# US Citizens Tax Issue



## pappabee (Jun 22, 2010)

This week the Guad Reporter had an article titled “Americans living abroad eyeing new IRS laws”. At first glance it is a little scary but after you read along and do a little research it’s really not that bad. I’ve already received over 10 contacts regarding concerns about the article so I did a little research.

First of all every American Citizen must file some form of a 1040 reporting to the IRS both US earned income and any foreign earnings unless those earnings fall below the required reporting amount. Either your employer or, if self-employed you must supply the required reporting forms.
It’s not until recently that non-resident US Citizens have been aware that they must also file a form with the Treasury Department called the FBAR or Foreign Bank Accounting and Financial Records form. First important note that form is only required if your foreign assets are $10,000 or more. I’m not going into the different requirements but enough to say that most US expats need to look over the attached links.

FinCEN Issues Final Rule on Foreign Bank and Financial Accounts Report (FBAR) Responsibilities

Report of Foreign Bank and Financial Accounts (FBAR)

IRS has offered a grace period for people who needed to file a 1040 or a FBAR but didn’t do it. If you think that you might be in default on either filing, please check with your tax professional. 

Starting in 2014 your foreign bank will be required to file a notice with the IRS stating what money you might have in their bank. Please remember that it still will be your responsibility to file the FBAR form, do not depend on some back to do it for you.


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## HolyMole (Jan 3, 2009)

pappabee said:


> This week the Guad Reporter had an article titled “Americans living abroad eyeing new IRS laws”. At first glance it is a little scary but after you read along and do a little research it’s really not that bad. I’ve already received over 10 contacts regarding concerns about the article so I did a little research.
> 
> First of all every American Citizen must file some form of a 1040 reporting to the IRS both US earned income and any foreign earnings unless those earnings fall below the required reporting amount. Either your employer or, if self-employed you must supply the required reporting forms.
> It’s not until recently that non-resident US Citizens have been aware that they must also file a form with the Treasury Department called the FBAR or Foreign Bank Accounting and Financial Records form. First important note that form is only required if your foreign assets are $10,000 or more. I’m not going into the different requirements but enough to say that most US expats need to look over the attached links.
> ...


Being Canadian, I can't comment on this problem.....except to recount that our local CBC Radio last week ran interviews with two ex-pat Americans, both long-established residents and citizens of Canada, who were very concerned about this issue.


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## FHBOY (Jun 15, 2010)

If I understand this, if one has income from Social Security, a 1040 on income from that needs to be filed in any case (depending on limits). Also, any income from an annuity/retirement/investment account in an American institution and depending on the terms and conditions of that account, also will need to be reported and your Mexican immigration status, the old FM2 and FM3 has no bearing on this. Correct? So any income from US sources will require a 1040 regardless of Mexican status - so that has not changed, correct?

Some posters have suggested that rather than set up major bank accounts in Mexican institutions, they maintain an account in an American institution for such income, drawing on it thru ATMs, electronic transfers etc.

This new FUBAR rule, it seems simply to say to me, that if I choose to have an account in a Mexican institution over the $10K limit, I will need to file a separate FUBAR return on income from this account. 

Am I correct, then? Also, an a tangent - do many expats keep funds in Mexican institutions, why? Also what is the relative safety of such funds?


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## DNP (May 3, 2011)

FHBOY said:


> If I understand this, if one has income from Social Security, a 1040 on income from that needs to be filed in any case (depending on limits). Also, any income from an annuity/retirement/investment account in an American institution and depending on the terms and conditions of that account, also will need to be reported and your Mexican immigration status, the old FM2 and FM3 has no bearing on this. Correct? So any income from US sources will require a 1040 regardless of Mexican status - so that has not changed, correct?
> 
> Some posters have suggested that rather than set up major bank accounts in Mexican institutions, they maintain an account in an American institution for such income, drawing on it thru ATMs, electronic transfers etc.
> 
> ...


If you are a U.S. Citizen and you have income, regardless of where it comes from, you must declare it! Whether or not you pay taxes and, if so, how much, is a different matter entirely.


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## sparks (Jun 17, 2007)

Right now my Mexican bank does not have enough info on me to talk to the IRS. Maybe they will start asking more questions in a few years but I doubt it

Why would you have money in a Mexican bank? Probably if you sold a house ... or maybe you need money nearby while building.

The income from a normal account in Mexico is next to nothing


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## TundraGreen (Jul 15, 2010)

The requirement for US citizens to report foreign income to the IRS is not new. That has always been the case. There is an exclusion for people who live outside the US that allows you to earn up to about $90,000 usd without paying US taxes on it, but you still have to report it. 

The requirement to report foreign banks accounts with a balance over $10,000 is also not new. This form is required every June and is separate from filing taxes.

Lately, the US has started requiring foreign banks to report any accounts they hold in the name of US citizens. One consequence of these laws is that banks in some countries will not let US citizens open accounts. The filing requirements are too much trouble, so they just refuse to open the accounts. This has affected my daughter living in Germany already. Sounds like it may be coming to Mexico. That would not be good for those of us that like to use Mexican bank accounts. I think it only affects accounts that pay interest or dividends so maybe those of us with simple, non-interest bearing accounts would be okay.


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## DNP (May 3, 2011)

Careful about that exclusion! There MAY be an exclusion on the "first" 90,000 you earned overseas if, as I recall, you paid income tax on it to the taxing authorities in the country in which you earned it, and for which you have verifiable documentation to prove it, a big and important difference.

Folks, I'm not a tax guy, but as an expat you gotta know some of this stuff.

Many of our Canadian friends may know that right now the IRS in the U.S. is cracking down on U.S. citizens who have lived legally in Canada for many years, have worked there legally for many years, have filed tax returns with Canadian authorities every year, and paid taxes to Canadian authorities throughout the years as required. But many, many of those people failed to report that income to the IRS as required, and they're getting whacked pretty hard right now. They may not have owed taxes in the U.S. on their Canadian income, but the penalties and the interest on those penalties, compounded year after year, for not filing are, for many, substantial right now because they must now pay penalties and the interest from their savings or, for many, from their retirement accounts.

For all too many, this came as a big surprise, although there was nothing new about that requirement either--and for something that so easily could have been avoided altogether.

You know the old saying that you can't avoid taxes or death? Well, that's true for expats too! And not just for U.S. expats either, by the way. 

Remember Render unto Caesar what is Caesar's? Just to say: There's nothin' new here either, folks, Think Ancient Egyptians, the Aztecs, the Incas, the Maya, and on and on, if you think this is something new.



TundraGreen said:


> The requirement for US citizens to report foreign income to the IRS is not new. That has always been the case. There is an exclusion for people who live outside the US that allows you to earn up to about $90,000 usd without paying US taxes on it, but you still have to report it.


WashDC/SMA


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## Guest (Sep 12, 2011)

*DNP quote:
"You know the old saying that you can't avoid taxes or death? Well, that's true for expats too! And not just for U.S. expats either, by the way."*

Please tell me which other developed nation in the world taxes their citizens' income earned outside their country once the citizen leaves their soil......but don't worry, I faithfully file and pay their taxes even if I don't get anything out of the deal. 


*FHBOY quote:*
*"Am I correct, then? Also, an a tangent - do many expats keep funds in Mexican institutions, why? Also what is the relative safety of such funds?"*

No, there is no FDIC / insurance on funds in a MX bank. BUT, there is the currency exchange risk. In the spring of 2009, one could have gotten 15 pesos for each US dollar. This summer, you could have bought back those same US dollars for about 11.50 pesos. On the flip side, the exchange rate can also go against you when holding MX pesos, such as between the summer of 2008 and 2009 when it climbed from about 10:1 to 15:1, and you could lose ...The exchange rate is now climbing once again.

When I first came to MX, the spread (the difference between the Buy & Sell US Dollar exchange rates) was only 0.20. It is now usually about 0.70, a difference of 1/2 a peso for each of your US Dollars, due to the economic uncertainties. Keeping your money in US dollars depends on your faith in the US dollar remaining strong in the future. It seems the times are a-changin'.


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## pappabee (Jun 22, 2010)

I think we all must slow down and smell the roses. I’m not a tax accountant or anything similar but I have been responsible for payroll departments over the years. We all know or should know that we have to report all income on either a W-2 or one of the 1099’s no matter if it’s earned within the US or not. How much, if any, is taxable is for your accountant to say and unless there is an accountant here let’s just leave that to them.

The major reason for my post was the FBAR links. If I were John Munch I’d be yelling to the rafters about more “big brother” involvement in my life. But I’m not so all I can say is the Treasury is not requiring this information in order to tax it but to find out who has what and where. 

I’m not happy but their reasoning might just be sound. How about the guy who is on welfare and collecting food stamps (which we all pay for) but has $300,000 dollars in a Mexican bank account? What about the guy who is able to put $9999.00 (over $10,000 the bank must report it) into a German bank each and every month? Might be suspicious? How about a husband who transfers money into a Swiss bank account each and every month until there is nothing left in his joint account and then files for divorce? These and many more such things happen each and every day (except on bank holidays) and “big brother” is only trying to catch these people. Since I have to pay for much of this I really have a hard time blaming them.

I personally side with the John Munchs of the world and would like to see less government in my life. But since I am a US citizen living in Mexico I don’t think that’s going to happen very soon.

I just wanted to let people know that there is a reporting requirement and provide the links for them to follow.


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## Guest (Sep 12, 2011)

I love the roses (and life) in MX. Sometimes the smell of Washington's fertilizer wafts through and overwhelms their smell though, no matter how far away. 

Thank you for posting the FBAR info, pappabee.


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## Bevdeforges (Nov 16, 2007)

DNP said:


> Careful about that exclusion! There MAY be an exclusion on the "first" 90,000 you earned overseas if, as I recall, you paid income tax on it to the taxing authorities in the country in which you earned it, and for which you have verifiable documentation to prove it, a big and important difference.
> 
> Folks, I'm not a tax guy, but as an expat you gotta know some of this stuff.
> 
> ...


Whoa - let's not get carried away here.

First of all, the requirement to declare worldwide income to the IRS has been around for a long time. It applies to all US citizens, no matter where in the world they live. The Earned Income Exclusion applies to the first $92,000 or so of earned income (i.e. salary-type income) earned while resident outside the US (according to the IRS rules, not whether your local immigration documents are in order). For most folks, this means no taxes actually get paid to the IRS, but they are always "watching."

There is also no requirement that you be paying taxes to your country of residence. (Even the folks working "tax free" in Dubai or for the international civil service get to "exclude" their first $92,000 or so, as long as they declare it in the first place and meet the other conditions for exclusion.)

The FUBAR stuff (yeah, I like that name, too) has also been in place for quite some time, but has only recently become a "big deal" - this involves reporting of "financial accounts" held overseas where the total of such accounts exceeds $10,000 at any time during the year. This includes bank accounts (interest bearing or not), investment accounts (broker accounts and life insurance investments) and any bank accounts where the US citizen has signature authority, even if they don't actually have access to the funds. (If you work for a US company and are a check signer, your employer normally does the reporting of these accounts for you and you don't have to report them on your forms.) 

What's new (at least in the last few years) is additional reporting that falls under something like FATCAT (I only wish this were the real acronym)- basically financial interest in corporations located overseas. This stuff is intended to root out those who have set up bogus or questionable "corporations" overseas designed to divert money and earnings and thus avoid US taxation. The instructions are very loosely worded, so it can be difficult to determine whether the small business you run with your non-resident alien spouse is one of the "certain corporations" that has to report or not. And there is considerable concern that getting the detailed information on these corporations is just the opening wedge for the IRS assuming the right to come in and audit foreign businesses.

OK, filing your requisite 1040 and the FBAR reporting stuff is pretty simple. The FBAR reports ask for the high balance in each account over the year - unless your accounts run into the millions, a good faith estimate usually suffices. Just make sure you're reporting the income from the accounts you disclose on your 1040.

The new corporate reporting, if you are subject to it, is very elaborate and takes considerable time and effort - since you have to translate your company financials into US GAAP statements in US dollars. This stuff really is directed toward finding elaborate tax shelters and money laundering schemes and there is the very valid question of how much time the IRS is willing to waste chasing down small businesses with a part-owner who has US citizenship but is reporting all their income according to the rules and not evading anything.

Up to the individual to determine their own level of risk and what they want to do about it. 
Cheers,
Bev


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## TundraGreen (Jul 15, 2010)

Thanks for the detailed information Bev.

Do you know anything about the requirements for non-US financial institutions to report to the IRS on any accounts held by US citizens? It is my understanding that there are either new or changing rules in this regard, rules that are making some financial institutions refuse to accept US customers, so as to avoid the paperwork.


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## Bevdeforges (Nov 16, 2007)

TundraGreen said:


> Thanks for the detailed information Bev.
> 
> Do you know anything about the requirements for non-US financial institutions to report to the IRS on any accounts held by US citizens? It is my understanding that there are either new or changing rules in this regard, rules that are making some financial institutions refuse to accept US customers, so as to avoid the paperwork.


The US has actually tried to get account information from foreign banks for years regarding account holders who are "US persons" (this category includes more than just citizens). Some banks cooperate (often under the various international programs to root out money laundering and "off shore" accounts used for tax evasion), while others don't. The main threat they have against foreign banks is linked to their connection with the US banking system either via their own subsidiaries operating in the US or through international banking links like the SWIFT transfer system.

I just stumbled onto an interesting little report on this issue that describes rather nicely the various avenues the IRS has to access information on foreign bank accounts: Expat Americans Living and Working abroad: On the IRS Radar And it pretty well emphasizes the idea that the IRS is after taxpayers looking to hide something from them. 

I have heard that some banks are allegedly refusing to take on new US customers, but so far nothing close to home (i.e. haven't heard of it happening here in France or to any of the expats I know personally). Given the range of international requirements related to "off shore" accounts, I strongly suspect these are mostly institutions geared toward potential customers looking to move large amounts of money in and out of the accounts, which is precisely the sort of thing the IRS is looking for (as are the tax authorities of lots of other countries!).
Cheers,
Bev


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## TundraGreen (Jul 15, 2010)

Bevdeforges said:


> ... I have heard that some banks are allegedly refusing to take on new US customers, but so far nothing close to home (i.e. haven't heard of it happening here in France or to any of the expats I know personally). Given the range of international requirements related to "off shore" accounts, I strongly suspect these are mostly institutions geared toward potential customers looking to move large amounts of money in and out of the accounts, which is precisely the sort of thing the IRS is looking for (as are the tax authorities of lots of other countries!). ...


My daughter is a long term resident in Germany and she tells me that investment firms there won't handle US citizen accounts because of the onerous US reporting requirements. I don't know the details.


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## Bevdeforges (Nov 16, 2007)

TundraGreen said:


> My daughter is a long term resident in Germany and she tells me that investment firms there won't handle US citizen accounts because of the onerous US reporting requirements. I don't know the details.


Investment firms are something else again, because it's the investment firms that (up until now) haven't been providing the IRS with the information they want so yes, taking on a US customer does threaten them with additional paperwork.

Might be better to do investing through a bank if that option is open.
Cheers,
Bev


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## JoParsons (Jun 25, 2011)

OH MY GOSH!!! WHAT DID YOU SAY??? Do my dollars turn into pesos if I have my SSA benefits deposited into a Mexican bank? Please, TMI . . . what's the best way to go, bankwise?


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## FHBOY (Jun 15, 2010)

Yep, I'm a John Munch  fan myself - being from NYC and exiled to Baltimore. That being the case, the points about hiding money overseas is spot on. Look, until I rule the world, I'm going to have to live with those who make the rules- c'est la vie!

Just an academic question [not meant to spur controversy], but if the way of US law runs it's normal course, those of us who are not million and billionaires will be the ones who will have to comply with the law strictly. As they say on L&O - there are different rules for the rich.


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## FHBOY (Jun 15, 2010)

JoParsons said:


> OH MY GOSH!!! WHAT DID YOU SAY??? Do my dollars turn into pesos if I have my SSA benefits deposited into a Mexican bank? Please, TMI . . . what's the best way to go, bankwise?


Jo:
[I am not an accountant - I just play one on TV - NOT!]
On other threads one of the clues I've gotten is to keep a US address (maybe your kid or BFF) use that to keep an account open in an American institution and then use the local ATM or EFTs. Have the SSA and any pensions or annuities do an EFT to that account. I believe there was even some talk of using the American Embassy or American Consulate as a depository.

Just my faulty memory - hunt around for it :confused2:


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## Bevdeforges (Nov 16, 2007)

FHBOY said:


> Jo:
> [I am not an accountant - I just play one on TV - NOT!]
> On other threads one of the clues I've gotten is to keep a US address (maybe your kid or BFF) use that to keep an account open in an American institution and then use the local ATM or EFTs. Have the SSA and any pensions or annuities do an EFT to that account. I believe there was even some talk of using the American Embassy or American Consulate as a depository.
> 
> Just my faulty memory - hunt around for it :confused2:


No, you can't use the American Consulate as a depository (if I understand how you mean that) - but in some countries where there are lots of American retirees, the American Consulate handles conversion and distribution of SS payments each month. They get probably the best rate of exchange available because they're exchanging one whopping big transfer rather than a bunch of little ones.

And they then direct transfer the money right into your local account. No need to maintain a US account just to receive the SS payments.

Now, in a John Munch frame of mind, let me just advise you that, should the IRS think you are evading them in some manner, it's those US based bank accounts that can be more easily seized for payment of back taxes and/or fines. Your overseas accounts - even if duly declared - are far more difficult for them to take over.
Cheers,
Bev


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## JoParsons (Jun 25, 2011)

Bev! You are the best!!! Thank you so much for answering more questions than I asked and so clearly even I understood. One more question . . . how do I get the consulate to handle my SSA payments? Do I open an account in a Mexican bank first?


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## Bevdeforges (Nov 16, 2007)

JoParsons said:


> Bev! You are the best!!! Thank you so much for answering more questions than I asked and so clearly even I understood. One more question . . . how do I get the consulate to handle my SSA payments? Do I open an account in a Mexican bank first?


Check the consulate website first of all. If they have a SS office at the consulate, chances are they probably do the conversion and direct deposit of SS payments. Hey, you can always ask.

You probably do need to have a Mexican bank account set up before you can do anything, but they'll be able to advise you at the consulate. This seems to be the relevant page: Federal Benefits | Embassy of the United States Mexico City, Mexico
Cheers,
Bev


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## JoParsons (Jun 25, 2011)

Thank you again, Bev. I contacted the agency in Guadalajara and will go into their office when I get into town; before the bus to Uruapan.


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## makaloco (Mar 26, 2009)

Jo … my Social Security payments have been direct deposited into my Mexican bank account for the past two years. It works fine, and payments are timely. The funds are converted to pesos at quite a good exchange rate, certainly better than I could get on my own. I applied for SS and set up the payments with the Foreign Benefits Unit of the US Consulate in Guadalajara, though I believe the actual funds are sent from the US. All my SS correspondence comes to my address here in Mexico.

You will need the bank account in order to begin the deposits. They ask for the "clave" (printed on the bank statement), or at least that was the case for me.


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## carlton47 (Jan 29, 2010)

TundraGreen said:


> Thanks for the detailed information Bev.
> 
> Do you know anything about the requirements for non-US financial institutions to report to the IRS on any accounts held by US citizens? It is my understanding that there are either new or changing rules in this regard, rules that are making some financial institutions refuse to accept US customers, so as to avoid the paperwork.


One thing to remember is that the reporting on 3520A for accounts includes trusts like a Mexican fideicomiso. Your assets like your house have to be reported on this form even without having a foreign bank account.


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## JoParsons (Jun 25, 2011)

*I love this website*



makaloco said:


> Jo … my Social Security payments have been direct deposited into my Mexican bank account for the past two years. It works fine, and payments are timely. The funds are converted to pesos at quite a good exchange rate, certainly better than I could get on my own. I applied for SS and set up the payments with the Foreign Benefits Unit of the US Consulate in Guadalajara, though I believe the actual funds are sent from the US. All my SS correspondence comes to my address here in Mexico.
> 
> You will need the bank account in order to begin the deposits. They ask for the "clave" (printed on the bank statement), or at least that was the case for me.


I am so grateful for all the help I've received from this website. All of you have been so helpful and friendly and I can't thank you enough for answering my questions so quickly and thoroughly. I believe I'll be making another trip up to Guadalajara after I've opened an account in Uruapan and received my first statement. :clap2: :decision:


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## Tucson (Oct 30, 2010)

IRS form 3520 and 3520A require anyone owning property within the "restricted zone" to file this form. If you own within the "zone", you own your Mexican property through a trust. As the holder of a trust, you MUST (no exceptions, none whatsoever) file these forms. Even if you made no money, even if all you do is occupy your Mexican home and do not rent it out. This IRS info is out there, floating in the ozone, and no American is exempt. There was a grace period to file these forms until August of this year, no matter how many years you have owned your property. We have filed ours, amended past tax returns, and can tell you positively and absolutely it is a real requirement.


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