# American and Spanish, living in Spain, late discovers IRS ...



## Zquircle (Feb 2, 2014)

Hello!

I´m an American/Spaniard, living in Spain, working for a State company (although not at Civil Service/funcionario, only as a Public Employee/empleado publico), married with a Spaniard, two kids ...

From Spain´s point of view, I´m just a plain Spanish citizen, paying Spanish (very high) taxes, with a mortgage in a Spanish bank and the Spanish ID card and number (DNI).

I never worked in USA, I only lived there a couple of years, some almost 40 years ago! As my job in Spain is well paid, my plans were to wait until retirement here, and then move to the States so my children can study there (they have also both nationalities).

I got my USA citizenship because of my father, who was himself an American expat in Spain, working for the State Department (no problem then with my Birth Abroad and Selective Service). Got also my SSN, and have always my American passport in order.

My Spanish nationality comes from birth (in Spain) and from my Spanish mother.

My problem is, as I have already read around here, not new: *I never had any contact with the IRS, nor knew I had to*. In fact I don´t know if they ever had me in their system, apart from being an American citizen: I never had any professional activity in the States or related to any American company.

As I want to stick to my plan to move to the States in say 8 years, and not wanting to be considered as an outlaw, I would appreciate any information or advice to guide me through the future, and unavoidable, process of regularization.

Is there any solution not too traumatic, or squaring the circle is easier than escaping this mess?

My life has changed SOOO much in just a couple of weeks ...

Thanks!


----------



## jbr439 (Nov 17, 2013)

You sound like a candidate for the Streamlined Procedure. 
I can't post the URL, but google "Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers"


----------



## Bevdeforges (Nov 16, 2007)

Don't feel like the Lone Ranger. You're hardly the first (nor the last) overseas resident to suddenly come to the revelation.

Take a look at this from the IRS on how to get compliant without being considered an outlaw: Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers
Cheers,
Bev


----------



## Zquircle (Feb 2, 2014)

Thank you, jbr439 & Bevdeforges!

This is all an unexplored and uncharted territory for me, and I'm quite lost. I went through the link about Streamlined Filing Compliance Procedures, and it seems that the key to getting out of the hole alive is the *"risk"* ...

Did a quick check on the Questionnaire, and it looks like I can answer NO to all the questions, except for the following:

3.- I don´t know if I owe more than $1,500 in U.S. tax on any of the tax returns. How can I calculate that? In Spain, if I want to file my own tax return, I download a computer program called PADRE from the Spanish IRS (Hacienda) website and simulate everything from there. Is there anything similar to that with the IRS? How do I complete every yearly tax return with my personal "Spanish" data? If I pay about 50% of my income as taxes in Spain, would that be enough so that the IRS considers I´m paying what I have to? My life is very simple, I work for a company that pays every month by bank transfer, I have a mortgage on my house, nothing complicated ...

7.- I have a retirement account (plan de pensiones privado), where every contribution gets a tax deduction next year. How do I know if e earnings from the retirement account non-taxable in the U.S. under current treaty provisions?

9.- Yes, I have known that I´m an American citizen all my life, including the last 3 years.

10.- Yes, I have declared all my income in my country of residence.

17.- What does "_Do you have a treaty-based position for your country of residence that reduces your U.S. tax liability?_" mean?

19.- I sold my small apartment in 2009, and used the money to my a new house.


Sorry for this hand-arm robbery in the form of questions, as I said this is absolutely new and unknown for me.


----------



## BBCWatcher (Dec 28, 2012)

Squircle said:


> I don´t know if I owe more than $1,500 in U.S. tax on any of the tax returns. How can I calculate that?


You won't know that until you complete your U.S. tax returns. You can try the free version of TaxAct.com to create your 2013 tax return, then use that generated 2013 tax return as a guide for filling out your 2010, 2011, and 2012 tax returns manually, substituting the correct numbers and watching for any calculation or instruction changes that may apply. I'll give you a couple more tips below.



> I have a retirement account (plan de pensiones privado), where every contribution gets a tax deduction next year. How do I know if e earnings from the retirement account non-taxable in the U.S. under current treaty provisions?


You have to check the U.S.-Spain tax treaty.



> What does "_Do you have a treaty-based position for your country of residence that reduces your U.S. tax liability?_" mean?


It means what it says: are you taking advantage of a treaty provision that would reduce the amount of U.S. tax you owe? If your U.S. tax owed is zero without relying on a provision in the U.S.-Spain tax treaty, the answer is no.



> I sold my small apartment in 2009, and used the money to my a new house.


That should be fine. The U.S. generally exempts the first $250,000 in capital gains from primary residence sales from taxation.

OK, a couple tips....

1. As mentioned, start with your 2013 (free) TaxAct-assisted return to get an idea how this works. Since Spain is indeed a comparatively high tax jurisdiction, try calculating 2013 with only the Foreign Tax Credit. (In other words, don't use the Foreign Earned Income Exclusion and Foreign Housing Exclusion.) See what you get. If the answer is $0 tax owed, congratulations, that'll do very nicely.

But note that you just might be able to do better than $0. Take a look at the Additional Child Tax Credit to see if you qualify. If you do, you may get some money from the IRS. Yes, occasionally U.S. citizenship does pay, literally.

2. Once you have at least a draft version of 2013 done, go back and do tax year 2010 next, manually but with 2013 as a sort of guide. Tax year 2010 was the last year for something called the "Making Work Pay Tax Credit." That's worth up to $400 in cash from the IRS. See if you qualify. If you can, file your returns before April 15, 2014, since that's the safe deadline for collecting that money.

3. Yes, you'll want to check if that U.S.-Spain tax treaty protects your Spanish retirement savings account. That'd be helpful. Otherwise you might have to take something called Qualified Electing Fund (QEF) elections, and those involve a fair amount of work to calculate.


----------



## Bevdeforges (Nov 16, 2007)

Let me just point out one little point from the link on the Streamlined compliance program:



> The risk level may rise if any of the following are present:
> 
> If any of the returns submitted through this program claim a refund;


Given that the this is the first item on the list of "risks" I would make my first pass through the filing process, claiming the FEIE if I'm entitled to it. 
Cheers,
Bev


----------



## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> Given that the this is the first item on the list of "risks" I would make my first pass through the filing process, claiming the FEIE if I'm entitled to it.


Separate issue, Bev. One can decline refundable tax credits if one wishes, sure. But that's a separate issue from running the tax calculation with and without the FEIE/FHE. Since Spain is indeed a comparatively high tax jurisdiction, it's prudent to run an FTC-only calculation first. If that results in $0 U.S. tax (or better), you're done.

Taking the FEIE/FHE involves another form, another set of instructions, and another set of calculations. It's great stuff if you need it -- and I take the FEIE/FHE every year here in Singapore -- but if you don't need those exclusions it's just extra, unnecessary work.

Start simple, then see what happens, basically.


----------



## Zquircle (Feb 2, 2014)

Thank you again to both, BBCWatcher & Bevdeforges!

Now I have a start, I´ll begin with year 2013 and TaxAct.com. The timing is going to be a bit tight, cause in Spain we don´t get our employer´s salary certificate or our State fiscal information until the beginning of April ... Without these, it´s almost imposible to have the data necessary to complete this year´s return before April 15.

I have read a couple of times the U.S.-Spain tax treaty, both in Spanish and in English ... Boy, can they be twisted when they want!! Anyway, it looks that my main taxes paid in Spain wont have to be paid again in USA. It will be mostly a matter of any interest-bearing account or any stock dividends obtained through 2013. I don´t plan to ask for any refund from IRS, even if I have the right to do so, at least this first time when I regularize my situation. What is not clear yet is the tax treatment of a couple of modest investment funds that I have, and that haven´t been liquidated. Guess I´ll have to investigate a little bit more. Isn´t this fun!!

There are 2 issues that I still have to assess before I make my first move. First, in the aforementioned U.S.-Spain tax treaty, it is mentioned that both countries could exchange information about me. Well, in my case, this is very delicate: I´m working for a Spanish State company because I have the Spanish citizenship; if Spain finds out that I´m also American, as they don´t accept that dual nationality, they could make me choose, which would leave me either without my American nationality, or without my job. None is acceptable. The chances of this happenig may be very small, maybe like being hit by lightning when walking in the open under the rain ... I´d rather stay dry ...

The second issue are my siblings: they are in my same situation here in Spain, and contacting with the IRS could blow a whistle on them. I think that it would be better if we all regularized our situation at the same time, just in case., and that would need a lot of coordination. The good thing is that none of them work for a State company, so losing their Spanish citizenship wouldn´t be that traumatic.

So, to wrap things up, my most important question: being so that it has been already many years without taking this step with the IRS, what would you think about letting a few more years pass by, until at least I don´t have the risk of losing my job or my USA citizenship. It could be a good way to spice up last years before retirement ...

Thanks again for your very helpful advice!!


----------



## Nononymous (Jul 12, 2011)

If you had no plans to move to the US, I'd be inclined to let sleeping dogs lie (not sure if your siblings are an issue, frankly, but who knows). But if you are planning to move back, then there's not really much gained by waiting, you'll have to deal with this one way or another.

Although, you could move back then file your first return and see what happens. They'd ask where are previous years' returns, and you could say "uh, I was living in Spain for decades, I didn't file any" and that might be the end of it. Or not.

You'd have to look into the potential for loss of citizenship. Pretty tough to lose American - it's like a plague. But probably not that easy to lose Spanish either. You took no active steps to acquire US, nor presumably did you ignore a request to get rid of US when you acquired Spanish. Look into this - you may not be under as much threat as you think you are.


----------



## Zquircle (Feb 2, 2014)

Nononymous said:


> If you had no plans to move to the US, I'd be inclined to let sleeping dogs lie (not sure if your siblings are an issue, frankly, but who knows). But if you are planning to move back, then there's not really much gained by waiting, you'll have to deal with this one way or another.
> 
> Although, you could move back then file your first return and see what happens. They'd ask where are previous years' returns, and you could say "uh, I was living in Spain for decades, I didn't file any" and that might be the end of it. Or not.


Thanks, Nononymous! The only reason for waiting some years is to make sure that I can keep my current job until retirement age (in about 8 years ...), and not being forced to choose between my two citizenships. If it has been decades not filing any tax returns with the IRS (and in the meanwhile keeping my American passport in order, or even voting in the last two elections), and didn´t hear the dogs bark nor howl, then ...

And the plans for moving back to USA are very important for me, concerning my children. Spain is, and will be for some years, a wasteland regarding College studies and employment. Frankly, I think their chances of getting a good College education and, hence, a better job, are way higher in USA. Just an example: one of my Spanish cousins is an Architect (6 years of very hard work at the University and another 8 years of professional experience); she now considers herself very lucky because she found a job in a small fabric store of a small town. Any other alternative would have been either unemployed, or moving to South America.

So, I will do as advised, run a simulation of current´s year tax return, see how it turns out, and in the meanwhile think about all these facts. I´m sure more questions will arise, so expect to read me around.

And once again, thanks to you all!


----------



## Bevdeforges (Nov 16, 2007)

BBCWatcher said:


> Separate issue, Bev. One can decline refundable tax credits if one wishes, sure. But that's a separate issue from running the tax calculation with and without the FEIE/FHE. Since Spain is indeed a comparatively high tax jurisdiction, it's prudent to run an FTC-only calculation first. If that results in $0 U.S. tax (or better), you're done.
> 
> Taking the FEIE/FHE involves another form, another set of instructions, and another set of calculations. It's great stuff if you need it -- and I take the FEIE/FHE every year here in Singapore -- but if you don't need those exclusions it's just extra, unnecessary work.
> 
> Start simple, then see what happens, basically.


As always, depends on your situation. The FTC requires an additional form, too - the 1116 - which may or may not be more complicated, depending on your sources of income and how your local income taxes are determined. According to the instructions for 1116, you need a separate form for each source of income. 

If salary income is your main source of income and you're under the FEIE limit, the FEIE is normally the simpler route, especially if you're back filing to get into compliance.

But hey, if you prefer to go the FTC route, then have at it!
Cheers,
Bev


----------



## Zquircle (Feb 2, 2014)

Bevdeforges said:


> As always, depends on your situation. The FTC requires an additional form, too - the 1116 - which may or may not be more complicated, depending on your sources of income and how your local income taxes are determined. According to the instructions for 1116, you need a separate form for each source of income.
> 
> If salary income is your main source of income and you're under the FEIE limit, the FEIE is normally the simpler route, especially if you're back filing to get into compliance.
> 
> ...


Excuse me if I talk nonsense: in my case, the amount using the FTC is much bigger than that using the FEIE/FHE. As I mentioned before, in Spain I don´t start earning money for my family until July, 1st (50% income tax). As opposed, I believe that the American income tax maxes out at 35% aprox. My first attempt with the TaxAct.com thing will be including FTC only, and then we´ll see.

I will update ...


----------



## BBCWatcher (Dec 28, 2012)

Agreed. It's Spain, so the FTC-only approach is highly likely to make the most sense.

Are you sure about the dual citizenship issue, Zquircle? I'm under the impression that only applies if you naturalized as a citizen of Spain, and then only if your other citizenship is non-Iberoamerican. Oddly enough Spain considers Puerto Rican citizenship to be Iberoamerican. I don't think there's such a thing as Puerto Rican citizenship -- that's U.S. citizenship! -- though there is birth in Puerto Rico.


----------



## Zquircle (Feb 2, 2014)

BBCWatcher said:


> (...)
> Are you sure about the dual citizenship issue, Zquircle? (...)


Sorry, BBCWatcher, which _dual citizenship issue_?


----------

