# Neighbor never filed an FBAR or tax return!



## Alltimegreat1

My neighbor in Germany, who is 55 and a US citizen from birth but has never lived in the US, confided in me that she has never filed a US tax return or FBAR in her entire life. She's also a German citizen by birth.

She recently caught wind of the requirements and the severe consequences for noncompliance, and now wants to get straight with the IRS, government, etc.

She said she has never earned more than €50,000/year and has never held more than €20,000 in her German bank account. I assume she won't need to worry about FATCA.

Can anyone recommend a way for her to get straight on her tax returns and FBARs?

Thanks!


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## underation

Alltimegreat1 said:


> My neighbor in Germany, who is 55 and a US citizen from birth but has never lived in the US, confided in me that she has never filed a US tax return or FBAR in her entire life. She's also a German citizen by birth.
> 
> She recently caught wind of the requirements and the severe consequences for noncompliance, and now wants to get straight with the IRS, government, etc.


What severe consequences?

I never knew US citizens living outside the US were expected to file US tax returns despite having no US-source income. I only heard about it when FATCA came along. I’ve never filed a US return since I left America, many years ago. There have never been any consequences at all.

I would advise your neighbour to think very carefully indeed before getting involved with the US tax ststem.


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## Alltimegreat1

I appreciate your response, but it doesn't seem like you're knowledgeable at all about this issue.

She is involved in the US tax system by virtue of being a US citizen and is thus required to report her non-US accounts each year. Penalties for those who are caught are a minimum of $10,000 per year per account.

The fact that you haven't been caught yet certainly doesn't prove that your strategy is a sound one.


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## underation

Alltimegreat1 said:


> I appreciate your response, but it doesn't seem like you're knowledgeable at all about this issue.
> 
> She is involved in the US tax system by virtue of being a US citizen and is thus required to report her non-US accounts each year. Penalties for those who are caught are a minimum of $10,000 per year per account.
> 
> The fact that you haven't been caught yet certainly doesn't prove that your strategy is a sound one.


It’s not a strategy, and never has been a strategy. I never owed any US taxes because throughout the time I was a US citizen living in the UK, I never had any US-source income. Consequently, I never would have had any requirement to file. It sounds like your neighbour is in a similar position. If so, she has done nothing wrong and has no need to be fearful.

When FATCA came along, I renounced, so that my bank accounts wouldn’t be treated as reportable to the US. I sent the IRS the expatriation form, to inform them, truthfully, that I had renounced, and to confirm, truthfully, that I was compliant with US tax requirements.


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## Alltimegreat1

OK so you cleared up everything and then renounced. Got it. That wasn't clear from your first response.

She's obviously in a different situation than yours since she has neglected to file throughout the FATCA years.

Maybe there's some sort of streamlined procedure that she can use.


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## underation

Alltimegreat1 said:


> OK so you cleared up everything and then renounced. Got it. That wasn't clear from your first response.


No. There was nothing that needed to be cleared up.



> She's obviously in a different situation than yours since she has neglected to file throughout the FATCA years.


No - FATCA had been in place for several years before I heard about it. If your neighbour has no US-source income, she’s in the same position as I was in all those years - compliant with US tax law because she never had any income that she needed to report to the IRS in order to pay US tax.


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## Nononymous

Your neighbour needs to stay the hell away from tax advisors, accountants, and anyone else who will advise her to enter the US tax system - which might include you!

If her only connection to the US is place of birth, she should not be filing returns or FBARs, period. This may be what US law requires, but (1) the IRS does not know that she exists, so cannot assess penalties, and (2) any penalties it tried to assess would be completely unenforceable in Germany.

Here's a bit of boilerplate advice I save for these occasions. Please pass it on to your neighbour before she does something expensive, foolish and unnecessary.

--

If you are an "Accidental American" - a dual citizen who has lived all or most of your life outside of the US, with no US financial ties - and you discover that you have US tax filing obligations, the absolute WORST thing you can do is rush off to a tax advisor and begin preparing US tax returns. 

Stop, slow down, do some research. If the IRS hasn't found you yet, they aren't going to find you anytime soon. Furthermore, if you are a citizen in your country of residence, and have no US assets or income, the IRS has absolutely no ability to penalize you in any way, shape or form. (Unless you live in Switzerland, in which case all bets are off.)

The most likely trigger for Accidentals discovering their filing obligations is a FATCA/CRS letter or question from their bank. The best response is to simply answer "no" to any questions about US citizenship or tax residency. In come countries (e.g. Canada) simple self-certification is all that is required, one small lie and the problem is solved. In other countries (e.g. Switzerland) enforcement is taken more seriously and there are significant restrictions on the services available to US citizens. If you are born outside the US, it is easy to conceal US citizenship and continue with life undisturbed. If however you have a US birthplace on your national ID, life can be quite difficult and often the only option is to renounce US citizenship at a cost of $2350. (Note that you do NOT need to become tax compliant to renounce, nor do you need to pay any exit tax the US might think it has a right to collect.)

Even if you are subject to FATCA reporting, that does not mean the IRS will come after you, as they would have no ability to collect penalties. Whether you renounce or not, there is no reason to become tax compliant. Accidental Americans who discover these obligations should NOT enter the US tax system.


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## Nononymous

And the reasons for not filing even if nothing would be owed - which would be the case for anyone who with €50k yearly income from employment, which could be written off under the FEIE - are as follows:

- better to preserve anonymity by staying out of the system (even if subject to FATCA reporting, if that can't be avoided)

- there can be various issues with pensions and investments and so on where US taxes can in fact be owed, even if there's never been US-source income

- compliance costs if one is not prepared to do the filing themselves


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## Alltimegreat1

Your advice and information mostly contradicts that information provided by authorities on the topic such as Americans Overseas.

https://americansoverseas.org/en/kn...liability/renouncing-us-passport-citizenship/


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## Nononymous

underation said:


> If your neighbour has no US-source income, she’s in the same position as I was in all those years - compliant with US tax law because she never had any income that she needed to report to the IRS in order to pay US tax.


In real-world terms this is certainly the case - we know that the IRS does nothing at all to pursue non-compliant non-resident US persons with no US income or assets, despite FATCA and the associated fearmongering - but strictly speaking this is not correct. Under US law there is an utterly unenforceable requirement for all US citizens worldwide to file tax returns and FBARs if they meet certain thresholds. 

Not something I wish to debate further, as a big fan of US citizens outside the US never becoming compliant, but I do feel the need to point out that yours is perhaps a slightly _eigenartig_ interpretation of US tax law.


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## Nononymous

Alltimegreat1 said:


> Your advice and information mostly contradicts that information provided by authorities on the topic such as Americans Overseas.
> 
> https://americansoverseas.org/en/kn...liability/renouncing-us-passport-citizenship/


Indeed it sometimes does.

You can renounce completely independent of your US tax compliance status. It's between you and the State Department. They will not ask if you've been filing. If you renounce without coming into compliance before or after, or fail to file form 8854 and deal with potential exit tax, then you have not formally left the US tax system, and the IRS will consider you a "covered expatriate" and you might even owe a tax bill. This is however completely meaningless for someone with no connection to the US, as the IRS has no ability to collect outside US borders. With nothing filed you will still cease to be a US citizen and will receive your CLN, which is the document you need to take to your bank and make them stop reporting you under FATCA and, in some cases, stop restricting the products and services they make available (US citizens do suffer from this discrimination in some countries).

That is what Americans Overseas means when they say "Yes and no, you can renounce your US citizenship but be aware that renunciation may have no effect whatsoever on your US tax obligations."

Be aware that US expat organizations are loathe to promote non-compliance. Doing so would hurt their (weak) efforts to lobby on behalf of ending citizenship-based taxation, or in the case of partisan groups, register voters abroad. Exercise caution when dealing with advice from these organizations. A better source of practical non-compliance information is the Isaac Brock Society (the folks behind the Canadian lawsuit against FATCA reporting) and the "American Expatriates 2.0" Facebook group.


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## Bevdeforges

Basically, I agree with what Nononymous has to say. In practical terms, however, it's up to your neighbor what she wants to do (whatever lets her sleep at night).

First point, in any event, is that if no one has "caught" her by now, it's highly unlikely anyone is going to catch her now. 

Second point is that, with the income and savings levels you describe, she doesn't owe any taxes to the US - which leaves her a couple of options. Either you "don't fix what ain't broke" and just continue along as she has been doing, or she can file under the "Streamlined Compliance Program" - https://www.irs.gov/individuals/int...-taxpayers-residing-outside-the-united-states

For those living outside the US, the only "penalty" is payment of "interest" on any amounts due - and if she owes nothing, then any % of 0 is 0. In net terms, the streamlined compliance thing requires filing the current tax year (i.e. 2018 at the moment) plus 3 years of back filings (2017, 2016, 2015) plus 6 years of back FBARs. (FBARs must be filed online - there IS a penalty for filing FBARs in paper format.)

It's a lot of work, and the IRS doesn't even acknowledge when the back filings are "accepted." And then she'll have to continue to file going forward (because she's on their radar). But, as long as she hears nothing from the IRS (and she won't) she is fully exonerated.

One other consideration is that to file US tax returns, she must have a US Social Security number. If she didn't get one at birth (not sure when they started issuing those along with the US birth certificate), it can be a long and tedious process to get one for the first time as an adult. Check with the US Consulate in Frankfurt if she needs a SSN (just check their website - there should be some information there on the process). 

Just one other note, under the German tax treaty with the US, just about all pensions are taxable only by the German authorities, so that's not an area of risk, even if she were to be somehow eligible for US SS benefits. Technically speaking, not filing at all isn't exactly "kosher" - however the IRS has little or no time to bother with overseas residents who owe no US taxes. (The IRS budgets and manpower seem to get cut more and more these days.) 

But, the choice is up to your neighbor.


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## underation

Nononymous said:


> Under US law there is ... [a] requirement for all US citizens worldwide to file tax returns ... if they meet certain thresholds.


Yes, I learned about that after several decades of not filing yet never being told to file.  

I never met the threshold because I had no US-taxable income. You think I probably did, but you’re mistaken. You may be confusing treaty provisions with US tax law.

The treaty allows the US to tax a USC’s residence-country income which isn’t fully taxed by the residence country; all that means is that the residence country doesn’t have to allow credit for that tax (because it’s voluntary). 

Because it’s voluntary, the USC doesn’t have to pay it; but if s/he reports it to the US as US-taxable, US tax will indeed be due.

There is simply no need for all this fear and hiding. Either stick to investing and earning in your residence country, as I and the OP’s neighbour did, and don’t get involved with the US tax system; or if you do have US income (or if it just makes you feel better), file your returns, reporting your worldwide income, claim tax credits where allowed, and pay the resulting tax due.


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## Nononymous

The filing threshold is for worldwide income, not US-source income, according to the IRS. All worldwide income is US-taxable but there be exemptions (FEIE and FTC) that reduce, but may not entirely eliminate, US taxes owed. But I swore I would not debate...


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## underation

Nononymous said:


> The filing threshold is for worldwide income, not US-source income, according to the IRS.


Unless exempt by treaty. Income for which the US doesn’t have the taxing rights is exempt by treaty. You can leave it off, or you can report it to claim tax credits. Or, if your taxable income is under the threshold, you can just not file.


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## Alltimegreat1

Thanks to everyone for the useful information.

She recently obtained a SSN and plans to retain her US citizenship and passport and travel to the US frequently.

She definitely wants to get caught up. Is there anything in particular to watch out for when doing the streamlined filing?


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## Bevdeforges

Alltimegreat1 said:


> Thanks to everyone for the useful information.
> 
> She recently obtained a SSN and plans to retain her US citizenship and passport and travel to the US frequently.
> 
> She definitely wants to get caught up. Is there anything in particular to watch out for when doing the streamlined filing?


Basically, for everything on both the filings and on the statement of why you haven't filed, keep it simple, direct and to the point. The point of the back filings is to show that you don't owe anything. The point of the statement is simply to state that you live outside the US and have had no reason to know or believe that you were "supposed" to be filing. Mention that she has only recently become aware of the filing requirement and leave it at that. 

They really don't follow up on any of it as long as it's clear that the person owes no tax and probably never will. 

What I would suggest is to file first the current year (2018) return. Then file the 3 back years together, following the instructions for the Streamlined Compliance (has to be marked up in a particular way - and you file all three years together, with your "statement" of why you haven't been filing on the top). Do the FBARS per their instructions online. There is no real rush to get it all in - the deadline for the 2018 filing is effectively October, but try to get it in as soon as possible. There are "new" forms for 2018 so doing the back filings will be a little trickier than the 2018 filing. 
But with a simple financial life it's usually just a matter of slogging through them to get them done.


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## Nononymous

Alltimegreat1 said:


> She recently obtained a SSN and plans to retain her US citizenship and passport and travel to the US frequently.
> 
> She definitely wants to get caught up. Is there anything in particular to watch out for when doing the streamlined filing?


Some people are just more comfortable following rules. We call them Germans.

On a more serious note, if she's concerned about the cost or risk of compliance she can quite safely continue ignoring these obligations, and still travel to the US or renew a US passport.


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## underation

Bevdeforges said:


> They really don't follow up on any of it as long as it's clear that the person owes no tax and probably never will.


Exactly.

File streamlined, and thereafter file a US return every year; or carry on filing nothing; or go into hiding: the outcome will be exactly the same, for a resident of a treaty country receiving only residence-country income.

All’s well.


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## underation

Nononymous said:


> Some people are just more comfortable following rules.


While some get a kick out of feeling they’re getting away with breaking rules and evading (imaginary) pursuit.


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## Bevdeforges

Your interpretation of the "rules" is a little bit unique, though as you say, the outcome tends to be the same. Net-net, the IRS does not have the resources to hassle overseas citizens/taxpayers who have a net $0 tax bill. Tax treaty or no tax treaty. Use this information in good health however you wish.


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## underation

Bevdeforges said:


> Your interpretation of the "rules" is a little bit unique


Actually, it isn’t. It’s just the same common-sense assumption that most governments and taxpayers everywhere operate on: i.e, residence-based taxation.


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## underation

That’s what I assumed when I moved to Britain, many years ago. HMG made the same assumption, and helped itself to its share of my pay every month, just like clockwork. The IRS also never expressed any concerns about my RBT habit.

The only people who’ve ever taken a different view have been expat US citizens.


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## Nononymous

underation said:


> Actually, it isn’t. It’s just the same common-sense assumption that most governments and taxpayers everywhere operate on: i.e, residence-based taxation.


In which case there's no "going into hiding" and no rules to break or (imaginary) pursuit to evade.


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## underation

Nononymous said:


> In which case there's no "going into hiding" and no rules to break or (imaginary) pursuit to evade.


Indeed. Pay tax to the country that has the taxing rights and no tax agencies will be “coming after you.”


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## Nononymous

underation said:


> Indeed. Pay tax to the country that has the taxing rights and no tax agencies will be “coming after you.”


So sad, I'll miss getting a kick from feeling that I'm getting away with breaking the rules.


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