# U.S. Taxes: 8965, Statute of Limitations



## honeybee89 (May 21, 2014)

I have two questions as an american expat living in Germany:

1.) I am not required to file taxes this year because I only have minimal bank account interest income and fall far under the reporting threshold. Is there not a big disadvantage to not filing though, regarding the statute of limitations? The tax professionals all advise yearly filing regardless of whether it is required to establish a consistent record and to rule out problems with the statue of limitations. On this forum filing when not required does not seem to be the norm.

2.)Because of the minimal interest income I am looking at self-filing this year. as paying a tax professional is so expensive and seems silly when I don´t even meet the filing threshold. Last year I had a U.S. accountant firm specializing in U.S. expat taxes prepare my return because I had income over the filing threshold. Regarding the new health care coverage requirement, under line 61 they checked full-year coverage, and included "Form 1095-OTH" (which appears to contain the same information as form 8965) as well as a page of typed notes explaining meeting the residency requirement. Why did they not use Form 8965 with exemption type C, as reading through this forum and the 1040 and 8965 form instructions appears to be correct? This confuses me.

3.) I also don't see anywhere to include physical presence or bona fide residency information when not completing Form 2555. Is this correct?

Tax time drives me nuts as an expat. Hiring professionals doesn't always make it easier either, as there has been tons of back and forth emails in the past taking up lots of time. Ugh. Although it did give me peace of mind. Thanks for any helpful information in advance.


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## BBCWatcher (Dec 28, 2012)

honeybee89 said:


> Is there not a big disadvantage to not filing though, regarding the statute of limitations?


Not really. If you are quite sure you were below the filing threshold, then you always will have been below the threshold for that year, forever. The statute of limitations only really matters if there's some future controversy about what the facts actually were. Often in life there cannot plausibly (or even implausibly) be any future controversy.

That said, there is sometimes some merit in filing a tax return even if you're below the filing threshold. Here are some examples:

1. You are eligible to receive a refundable tax credit, such as the Additional Child Tax Credit or the American Opportunity Tax Credit. A refundable tax credit means your net effective tax rate for the year is negative, i.e. you can receive free money from the IRS. Obviously it would be prudent to file a tax return to claim any free money you're owed. You have to claim any refunds you're owed within 3 years of the tax return's original due date. Otherwise your refund is gone forever.

2. You pay a comparatively higher rate of income tax in a foreign country, and you want to get an excess Foreign Tax Credit "on the books." An excess FTC can help reduce or eliminate your future U.S. tax. You can simultaneously file one or more previous year tax returns in order to "book" those excess FTCs if/when you need them, but sometimes it's just more convenient to get excess FTCs recorded before you might forget about them.

3. You expect to sponsor somebody for a U.S. visa, such as a nonresident alien spouse. You may need some past tax returns to submit as part of the financial tests during the visa process. Likewise, if you (or a child) are trying to qualify for student financial aid, you might need to submit tax returns.

4. You have a nonresident alien spouse who wants to file a joint U.S. tax return with you, even though you don't meet the filing threshold as Married Filing Separately or Head of Household. This might happen if your NRA spouse has a fairly considerable amount of U.S. source income that would ordinarily be taxed at the 30% treaty rate (for example), but a joint filing would reduce the tax rate.



> Why did they not use Form 8965 with exemption type C, as reading through this forum and the 1040 and 8965 form instructions appears to be correct?


I'm not sure. What does your accountant say? But I wouldn't be too concerned about that. If the IRS hasn't even sent a letter, it's not a problem as long as the fact of your situation is as represented (living overseas, exempt). Next time you can follow the instructions better.



> I also don't see anywhere to include physical presence or bona fide residency information when not completing Form 2555.


The physical presence and bona fide residency tests are part of the Foreign Earned Income Exclusion (FEIE). If you're not taking the FEIE, i.e. not filing Form 2555 or 2555-EZ, then those tests don't apply. Caution: Be sure you understand the IRS's rules about flipping back and forth between taking and skipping the FEIE, tax year to tax year. The IRS has some restrictions.



> Hiring professionals doesn't always make it easier either, as there has been tons of back and forth emails in the past taking up lots of time.


I know what you mean. At some point it seems like it's just easier to do it yourself, especially if you're using tax preparation software. (For tax year 2015 OLT and H&R Block have free editions.)

One approach is to do exactly that, to prepare your tax return and any information returns (such as FinCEN Form 114, IRS Form 3520, and/or IRS Form 3520-A, as applicable) yourself, using tax preparation software, then pay a tax professional to review them -- paying somewhat less, hopefully. Many tax professionals will agree to that arrangement.


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## Bevdeforges (Nov 16, 2007)

In addition to what BBC has said, there are a couple places on the IRS website that urge you not to file if you don't have to. (More work for them, I guess.) I think the professional tax preparers' interests are obvious. 

And yes, if you aren't filing a form 2555, there's no place to "invoke" either the physical presence or the bona fide resident thing. It's not the only part of the US tax forms that they wind up having to take your word for.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

I should have also pointed out there's a separate set of lower filing thresholds pertaining to the Self-Employment Tax, so don't miss those if applicable.


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## honeybee89 (May 21, 2014)

Thank you for all the detailed information! If I just don't file, or file without form FEIE because I have no foreign income, then am I effectively skipping taking the FEIE? I clicked on the link but I don't understand my case of not having any FEI. If I don't have any, then why would they have a problem with me not filing the FEIE?


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## Bevdeforges (Nov 16, 2007)

No, not taking the FEIE because you are unemployed or don't have enough income to file is not considered to be revoking your election. If you can't take it, you can't take it. It's only when you choose not to take it that it's considered "revoking" the election.
Cheers,
Bev


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