 1240$ they sent me only 200$. 
No letters of explanation received, I looked up on line via "Refund Status" and it says: "Your refund has been reduced to pay a past due IRS tax obligation."

I tried to call them but no luck in reaching anyone. How can I find out what's the exact reason for keeping 1K? 
Is it worth battling it from this afar. I am so annoyed with this all, it's incredible. When they take money no probs, when they need to send money back they take advantage of it and invent some fees etc...


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## Bevdeforges

If you can't get a response from the IRS, you may want to consider contacting the Taxpayer Advocate. https://www.irs.gov/Advocate Have not worked with them myself, but had a tax issue with one of the states and used their taxpayer advocate service. Found them to be very helpful - and the reputation of the IRS Advocate is much the same.
Cheers,
Bev


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## HelenaP

Ha...just called NY Advocate office and lady said I have to go into the IRS building to get the answers. 
I didn't even mention that I live abroad. :-x


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## HelenaP

oops sorry that was no-comment smiley not a kiss. (blush)


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## BBCWatcher

Before you get too excited, order a tax transcript from the IRS using IRS Form 4506-T or 4506T-EZ, as applicable. It's free of charge except for the postage stamp. The tax transcript you receive will probably indicate how the part of the refund you did not receive was allocated to your outstanding tax, interest, or penalty liability (as the IRS saw it).

Keep in mind that that anything equal to or less than statutory tax, interest, and penalties is within bounds and will stand if that's what the IRS wants. The IRS has discretion within such amounts. If the IRS doesn't want to grant you Streamlined Program or other relief, it is not obliged to. But if you genuinely did not owe the tax the IRS collected, you have a reasonable prospect of contesting the IRS's decision and winning. So start with figuring out where you stand.


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## HelenaP

Thanks...will do!
First will try to call them again and find out via phone. 

I found it amazing, that they didn't send a letter explaining why they keeping 1K, explained in details....and I had to chase that piece of info from them. Such a waste of time/energy/nerves and yes tax payers money too to finance IRS operations. Shouldn't that be a standard receipt from them, as obviously somebody had to conclude that amount in a first place?

I have a feeling they are hoping nobody will ever ask them for explanation so why not taking advantage. 
But my major issue is from this distance I had to invest in energy and fight 1K back. Me thinking maybe just better leave it. If only 1K would go into poor kids education or health insurance. 

Have I made a mistake not hiring accountant in a first place to help me out with all this?


----------



## BBCWatcher

HelenaP said:


> I found it amazing, that they didn't send a letter explaining why they keeping 1K, explained in details....


Who said they _didn't_ send a letter?

The IRS occasionally sends letters that aren't received. If they don't know how to contact you, or if they only have an old address on file, then you may not receive their correspondence and/or they may not be able to send it.



> I have a feeling they are hoping nobody will ever ask them for explanation so why not taking advantage.


There's nothing so nefarious here. The IRS determined there was an outstanding (overdue) tax bill, and they addressed the outstanding bill first, wiped out your outstanding tax liability (as best the IRS could determine it), then sent you the remaining balance. It doesn't matter whether it's private or public sector. Nobody competent is going to send you money without first checking their records to make sure that you don't owe them money. It's basic Accounts Payable business practice, exactly how you would run your own business, prudently and wisely.

Now, if you have a valid dispute, sure, go ahead and pursue it. But they're not going to send you money and then try to collect it again, any more than your electric company or telephone company would send you money and then try to collect it again. That makes no sense.



> But my major issue is from this distance I had to invest in energy and fight 1K back. Me thinking maybe just better leave it.


Did you owe the money or not, per statutory and regulatory requirements? (Or did you even owe _more_?) Start with the facts about what tax, interest, and/or penalties you legitimately owed, at least as you understand it, then decide how you'd like to proceed. If you think the IRS erred, and you legitimately owed less than the IRS collected, then you have the option to pursue a claim, including via the Taxpayer Advocate for example.


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## Bevdeforges

> Have I made a mistake not hiring accountant in a first place to help me out with all this?


So, would you rather pay the $1000 to the IRS or to a tax accountant?

Start slow and easy. According to the recently closed Paris office: 



> If you are a taxpayer with specific individual or business account questions you should contact the International Taxpayer Service Call Center by phone or fax. The International Call Center is operational Monday through Friday, from 6:00 a.m. to 11:00 p.m. (American Eastern Time):
> 
> Internal Revenue Service
> International Accounts Philadelphia,
> PA 19255-0725 USA
> 
> Phone: +1-267-941-1000
> Fax: +1-267-941-1055



or, for the International office for the Taxpayer Advocate:
https://www.irs.gov/Advocate/Local-Taxpayer-Advocate#PuertoRico

The folks back in the Homeland have no idea how to deal with "international" taxpayers and issues. Always find the office that is assigned to deal with international matters.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> The folks back in the Homeland have no idea how to deal with "international" taxpayers and issues.


Well, that's a bit overstated. Just like any profession -- the medical profession, for example -- there are generalists, and there are specialists. Generalists are still familiar with the fact that there are countries beyond U.S. borders, just like they're familiar with the fact that there are diseases besides the common cold.

If you contact the IRS through any main/regular office, you're likely to reach a generalist. Generalists can and often do provide excellent service. However, if you prefer to work with a specialist, then try contacting the IRS's specialist office -- in this case the office in Philadelphia that Bev mentioned.

But we're assuming a lot of facts not yet in evidence. All we know so far is that the IRS made a determination that there were taxes, interest, and/or penalties outstanding and owed, and the IRS collected them first, then issued a refund for the balance. It's entirely possible the IRS was/is correct in its determination, and that the IRS's determination is entirely consistent with tax regulations and statutes....

....Or not. Unlike the Pope, the IRS is not _infallible_. Occasionally the IRS errs. If you think the IRS erred, and if you want that error corrected, then go ahead and pursue a claim. Just as you would if you think your electric company made a mistake and collected too much money.


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## ForeignBody

BBCWatcher said:


> Occasionally the IRS errs. If you think the IRS erred, and if you want that error corrected, then go ahead and pursue a claim. Just as you would if you think your electric company made a mistake and collected too much money.


But how can anyone reach an informed judgment on whether the IRS have made an error if you cannot get any explanation from them?


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## BBCWatcher

ForeignBody said:


> But how can anyone reach an informed judgment on whether the IRS have made an error if you cannot get any explanation from them?


Already covered above: order a tax transcript first. If you still have questions, write to or telephone the IRS. (I recommend written communication, but it's up to you.)


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## HelenaP

Thank you all!

"All we know so far is that the IRS made a determination that there were taxes, interest, and/or penalties outstanding and owed, and the IRS collected them first, then issued a refund for the balance."

They have had my address on file and I never got a letter from them owning any money. 

I was out of US 365 days in 2014 and I still did paid my taxes on time in April 2015 but I didn't submit papers. Finally I submitted them in October asking for a refund (as I concluded I overpaid them) and I got ripped off for 1K without explanation. 

Now I have to chase for that explanation prior to battling for that $ back. I am annoyed because I am a good citizen and deserve a letter of warning that I owe (if I owe $) rather than paying penalties etc. 

I feel this would never happen if I just didn't pay them more than I should have in April. It's like me offering them to collect money and yes as soon as they saw the opportunity they jumped and kept it. Lesson learned.

Anyways, I will contact Philly office first, then ask for transcript as you suggested. But if transcript is not going to be explanatory into details of what/when/why extra $ taken, that's going to be another time waste. But let's be hopeful...did somebody said time is money...hmmm.

And how bloody annoying to pay taxes into country where I didn't spent a single day in 2014.


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## jbr439

FWIW, I have had good luck calling the 1-267-941-1000 number close to closing time (11pm EST). When calling about 10:30, I don't think I've ever waited more than a few minutes on hold.

Also, FWIW, I've had an issue fixed over the phone when calling (was being incorrectly told I owed $$). That went past closing time but apparently it was (maybe still is) the case that once you have them, you have them.


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## HelenaP

Thanks for that piece of info. Yup...As I type this, I have been waiting for 21 min in line with them, even though they've said waiting time is 4-7 min. No comment. Will wait up to 30min, then will stop and call at 11pm our EU time as you suggested. So so annoying all this...


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## HelenaP

Ok... mistery solved! 24 minutes of holding...to finally talk to someone. 

They just kept the amount I was owed for 2013 taxes, but I was never informed about it !!!!

So they used this opportunity to receive 2014 tax money only to keep what's owed from 2013, even though I did not know about that balance due! 
Failure to pay taxes on time was $800 and $230 was interest on that amount that was growing. 
And when I paid this outstanding balance for 2013 Taxes 6 months ago, over the phone they asked me to pay initial interest for being late 110$, which I did. After that I have not received any warning that more money I should have pay. 
How they come up with $800 failure to pay on time? 

The question is, how I supposed to know about this and can I object at least this interest on this amount as they did not inform me about it at all? They did have correct address on file, she confirmed.
AND also in the argument of how much they charged me for being late with payment, can I use the fact that I was out of USA from Sept 2013 to date? 

To me, it looks like they can do whatever they want to do. Should I just prey that more interest and bills won't come my way because of this? 

So so incredibly annoying...

p.s. Just to say, that year, 2013 I filed and paid my State taxes on time, but Federal taxes for some reason Tax Act only filed and didn't send money to IRS, which I discovered by chance by calling IRS for a different matter 1 year later in May 2015. So yes, I was late in paying 2013 Fed Tax one full year. :-(


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## BBCWatcher

HelenaP said:


> Failure to pay taxes on time was $800 and $230 was interest on that amount that was growing.


There are three major categories of penalties/interest when you pay late (or not at all):

1. A failure to file/late filing penalty. Let's assume this one didn't apply.

2. A late payment penalty. This is normally 0.5% of the outstanding tax owed per month (or fraction thereof) with a maximum of 25%.

3. Interest. This is 3% currently, compounded daily. There is no interest cap.



> And when I paid this outstanding balance for 2013 Taxes 6 months ago, over the phone they asked me to pay initial interest for being late 110$, which I did. After that I have not received any warning that more money I should have pay.


OK, so now we have new information. 

Six months ago was June, 2015. Your tax bill for 2013 was due no later than April 15, 2014. (You may have also owed estimated tax payments. If you didn't make sufficient estimated tax payments during 2013 then that would have been added.) So you were 14 months late (rounded up), plus potentially late on estimated payments. That's the source of the interest and penalties.

Order your tax transcript (as I've now recommended more than once). Take a look at your tax owed and the payments the IRS received. If you feel the IRS should not have charged you penalties or interest, then write to the IRS with your request for relief and your specific justification(s).



> AND also in the argument of how much they charged me for being late with payment, can I use the fact that I was out of USA from Sept 2013 to date?


It makes no difference in tax code terms. Being outside the United States provides no extension of time to pay. It does provide an automatic filing extension (to June 15). (But you can include that fact in your letter if you'd like.)



> To me, it looks like they can do whatever they want to do. Should I just prey that more interest and bills won't come my way because of this?


No, they cannot do "whatever." They can charge statutory interest and penalties. Likewise, you cannot do "whatever." You have to pay your tax bills in full and on time. Otherwise the IRS can charge you interest and penalties. You might have an argument to recalculate your interest and penalties in a certain way.



> p.s. Just to say, that year, 2013 I filed and paid my State taxes on time, but Federal taxes for some reason Tax Act only filed and didn't send money to IRS....


I'm a little puzzled why you'd be confused about this. TaxAct is not a bank. And I'm pretty sure I'd notice when the IRS didn't receive funds from my bank account because my bank account would have a balance that's too large. It wouldn't take me too long to notice that sort of problem -- maybe a couple months. Weren't you at all surprised in, say, late summer, 2013, that your bank balance was bigger than it should have been? Obviously not, but I try to spend a few minutes once in a while just checking what's coming in and out of my bank account. (This used to be called "balancing your checkbook." )

It's highly likely the IRS sent an overdue tax notice to the address you used when you filed your tax return in 2013. If you moved in September, 2013, you simply missed/didn't receive the IRS's letter. The next opportunity the IRS had to collect was when you filed your 2014 tax return (also paid late apparently), and they received your new address at that point in time. All of that makes sense, and it's the only thing the IRS could have done in the circumstances. That all adds up.

For future reference you can file IRS Form 8822 to notify the IRS of a change of address. You can also provide the IRS with a more reliable, "nonvolatile" mailing address on your tax return -- the address at your mail forwarding company, or with a trusted friend or advisor, as examples. You are not required to use the physical address where you live at any particular moment at the top of your tax return. Stick to the address that is the _best way_ to reach you by postal mail.

It was annoying, but I remember exactly the same thing happening to me when I missed a bill from a financial institution and didn't pay it. Fortunately I noticed something was amiss much quicker than you did (within about 90 days), and it took a little while to clean up, but I got it cleaned up. It was my fault. The institution had no reasonable way to reach me since there was an old address on the account. They charged interest and penalties, and we mutually agreed that I'd pay most of them. Of course I wasn't happy, but such things happen.


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## Bevdeforges

Tax Act doesn't do anything about paying your taxes - it just does the paperwork. 

And no, you don't get any "consideration" for having been outside the country the last few months of the year. The other "trick" is that you're actually supposed to be paying in your taxes during the year you incur them - i.e. either having taxes withheld from your salary or other income, or making quarterly "estimated" payments. So the interest actually starts from the quarter the taxes should have been paid (assuming you should have been making quarterly payments) rather than from April 15th of the following year. 

Not sure of the details, but it sounds as if you may have to chalk this one up to "an expensive lesson learned." It might be a good idea to take a long, leisurely read through Publication 54 before the new tax season gets started to get an overview of how all these tax things work from overseas. With the overseas IRS offices shut down, it's going to be more difficult to get assistance from outside the US so it pays to study up a bit on the processes of filing and paying. If you don't have a bank account back in the US, it can get tricky to even make those payments: https://www.irs.gov/Payments
Cheers,
Bev


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## HelenaP

Thank you both and I do agree on all you said/suggested.

But one major point you didn't address. 

When paid regular 2014 Taxes (paid but not filed) in April 2014, they have got my right NL address on file and they asked me to pay 110$ of interest for being late with Fed Tax 2013 along with actual outstanding balance (8K) which I did right away!!!! Person who talked to me did NOT mention it will be more money to pay for this 2013 late payment taxes delay, and I have NOT received any correspondence from them at all regarding this. 
*So why they have address on file when they didn't use it to inform me on this outstanding balance of 800$ that grew to 1K in a meanwhile? *
How I suppose to know that more money I should have paid if no letter in mail? 

It sounds like a trick...they don't inform you...but next time you pay they will keep your refund as much as they like. I wonder if I didn't pay my 2014 Taxes in advance and obviously too much, they might never see the opportunity to take money of me, as this is such a small amount for IRS to bother. 

The main issue here is correspondence with them! The woman I talked to said they have sent 3 notices in 2014 that this had not being paid (June, July and August) and then no correspondence until 23/11/2015 when they sent a letter informing me on extra charges taken from that refund. (this letter I have yet to receive). 
So the interest was growing and I have no idea about it, despite me being in touch with them in May 2015, where nobody mention this extra money owed. 
*
How can I make sure that ALL taxes are paid now and nothing owed?*


That's enough. 

That's why I said, they can do whatever. If I knew about this outstanding balance, of course I would pay right away, as I did when concluded that Taxes 2013 haven't been paid. And a reason for it, it's me moving and not paying attention about it, especially as I did get notice that State taxed had been paid, so I assumed Fed taxes gone trough too.


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## HelenaP

Correction !
"When paid regular 2014 Taxes (paid but not filed) in April 2014...", 
should say 
"When paid regular 2014 Taxes (paid but not filed) in *April 2015*."


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## Bevdeforges

Odd, that they say they sent you notices, but you didn't receive them. There are several possibilities - including that they somehow messed up your NL address, or that something went wrong with either the USPS or the Dutch postal service. (Have had problems in the past with folks in the US trying to "stuff" a foreign address into the fields available in American computer systems. Sometimes critical parts of the address just never appear on the envelope.)

Not sure what you can do about it all, other than being very careful when filling out the 2015 forms (to make sure your current address is done in the "proper" format) and make sure to pay what you calculate you owe when you submit the forms. 
Cheers,
Bev


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## BBCWatcher

At the risk of repeating my advice: (a) get your tax transcript; (b) if you still feel you should receive relief from some of the penalties and interest charged, write a letter to the IRS requesting that relief, stating the facts and the basis for your request for relief as well as you can.

It's possible (a) will answer your question. For example, and as both Bev and I have pointed out, if you failed to make estimated tax payments then the IRS may have assessed additional penalties and interest which are above those and subsequent to those you were informed about when you called. So far you've indicated that you made zero timely estimated tax payments -- or at least you haven't said that you did -- and that's an additional source of penalties and interest. That particular calculation can only occur after you file your tax return.


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## HelenaP

Could be. I am self employed in both 2013 and 2014 (from same 1 employer!), but I didn't pay any estimated taxes throughout these years. 
So you reckon they charged interest for that too, meaning interest actually went from April 2013 - May 2015 ?
Fed Tax 2013 had been filled and accepted on April 2014 but not paid on time. (there was 1 year and 1 month delay in that payment). 

As for 2015 taxes, I am full time resident in NL and I will pay my taxes here. Still got to figure out what papers I would need to present to IRS on that.

Would transcript contain all the details what was charged in penalties, why and how? Never saw one before

Really appreciate all your help here!!!!


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## BBCWatcher

HelenaP said:


> ....but I didn't pay any estimated taxes throughout these years.
> So you reckon they charged interest for that too, meaning interest actually went from April 2013 - May 2015 ?


Surely yes. Moreover, the IRS cannot figure out what you owe when you fail to make estimated tax payments until they get a tax return from you, so that determination is pushed out in time a bit. If you also file late, then that determination is that much later. So it's not surprising to me that the IRS is "running behind," trying to catch up with you.

To correct the estimated tax problem going forward, the best you can do now (since you still haven't made any estimated tax payments, I assume) is to make an estimated tax payment no later than January 15, 2016 (date of receipt at the IRS if you're mailing a check from overseas) for what you think is your full 2015 income tax liability. That'll at least cap the estimated tax arrears damage. Then you'd make quarterly estimated tax payments for 2016 and for future years by these due dates: April 15, June 15, September 15, January 15. Refer to IRS Form 1040-ES for more information.

The U.S. has a pay-as-you-go tax system, like most developed countries. Try to make sure you're paying at least 90% of the tax you owe as you go along to avoid penalties. For example, if you think you owe $5,000 of income tax in the first quarter of 2016, then your estimated tax payment (made by April 15, 2016) should be at least $4,500.

As it happens, I'm expecting some extra U.S. taxable income paid later this month (December, 2015), so my last estimated tax payment (due by January 15, 2016) will be higher than usual. I have to make estimated tax payments every quarter already.

....But see the answer to the next question since it appears your tax situation is changing (or has changed)....



> As for 2015 taxes, I am full time resident in NL and I will pay my taxes here. Still got to figure out what papers I would need to present to IRS on that.


OK. There are no "papers" required per se, but you need to maintain adequate personal financial records in case the IRS has questions.

That said, I'm puzzled again. You filed and owed tax for 2014 in the U.S. But how was it possible to owe U.S. income tax if you moved to the Netherlands in September, 2013? Did you owe U.S. income tax because you had U.S. source income? Otherwise, on your U.S. tax return the Foreign Earned Income Exclusion and the Foreign Tax Credit (especially considering that the Netherlands has a comparatively high income tax rate) should have prevented you from owing U.S. income tax. Or at least that would have been highly likely for 2014.

So, I'm confused. Are you saying you avoided (perhaps improperly?) Dutch taxes all this time?



> Would transcript contain all the details what was charged in penalties, why and how?


I haven't seen a tax transcript with interest and penalties since I tend to avoid those, but it should contain at least some information to help you understand what happened, yes. But you may have to refer to IRS publications and your own tax return to get the full picture. For example, the tax transcript might not tell you what interest rate the IRS used, but the IRS tells you that elsewhere in its publications. (It's 3% compounded daily over this time period.)


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## HelenaP

I didn't move to NL in Sept 2013! I left the US in Sept 2013 and haven't been back since.
I travelled for one whole year and I finally became a resident in NL in Oct 2014 and because I freelanced for US based employer only first 6 months of 2014, I paid taxes in the US for 2014, but I also filled NL taxes too for 3 months of 2014. 
So confusing. :-(

I guess no estimated taxes needed paying in Jan 2016 for 2015 if not US resident anymore. I should just informed IRS that I paid my NL taxes on time (until Apr 2016). No idea on which IRS form that should go to, as Bev said I better study in advance. :-(


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## Bevdeforges

Take a look through Publication 54 - there's much more in there than any of us can explain here on the forum.

However, even if you were working "long distance" for a US company, as long as you were physically outside the US for a solid year (any twelve consecutive months) you could have taken advantage of the FEIE (yes, even if the US employer was withholding US taxes on your pay). That stuff is explained in Pub 54. 

Actually, the IRS doesn't care whether you paid taxes in the Netherlands or not. (Except insofar as you use the Foreign Tax Credit rather than the FEIE.) OTOH, part of the "back taxes" they hit you up with could have been US Social Security ("self-employment tax") if you were reporting yourself as "self employed" during that time.

If you are resident now in the NL, you still have to file US tax forms (if your income exceeds the threshold amounts based on your filing status), but by taking the FEIE (or the Foreign Tax Credit) you shouldn't have to pay anything. Be careful, too, about switching back and forth between methods because depending on your circumstances, that can limit your ability to switch back to the FEIE. BBCWatcher is a fan of using the Foreign Tax Credit (or so it seems), but the FEIE is generally a quicker and easier way to avoid having to pay US tax on salary income while living overseas. (And actually, you can still take the FTC on income that is not excludable under the FEIE.)

https://www.irs.gov/publications/p54/
Cheers,
Bev


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## HelenaP

Thank you Bev.... well, you know how I feel. I feel like I need to hire an accountant to get me out of all this mess. :-( 

Don't even want to mention here 2013 and State taxes (2K), which I didn't need to file and pay and I did pay/file on time (April 2014), as I was out of US most of that year. Gotta ask for a refund, but now too scared they might just find something else to fine me. 

Who can correct all this madness. Shall I hire an accountant? :-(


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## Bevdeforges

Basically, what you would need to do is to file amended returns for the years in question (and you have, I think, 4 years to do that). I would read through Pub 54 before deciding what to do. 

You can do the amendments (form 1040X) yourself. Hiring an accountant might well cost you more than you could possibly get back. Or, you can consider it an expensive lesson learned and go forward. Really up to you, I'm afraid.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> BBCWatcher is a fan of using the Foreign Tax Credit (or so it seems)....


No, I'm simply a fan of not paying more tax than the law requires (unless you wish) and of maximizing tax credits the law allows. And relatedly I'm not a fan of recommending a particular tax strategy that works for you or me personally (I take the FEIE) to others with different situations. Sometimes that means skipping the Foreign Earned Income Exclusion, sometimes not. _Skipping_ a whole tax form is generally _less_ work, as it happens.


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## BBCWatcher

OK, let's take this slowly and carefully....

Let's start with the earliest deadline: tax year 2013. For tax year 2013 you would file a 1040X (amended tax return). Since you were outside the United States for 330 continuous days starting in September, 2013, you can (and should) amend your tax return to claim the Foreign Earned Income Exclusion (based on the physical presence test) from your date of departure in September, 2013, through the end of 2013 -- roughly 3 1/2 months of your income from work depending on your date of departure. You are then entitled to a refund of the income tax you paid on that excluded income plus interest and penalties the IRS assessed on that tax. You are still required to pay the Self-Employment Tax (Social Security/Medicare) on that income unless your employer withheld payroll tax (FICA). You have a deadline of April 15, 2017 (recept at the IRS) to claim this refund.

So that's where you start, and that year (at least) is as straightforward as any. However, I would wait just until you have your tax transcript in hand, then I'd start cleaning up the mess as reasonably quickly as you can since the IRS doesn't pay interest on refunds they owe you.


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