# Non "active" US citizen tax requirements?



## aussieex

Hi All,

I had a look through the forum but didn't exactly find an answer.

I am a dual national between Australia and USA.

Basically I was born and grew up in Australia, my Mum is American and when I was born she applied for a USA passport for me, as she thought it would be a useful thing to have in the future.
As a child I held both a Australian and American passport but I no longer have an active American passport. 

I have never lived or worked in America.

I am 30 now and I am trying to work out if I should have been doing both Australian and American tax all this time?

Any advice would be great.

Thanks


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## Bevdeforges

Theoretically, yes, you should be filing US tax returns for any year that your worldwide income exceeds the filing thresholds. (Filing thresholds depend on your age and family status - i.e. married, single, head of household, etc.)

The IRS website has a little questionnaire that will tell you if you should file or not: Do You Need to File a Federal Income Tax Return?

Click on the yes or no at the bottom of the page as appropriate and it will take you to the next question. 

Practically speaking, if you owe no US taxes, you have no particularly large financial investments (say, no more than $200,000) and you aren't planning on moving to the US in the near future, you can probably continue to fly under the radar until you have reason to get square with the US IRS. You're unlikely to owe any back taxes if most of your income is from salary and your salary income is less than about $100,000.

The usual procedure if and when you do want to take advantage of your US citizenship in some way is to file four years of back taxes (six, if you have significant investments and fall under the FATCA requirements) to demonstrate that you owe no back taxes. The FATCA stuff is fairly new, though, and it's not certain how aggressively the IRS is going to pursue compliance, particularly for those resident outside the US. 
Cheers,
Bev


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## jimmyjam

*There is nothing "theoretic" about it....*

I am surprised at this answer and the tone which seems to say, no biggy, don't worry about your US filing you probably won't have a problem.

If you have ever held a US passport, if you were born in the US, if your parents were American, you MUST keep up to date on your US filing requirements.

I say filing, and not taxes, because indeed there is a pretty good chance you may not owe any US taxes.

However if you have ever had a bank account balance over 10,000$ on ANY account over which you have signing power (even if it is not your money), you are subject to penalties of minimum 10,000$ per account per year simply for not informing the treasury department of these accounts.

You must file a FBAR every year you have signing power over 10,000$ on an account outside of the US or you could have your entire savings confiscated by the IRS.

This is not something to take lightly or nonchalantly.

Others will perhaps tell you "don't worry, no biggy, they are not going after people like you".

I can tell you that there are hundreds of thousands of people that ARE worrying, that are spending thousands of dollars to come into compliance and understand the situation, and who are facing sleepless nights over this situation.

Welcome to the club.


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## Bevdeforges

OK, put it another way - legally you are supposed to file. And, yes, there are those awful penalties if you get caught not filing when you should have done so. There are also thousands of folks resident overseas who are not aware of their obligation to file and for one reason or another have never been hassled about it. It really depends on your situation, your income, your "need" for a passport or other benefit of being a US citizen.

I'm not saying don't file. But if you haven't been filing, you need to assess your own risks before getting all stressed out about things. Often, a good faith effort to catch up will work wonders even if the filings aren't perfect. OTOH, if you catch the eye of the IRS for some reason, you're up the old creek without a paddle. But it's up to you exactly how much angoisse you want to put yourself through.
Cheers,
Bev


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## RødGrød

Yes, you should have been filing US taxes the whole time. You probably won't own anything, but be aware that the IRS does not consider the Australian superannuation fund to be tax deductable and you should be filing an FBAR for it.


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## jimmyjam

*Not only retirement funds, but future investments in everything....*



RødGrød said:


> Yes, you should have been filing US taxes the whole time. You probably won't own anything, but be aware that the IRS does not consider the Australian superannuation fund to be tax deductable and you should be filing an FBAR for it.


Just to add on to RodGrods post;

Depending on your situation, if you have been lucky enough to inherit or make a retirement nest-egg for yourself already, it is indeed very possible that some of your income which is low taxed or not taxed in Australia, will be taxed by the US and you will owe US taxes. Any retirement fund or investment in Austalian patrimonial fund etc. must be reported on multiple forms and taxes paid (sometimes even on non-realized capital gains to avoid penalizing tax when you do sell it)...

Any sale of Australian real estate must be reported, eventually US capital gains taxes paid on it.

Basically, as a US citizen abroad, you are not allowed to take advantage of any retirement tax incentives given by your country as it will be taxed by the US.

If you give anything to your non-citizen husband or non-citizen children, you must declare and pay taxes on that. If you receive a gift from your parents, either they are US citizens and must declare it and pay gift tax on it, or if they are not us citizens you must declare it (high penalties for not knowing about this).

If a US citizen abroad dies, his entire estate is subject to US estate tax (even if you are above the threshold there will be expensive legal counsel fees to deal with for your family abroad).

If you start up your own business in Australia you will have to perform US accounting on reporting everything and subjecting it to US tax as well as eventual IRS scrutiny and audit.

What's more, the forms change every year, for the past 7 years getting more and more complicated each time.

Every time you make any financial move in your daily life you will have to think about the US tax consequences, penalties, and cost of compliance.

After coming into compliance and trying to live like this, you will probably after a few years decide to renounce like so many people are preparing to do today.

see Why people expatriate | HodgenLaw, PC


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## Bevdeforges

Hey, Jimmyjam, you're entitled to your opinion - but I do wish you'd get it straight about "gift tax" declarations. A gift tax declaration is just that, a "declaration." The "tax" part usually doesn't get settled until after the death of the giver, at which point the gift is lumped back in with the estate when they're figuring out how much estate tax is due.

And, at present, only those with $5 million in assets at the time of their death (or who have given away at least $1.5 million before hand) even have to bother filing estate tax - and this includes those of us living overseas. 

If you've got that level of assets, I reckon you can afford tax assistance. For the run of the mill expatriated US citizen, the filings are an inconvenience, but certainly not worth the going rates for overseas CPAs, tax lawyers and the $450 renunciation fee I hear the consulates are asking these days.
Cheers,
Bev


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## jimmyjam

*gift tax declaration*



Bevdeforges said:


> Hey, Jimmyjam, you're entitled to your opinion - but I do wish you'd get it straight about "gift tax" declarations. A gift tax declaration is just that, a "declaration."
> If you've got that level of assets, I reckon you can afford tax assistance. For the run of the mill expatriated US citizen, the filings are an inconvenience, but certainly not worth the going rates for overseas CPAs, tax lawyers and the $450 renunciation fee I hear the consulates are asking these days.
> Cheers,
> Bev



Yes, it is a declaration, but if you didn't know about it and report it (I think you have 90 days or something), there is a 30% penalty!

So you must keep up on filing and reporting obligations of every imaginable financial transaction.

You are right if you only have earned income, you have no investments or assets, no inheritance, if you don't hold shares or control a small company... you probably can stay a US citizen.

What about the hundreds of thousands of Canadians in the US and Americans in Canada who are now facing confiscation of their hard earned retirement simply because they did not declare their Canadian RRSP.

I truly do not believe that these tax policies only impact the "rich".

Did you even have a look at the excellent article I posted?

Why people expatriate | HodgenLaw, PC


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## Bevdeforges

The IRS has launched one of its typical "shock and awe" campaigns in Canada over this FATCA and FBAR stuff. Their targets are those who are actually hiding investments and/or income.

The "excellent" article you keep citing is fairly typical of the type of "professionals" looking to drum up business by panicking the herd into steps like renouncing their US citizenship. (They certainly have a vested interest in all those fees generated by folks bringing their tax declarations up to date only to renounce formally.)

When you get credible word of anyone resident outside the US being hit with the full force of the FATCA fines and penalties due simply to having a legitimate retirement fund (in Canada or elsewhere) or other run of the mill investments, you come back and let us know. 

But until that point, individuals need to consider for themselves what their risk profile is and decide for themselves how much time and effort they are willing and able to put into fulfilling their US filing obligation.
Cheers,
Bev


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## Mona Lisa76

jimmyjam said:


> Just to add on to RodGrods post;
> 
> Depending on your situation, if you have been lucky enough to inherit or make a retirement nest-egg for yourself already, it is indeed very possible that some of your income which is low taxed or not taxed in Australia, will be taxed by the US and you will owe US taxes. Any retirement fund or investment in Austalian patrimonial fund etc. must be reported on multiple forms and taxes paid (sometimes even on non-realized capital gains to avoid penalizing tax when you do sell it)...
> 
> Any sale of Australian real estate must be reported, eventually US capital gains taxes paid on it.
> 
> Basically, as a US citizen abroad, you are not allowed to take advantage of any retirement tax incentives given by your country as it will be taxed by the US.
> 
> If you give anything to your non-citizen husband or non-citizen children, you must declare and pay taxes on that. If you receive a gift from your parents, either they are US citizens and must declare it and pay gift tax on it, or if they are not us citizens you must declare it (high penalties for not knowing about this).
> 
> If a US citizen abroad dies, his entire estate is subject to US estate tax (even if you are above the threshold there will be expensive legal counsel fees to deal with for your family abroad).
> 
> If you start up your own business in Australia you will have to perform US accounting on reporting everything and subjecting it to US tax as well as eventual IRS scrutiny and audit.
> 
> What's more, the forms change every year, for the past 7 years getting more and more complicated each time.
> 
> Every time you make any financial move in your daily life you will have to think about the US tax consequences, penalties, and cost of compliance.
> 
> fAfter coming into compliance and trying to live like this, you will probably after a few years decide to renounce like so many people are preparing to do today.
> 
> see Why people expatriate | HodgenLaw, PC


I agree with Bev that these attorneys are exaggerating things to drum up fear and thus business, it is indeed true that many US persons abroad could wind up owing substantial US taxes on what are tax-free situations where they live. I will have had to pay close to $12,000 in phantom capital gains taxes on mutual funds where I live, even though they had tax-free status where I live. The US doesnct recognize these types of foreign tax free invrstments...I'd made the mistake of going native as i hadn't been aware of the continued US taxation. Turns out there are clauses in the tax treaties that still allow for double taxation for US persons...the UK will not protect me from this...I am very upset but had I sought the proper professional advice, wouldn't have ended up in this mess, sp blame myself...it's harsh but I should have known.


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## RødGrød

Bevdeforges said:


> The "excellent" article you keep citing is fairly typical of the type of "professionals" looking to drum up business by panicking the herd into steps like renouncing their US citizenship. (They certainly have a vested interest in all those fees generated by folks bringing their tax declarations up to date only to renounce formally.)


Actually, Hodgens is a very nice, fair and funny guy and if you read through his blog you will see that he is definitely not trying to panic the "herd" into renouncing. His are some of the most intelligent, matter-of-fact, calm posts I have seen on this whole business. 

I know one Americans here who has had to resign from a board post because of FACTA. And I know another American small shop owner who is seriously considering renouncing because of the insane IRS reporting requirments for businesses. She never ends up owing anything but the paperwork costs her a great deal of time and money every year. It is more than an "inconvenience"; it is a serious hassle!


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## Mona Lisa76

However, though I should have known, it's only been recently that the IRS has been actively enforcing FBAR and expat tax compliance. The forms are so complicated that I now consider it too risky not to continue paying a specialized accountant....this is effectively a further tax on tax but don't want to risk fines for getting things wrong. It's the pricr of my US citizenship, I suppose...


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## Bevdeforges

RødGrød said:


> I know one Americans here who has had to resign from a board post because of FACTA. And I know another American small shop owner who is seriously considering renouncing because of the insane IRS reporting requirments for businesses. She never ends up owing anything but the paperwork costs her a great deal of time and money every year. It is more than an "inconvenience"; it is a serious hassle!


Would be interested in a few more details of the guy who "had to" resign from a board post (corporate or association?). And, the instructions I saw for reporting ownership interest in a business apply only to "financial investment" ownership, not where you're working in the company and being paid a salary.

But her accountant may disagree, or there may be facts and circumstances that explain the difference in treatment.
Cheers,
Bev


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## LKWIT

I agree that the US are trying to "drum up fear" and they are succeeding and spreading the net very wide. My situation is that I am an Amercan citizen by birth and hold an Amercan passport. I am also a British national which I took up over 14 years ago. I moved to England when I was 9 years old (I am now 56) and since then I have never lived or worked in the States. Although working as an accountant for the past 30 years I was totally unaware that I should have been filing returns with the IRS and the situation only arose as a result of an interview with my Financial advisor. The US are requiring any financial company with dealing with the States to disclose any Americans on their books. It is now my problem and can no longer fly under the radar even if I wanted to.
Just one question - how on earth do I go about applying for a SSN? I so not live anywhere
near the US embassy in London and I understand that you have to apply in person?


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## Bevdeforges

OK, you do have to present yourself in person to apply for a SS number, however, you don't have to go to the Embassy in London. Social Security Numbers | Embassy of the United States

You have the option to go to Belfast or Edinburgh, if you prefer. Or, you can go to another US consulate, if that's more convenient.

The FAQ gives you the rest of the information you need.
Cheers,
Bev


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## swisspinoy

LKWIT said:


> I agree that the US are trying to "drum up fear" and they are succeeding and spreading the net very wide.


It's silly, but don't let yourself be bothered with that. Simply do your thing, follow the law, be a good citizen and if the US government creates unnecessary trouble for no reason, then renounce.


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## LKWIT

Thanks Bev


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## gjjd

My firm is currently working with 3 clients who 'were flying under the radar' and were found and assessed by the IRS - One in Australia whose accounts were frozen and liquidated @ US $100,000 - one is in Austria who discovered he was 'found' when his ATM card failed to work and discovered his account had been seized and one in Canada who was assessed and is required to file 6 years of both personal returns, business returns and FBARs. 

In all cases no taxes were actually owed. Their only violation was that they failed to file.

As opposed to drumming up fear, when clients come to our firm they are most often quite rattled and genuinely scared because their fiscal lives have been frozen and part of our work is offering the reassurance they need to see themselves through to becoming whole with the IRS.


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## swisspinoy

aussieex said:


> Hi All,
> 
> I had a look through the forum but didn't exactly find an answer.
> 
> I am a dual national between Australia and USA.
> 
> Basically I was born and grew up in Australia, my Mum is American and when I was born she applied for a USA passport for me, as she thought it would be a useful thing to have in the future.
> As a child I held both a Australian and American passport but I no longer have an active American passport.
> 
> I have never lived or worked in America.
> 
> I am 30 now and I am trying to work out if I should have been doing both Australian and American tax all this time?
> 
> Any advice would be great.
> 
> Thanks


That's something you'll have to decide. Either you can file US taxes for the rest of your life and possibly be double-taxed or maybe even penalized, or you can choose to be more Australian and not have to worry or deal with that. I think that this might be a tough decision and only you will know what is best.


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## Mona Lisa76

I suspect that GJJD is spamming...but for what it's worth, my understanding is that the IRS rarely can directly freeze or seize assets from a non-US account...they would have to pursue such seizures through the foreign courts. However, many expats retain much of their assets in US accounts and investment funds which could be targetted by the IRS as lower hanging fruit. 

The real reason why people need to start filing if they haven't already been doing so is because with FATCA, it will become a lot easier for the IRS to sniff out undisclosed foreign accounts. It will be after FATCA is fully implemented that things will get nasty if people haven't come into compliance. 

In the meantime, I believe they are still accepting good faith efforts to comply and get into compliance. It will mean a growing market for cross-border tax preparers.


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## gjjd

Lisa, Unfortunately the reality is all too real (and painful). One example is here - http://expateverydaysupportcenter.com/why-i-didnt-file-us-income-taxes-and-what-happened/


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## Mona Lisa76

gjjd said:


> Lisa, Unfortunately the reality is all too real (and painful). One example is here - Why I didn’t file US Income Taxes – and what happened | Expat Everyday Support Center


But I'm sure the IRS cleaned out is US-based account rather than his local accounts where he lived.

Plus, he sorted it out and even got interest 

I believe that a lot of Americans overpay their estimated taxes so they can subsequently receive a refund with interest added, especially with banks hardly paying any savings interest.


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## gjjd

As long as you're sure, Lisa, but you do not happen to be right. Same has occurred with a client in Australia. This is all I have to say about this.


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## Bevdeforges

I think it's pretty clear from the article referenced that it was the US accounts of the taxpayer that were cleaned out by the IRS. That's the normal result of taking the "I don't have to file because I don't owe anything attitude." By not filing, you leave all your tax years open forever. File, and declare your income and there is a statute of limitations in place. If they don't find your "errors" within a few years (4, last time I checked, but it may have changed), then you're home free. 

Mona Lisa is right, though, in that it will be easier for the IRS to track down non-compliance with FATCA stuff when (and "if") foreign banks comply with that particular legislation. The reporting isn't quite as onerous, but many European governments are requiring reporting of certain types of foreign accounts. Here in France, I have to report my overseas bank and "life insurance" accounts each year as part of my tax returns. It's an international effort to combat money laundering launched by the OECD (though I admit the US is taking this to the extreme).

And, there is some comfort in the IRS' recent press release on non-compliance which gjjd shared with us: http://www.expatforum.com/expats/ex...nt-new-irs-guidlines-re-back-taxes-fbars.html
Cheers,
Bev


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## gjjd

*Right is right and I was wrong - sorry*

I thought the stand up thing to do would be to let folks here know that I checked with the CPAs who worked on the client accounts that were frozen and they were, indeed, US based accounts.

The seizures, penalties and interest, professional fees and making up for lost time are all real. I was wrong about insisting the accounts resided offshore and for that I apologize. I'm very sorry.

Greg


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## swisspinoy

gjjd said:


> I thought the stand up thing to do would be to let folks here know that I checked with the CPAs who worked on the client accounts that were frozen and they were, indeed, US based accounts.
> 
> The seizures, penalties and interest, professional fees and making up for lost time are all real. I was wrong about insisting the accounts resided offshore and for that I apologize. I'm very sorry.
> 
> Greg


No worries. It kind of causes one to wonder if US expats should have a US bank account, given the complexities of filing US taxes, even when the double-tax deduction reduces burden. It kind of sounds like it is super easy to make a mistake and that the IRS is super eager to profit from such.


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## Bevdeforges

gjjd said:


> I thought the stand up thing to do would be to let folks here know that I checked with the CPAs who worked on the client accounts that were frozen and they were, indeed, US based accounts.
> 
> The seizures, penalties and interest, professional fees and making up for lost time are all real. I was wrong about insisting the accounts resided offshore and for that I apologize. I'm very sorry.
> 
> Greg


I appreciate your coming back to let us know that. I've actually had a credit union account blocked and then seized in California over a state tax issue. Ultimately, they released the excess once the tax issue was resolved. I worked with the California Taxpayer Advocate and I have to admit, they were most helpful.

Have yet to have an issue with Federal taxes, but I have heard reports that, once a problem develops, the IRS Taxpayer Advocate system works very well, too.
Cheers,
Bev


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## Bevdeforges

swisspinoy said:


> No worries. It kind of causes one to wonder if US expats should have a US bank account, given the complexities of filing US taxes, even when the double-tax deduction reduces burden. It kind of sounds like it is super easy to make a mistake and that the IRS is super eager to profit from such.


Contrary to popular belief, the IRS doesn't pounce on bank accounts (in the US or elsewhere) for simple errors. Seizure of bank accounts only happens in cases of failure to file or other egregious matters.

Depending upon your individual circumstances, it may or may not be advisable to maintain accounts in the US when you are resident overseas - but tax issues should never be the primary reason for doing anything financial.
Cheers,
Bev


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## swisspinoy

Bevdeforges said:


> but tax issues should never be the primary reason for doing anything financial


I disagree. One might donate to charity primarily for tax reasons without doing anything illegal. Taxes can also be a component of a larger problem, such as taxation without representation. In such a case, the problem might appear to be taxation when it is actually the lack of representation. Citizenship-based taxation may also force financial activity for tax reasons, such as prohibiting one from holding a foreign bank account or forcing one to open a foreign account after being denied financial services in the US. Your argument would work much better with residency-based taxation. With Citizenship-based taxation, expats are pressured or even obligated to make financial decisions for tax reasons.


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## maz57

@Bev Your advice to not make investment decisions for tax reasons is well founded but, as a US expat in Canada, investment decisions must be directly related to the oppressive IRS reporting requirements for non-residents and the mis-match of US and Canadian tax rules. I can't even buy a simple mutual fund without triggering obnoxious US reporting. About the only option available to me is a plain old savings account and even that might turn out to be impossible depending on how FATCA is implemented. 

With the exception of RRSPs, all Canadian tax advantaged investments are effectively prohibited by the IRS (unless you are willing to pay more in accounting fees than you stand to gain from your investment). Where the Canadian government gives me a tax break the IRS is happy to step up and tax me, no problem. Thank God I'm retired and my years as a business owner are beyond the SOL. I can only imagine what a can of worms the 1040's for those years would be. Being retired, I can't use the FEIE because I have no earned income. So that leaves the Foreign Tax Credit but if Canada doesn't tax it there is no credit.

If things don't change significantly for the better in the next year or so I will be compelled to make the ultimate investment decision and press the "sell" button on my US citizenship. There is no way I'm going to live the rest of my life trying to understand and comply with ever more invasive, restrictive, and discriminatory rules that even professional accountants don't understand. When I first found out a year ago about the filing obligations for US citizens abroad , I made a good faith effort to bring myself into compliance. Your common sense advice undoubtedly saved me thousands in accountants fees but, as I became more knowledgeable, I started to realise that it's effectively impossible to both comply with the IRS and have a normal financial life.

And the so called "new" procedures for coming into compliance (announced June 26 and effective Sept. 1) are a cruel joke. The IRS is in effect saying "if you are an innocent small-fry we probably won't hammer you; but we might if we feel like it". There is absolutely nothing new here folks; they've done nothing to alleviate the ridiculous filing requirements for ordinary investments that shouldn't even need to be reported except for the income. 

If US residents were forced to suffer the same treatment that expats face at the hands of IRS, FBAR and FATCA, there would be rioting in the streets. The only way to fix this is to end citizenship based taxation but I don't see that happening in my lifetime.


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