# Here's a complicated tax situation for you........



## RocknaHardplace

I'm an American-born expat who's been living in Europe for almost two whole decades, possessing dual citizenship, both American and of the country in which I have long been residing (it's NOT Switzerland), and am trying to set up an olline business, using PayPal to receive payments. Now I just found out recently (and accidentally!), precisely by way of PayPal, that everyone who achieves so many purchases on his PayPal account must register for FATCA. The problem is, after delving a little deeper into this, I found out that if you are an American citizen, whether you live in the USA or not, you are obliged to file taxes every year with the IRS, as well as for yearly FBAR statements (with regard to FBAR, I'm not sure this applies whether or not you reach a certain income threshold or not). I have never worked in the USA, and I have always payed taxes, whenever applicable, to the state of the country in which I reside in Europe. I have been browsing on this forum for a while in order to glean some advice from the relevant posts regarding this matter, but some of the information on it seems inherently contradictory. What I am concerned about the most stems from my having read somewhere that, although the IRS is generally forgiving towards expats who have neglected to declare to them their yearly income or file FBARs due to ignorance of the regulations (as is my case), their techniques and technology used to track individuals who are late filers or non-compliant with regard to taxes is constantly improving, so I suspect that I might be at risk for being apprehended and penalized for never having filed in the first place. Neither the IRS nor the US government have never contacted me regarding this matter, but I often wonder if advice of the type "just stay off the radar" would really be prudent to adhere to. Currently I have no property, bank account, or financial activity whatsoever in the US, although I might like, in the future, to work in the US, albeit temporarily, or offer online services to users in the US, possibly indefinitely. I don't believe I owe any taxes to the IRS, but at worst I suspect I might be heavily fined for not having declared FBARs, etc. Here's a reference to someone who apparently seemed to have been in a similar situation and in fact, went on to amend his good standing with the IRS, but, as a consequence, now he can't even lead a normal life: 









Help getting started with Streamlined Filing Compliance...


Hi, Here is my situation: French/American citizen 28 years old, single, no children, born in France, lived in the US from 1 to 10 y.o. Then 10 to 26 in France. Currently living in Canada, but soon going back to France. Stayed in NYC in 2012 for a few months, worked a bit but nothing crazy. NEVER...




www.expatforum.com





(see reply #5 in this above thread)









FBARs/SSN UK/US Dual...


Hello, What a relief to find a forum where this is discussed rather than the myriad adverts from lawyers and accountants and tax-preparers putting the frighteners on everyone... So, briefly, I'm a UK/US dual national by birth, lived in the UK all my life, work here, pay taxes here, only ever...




www.expatforum.com





(see reply #10 in this above thread)

Reply #31 in the following thread, this certainly seems unnerving:









FBARs/SSN UK/US Dual...


Outside the US, the IRS most definitely cannot go to someone's employer, or touch someone's bank account, or find out where their salary is being deposited. Their powers are in fact extremely limited. Their powers to tax are extremely limited. UK residents get taxed on their UK income by the...




www.expatforum.com





Anyway, I'm confused. Anyone?


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## Nononymous

Longer reply forthcoming, if not in the next 8 hours then tomorrow.

Short version is, if you are a citizen in your country of residence, with no US assets or income sources, then you can tell the IRS to take a hike. They can't touch you or your money. Your immediate problem, as someone born in the US, is that if your local bank infers or otherwise learns of your US citizenship, it will potentially report you under FATCA rules or even limit the services offered to you. Your longer term problem is wanting to possibly return to the US, and possibly needing to tidy up your tax affairs first.

I don't know enough about the PayPal thing to comment at this point.


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## Nononymous

Also I don't know what you found so unnerving about the old threads you've cited. In neither case was anyone not able to live a normal life. In both cases the OP was born outside the US so could easily avoid FATCA problems by not disclosing US citizenship. (You aren't so lucky, with a US birthplace.)


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## Nononymous

I think it best to wait for response from the OP before writing an essay, but nevertheless (per usual) I have a few more points to make. 

In terms of the IRS, you know the basic argument you'll get from me and most others here: they can't really do anything to you outside the US, nor would you be "apprehended" on a visit. The only information they are likely to have about you is a small amount of FATCA data (year-end balance and interest income) for any accounts exceeding the reporting threshold. If you set up your accounts in the past it's possible that the bank has not yet identified you as a US person, particularly as you are a dual citizen.

I don't know enough about the PayPal situation to say much. Can you set up a PayPal account in your home country without disclosing your US citizenship? (I have PayPal accounts in Canada and Germany, both of which are completely FATCA-free, but they were set up many years ago.)

One final note: FBAR has nothing to do with income. If the total balance in all of your foreign (i.e. non-US) accounts exceeds $10,000 at any point in the year, you are obliged to report all those accounts. If it never exceeds this limit, you do not need to report. Despite the draconian fines, there does not seem to be any pursuit of ordinary expats who have failed to file their FBARs. The fines would not be collectible outside the US anyway.


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## Bevdeforges

Let me just second all of Nononymous' posts on this subject. And add a couple of details - namely that the IRS generally has to prioritize its attention to possible tax evaders, based on how much back taxes they are likely to find. (The old "return on investment" approach.) So if you probably wouldn't owe anything (or very much - and by IRS standards, not by your personal standards) you're unlikely to be bothered if you just stay beneath the radar.

That said, the whole exercise is one of "risk evaluation" - if you don't appear to owe much if anything, and if you don't have seize-able assets in the US and you don't make "obvious" use of your US citizenship, then you have little exposure to IRS difficulties. But it's up to you to decide how you want to proceed.


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## JustLurking

Nononymous said:


> ... Your immediate problem, as someone born in the US, is that if your local bank infers or otherwise learns of your US citizenship, it will potentially report you under FATCA rules or even limit the services offered to you.


An example of such a limit below, from Jan 8. Personally, even if I considered the risk of IRS enforcement to be non-existent, this is a good example of something I would nevertheless find "unnerving" if I were a US citizen. Happily, I am not.

German bank to close its doors to 'U.S. persons' from March, citing FATCA reporting burden: Report


> Augsburger Aktienbank, one of the largest banks in Germany's Bavaria region, is preparing to inform its American clients that they must take their accounts elsewhere by the end of March, according to a published report in Germany.
> 
> In doing so, Augsburger Aktienbank (AAB) will become the latest in a long line of non-U.S. financial institutions to close its doors to Americans over the past decade, rather than have to comply with the 2010 U.S. anti-tax-evasion law known as FATCA, which obliges such institutions to report to the IRS on the accounts of all of their U.S. citizen clients, and which stipulates significant penalties for any institution found to not to be in compliance.
> ...
> According to _Fonds Professionell_, a German-language news magazine and website for German and Austrian investment advisers, Augsburger Aktienbank will close the accounts of its American clients "as of March 31, 2021," while declining to accept as customers any other "U.S. persons" going forward.
> 
> "The reason given by AAB is the high level of personnel and technical effort" that FATCA requires, the article explains.


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## Bevdeforges

Let me just add one other option - that of renouncing your US nationality. It's expensive ($2350) and you should probably know that it won't necessarily make you welcome at banks and financial institutions that are avoiding US customers. I know some of the online only banks here in Europe will turn you down as a customer if, in filling out the initial forms, you indicate that you were born in the US. (Part of the identity information required in some countries.)

Regardless of your actual nationality or whether or not you may have renounced, some banks seem to be set on being overly cautious with these things. In order to cover their own posteriors, they may elect to simply report all accounts with any sort of US "indicia" - like a customer with a US birthplace, or someone who lists a US mailing address or telephone number. If they don't want to report at all under the FATCA laws, they will just reject anyone with these sorts of "telling signs" as a customer.


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## RocknaHardplace

Thanks to everyone who has answered my questions on this thread. I feel that I should take care of this as soon as possible. With regard to your questions about the PayPal regulations, PayPal tracks whether one's earnings generated through it, ONLY when the number of individual payments totals up to 200, AS WELL AS when the gross payment volume, exceeds $20,000 in a calendar year.

With regard to past unfiled FBAR statements, if I understand correctly, the IRS (or whatever entity deals with FBARs) has only up to six years to "get after" someone who has failed to dutifully file his or her FBAR statements, counting from the time the person in question was obliged to file but failed to do so, and that is only if the respective bank account reached a certain threshold. Correct me if I am wrong.

My concern regarding taxes and FBARs stems from the following: I am a freelancer, never having worked for a firm or a company, and the yearly threshold for filing taxes for freelancers is $400 (yes, four HUNDRED, not thousands, as is the case with company- or business- employed people). So, although I don't make a lot of money at all, I fear that would that automatically make me tax-filing non-compliant. There were also two years during the noughties, when I made over the equivalent of 20,000 USD during each of both years (depending on the then applicable exchange rate). Would that subject me to any five-digit yearly FBAR fines? Also, if I do happen to reach the above threshold imposed by PayPal on its users, will that qualify me as a tax infringer for failing to have filed in the past?


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## Nononymous

The following may or may not ease your concerns: You are currently non-compliant. You are already a "tax infringer" as far as the IRS is concerned, and you have been so for a very long time. Triggering some sort of FATCA reporting via PayPal does not change this. Now ask yourself: has your past failure to file US tax returns or FBARs caused any sort of problem for you? No it has not. So relax.

Do you have any US "exposure" - bank accounts or income sources, other assets? Do you plan to return to the US at any point in the future? If not you can easily ignore all this. On the other hand it probably won't be difficult for you to clean it up and become compliant, and if you file a 2020 return there's $1800 (possibly rising to $3200) in it for you thanks to the stimulus benefit. Given that the amounts in question are small, the risk of penalty is vanishingly small. (And penalties generally can't be collected outside the US anyway.)

I'm still not clear on the PayPal situation. How would PayPal track "earnings" - it wouldn't know what the money is for, nor what part of it constitutes taxable profits? What exactly happens when you exceed their limit for number or total amount of payments?

PS on edit: FBAR and tax filings are completely different things. Income levels have nothing to do with FBAR requirements, or penalties for failing to file FBAR forms. Conversely, bank balances have nothing to do with tax filing requirements (though interest earned most definitely does).


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## Nononymous

JustLurking said:


> An example of such a limit below, from Jan 8. Personally, even if I considered the risk of IRS enforcement to be non-existent, this is a good example of something I would nevertheless find "unnerving" if I were a US citizen. Happily, I am not.
> 
> German bank to close its doors to 'U.S. persons' from March, citing FATCA reporting burden: Report


Thanks for the link. Not good news that a German bank has decided to give US customers the heave-ho, though possibly this will help accelerate efforts in the EU to negotiate some sort of sanity for Accidental Americans.

In at least one of the two old threads the OP was a dual citizen born outside the US so could easily avoid any banking problems by simply not identifying themselves as a US person.


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## RocknaHardplace

@Nononymous Regarding Paypal's income threshold policy, it seems that if you make more than 20,000 USD through sales on Paypal in a given calendar year, and/or if you make more than 200 sales of a product or service in a year, PayPal will send Form 1099-K to you and the IRS for your Paypal earnings during that year, early in the following year. And I am seriously considering working sporadically in the USA in the future, even if I don't plan on living there permanently. I've prompted several accounting agencies who do taxes for expats about my situation, and they all recommend unanimously that I file for three years of back taxes, plus 6 years of FBARs. This is why I am concerned about FBAR penalties, since I never have filed them. I remember someone on this forum telling someone else, "of course accountants would want you to file with them; they want your business". Which is another reason why I'd like your opinion about FBARs. Even if the laws don't pose a problem for me now, there's no telling if they will change in the future (maybe even not-so-distant, who knows). Here's an embarrassing confession, by the way: My entire balance in my only bank account over the last 6 years has never totalled more than 5,000 Euros. :-( I sure hope that changes this year, all the more reason to get straight with the IRS.....


Edit: according to post #4 in this thread, given my extremely low income, I won't even have to file FBARs at all. I'd just like to know where I can oficially access the information regarding this stipulation.


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## JustLurking

Bevdeforges said:


> Regardless of your actual nationality or whether or not you may have renounced, some banks seem to be set on being overly cautious with these things. In order to cover their own posteriors, they may elect to simply report all accounts with any sort of US "indicia" - like a customer with a US birthplace, or someone who lists a US mailing address or telephone number. If they don't want to report at all under the FATCA laws, they will just reject anyone with these sorts of "telling signs" as a customer.


I suspect that what you describe may be rare, and that things are not as bleak for ex-US citizens as you suggest. Certainly not as bleak as for still-US citizens. The situation may be ... fluid, in this case another word for 'deteriorating', but so far, at least in the UK, former US citizens don't seem to be having too many problems opening accounts at banks and other financial institutions.

A decent proportion of UK sites appear to ask a more nuanced "Are you a US citizen or US permanent resident?" question, rather than blunt country of birth. And where they do ask country of birth and the onboarding process rejects when presented with 'US', folk have reported success once they supply a copy of their Certificate of Loss of Nationality (CLN, amulet).


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## Nononymous

I'm probably repeating myself here... Canadian banks have of late been extremely easy to deal with. Last time I opened an account the checkbox on the application form said "Are you resident of another country for tax purposes?" No follow up questions or validation of answer, and only a drivers license (not showing place of birth) required as ID. The question is so vague that I'm sure a great many folks who know themselves to be US citizens quite innocently answer "no" because they aren't aware of how US tax laws work.


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## Bevdeforges

To the OP - you keep mentioning the "income threshold" in relationship to your FBAR filing requirement. I think you may be confusing things here. Your requirement to file an FBAR has nothing to do with your level of income - merely with the combined total (i.e. all accounts) of the balances in all your foreign (non-US) financial accounts. 

The FATCA reporting by the banks is often limited to accounts with a year end balance of at least $50,000 though nothing is stopping them from just reporting all accounts with certain "US indicia" - it really depends merely on what is easiest for the computer jocks at the bank to strip off the files. But there is little or no evidence that the IRS does anything with the FATCA data they receive from the foreign banks - maybe if something is "funny" with an individual's tax return, but otherwise they don't seem to check or process the data in any manner.


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## JustLurking

RocknaHardplace said:


> ... My entire balance in my only bank account over the last 6 years has never totalled more than 5,000 Euros. :-( I sure hope that changes this year, all the more reason to get straight with the IRS.....
> ...
> Edit: according to post #4 in this thread, given my extremely low income {=> asset levels}, I won't even have to file FBARs at all. I'd just like to know where I can oficially access the information regarding this stipulation.


From the wellspring: Report of Foreign Bank and Financial Accounts (FBAR)


> Who Must File
> A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:
> 
> a financial interest in or signature or other authority over at least one financial account located outside the United States if
> the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.


Alternatively: Report Foreign Bank and Financial Accounts


> Who Must File the FBAR?
> 
> A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The full line item instructions are located at FBAR Line Item Instructions.


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## Nononymous

Let me note that in in my first reply I did point out the FBAR requirement of $10k total across all accounts before FBAR reports are required. All this anxiety could have been avoided with some basic reading comprehension!

It's amusing but not surprising that several expat tax firms recommended the full streamlined program without bothering to enquire whether the OP actually had enough money to justify FBAR. Oh well, we know how those guys roll.


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## Nononymous

@RocknaHardplace

Regarding PayPal, I had a quick look. You seem to have a fundamental misunderstanding here. The 1099K reports transactions, not "earnings" or profits or taxable income. It's an information form. It gives the IRS a number on file in case there's an audit, I expect, but it doesn't tell them what anyone has "earned" in a given year.






Understanding Your Form 1099-K | Internal Revenue Service


Understand Form 1099-K, Payment Card and Third Party Network Transactions, and what you should do if you receive one.




www.irs.gov





If you had no interest in returning to the US and wished to continue with non-compliance, you could avoid the PayPal issue entirely by creating the account with your non-US identity and signing a W8 to (falsely) claim that you are not a US citizen and not subject to FATCA.






PayPal Help Center Article







www.paypal.com


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## RocknaHardplace

Nononymous said:


> @RocknaHardplace
> 
> Regarding PayPal, I had a quick look. You seem to have a fundamental misunderstanding here. The 1099K reports transactions, not "earnings" or profits or taxable income. It's an information form. It gives the IRS a number on file in case there's an audit, I expect, but it doesn't tell them what anyone has "earned" in a given year.


@Nononymous I had a look at the IRS link but I still don't understand it. I AM considering returning to the US, not to live permanently, but to work sporadically. Besides, I'd like to offer services to clients in the US, using PayPal to receive payments. It seems that if 200 or more clients make a purchase from me AND I make over 20,000 USD in a year, then PayPal will report this information to the IRS. So it all seems to be tied in.


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## Nononymous

Here it is, straight from the horse's mouth:



> Form 1099-K... is an IRS information return used to report certain payment transactions to improve voluntary tax compliance.


If you cross the threshold, PayPal sends the IRS a list of your transactions. This does not equal PayPal telling the IRS what you "make" in a given year. Analogy: if your bank sent the IRS a list of all deposits to your business account, that wouldn't actually tell the government what your profits are, because it says nothing about expenses. But knowing that the IRS has the list of deposits would probably scare you into filing honestly.

None of this changes the fact that you have 20 years of non-compliance to deal with or not deal with, as you see fit. PayPal doing this reporting will not "force" you to start filing US tax returns, though you may wish to.


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## RocknaHardplace

If you need to comply to sleep nights, so be it. Just be aware that the problems won't happen right away - at first the forms will be simple and you won't owe any tax on a low income - but later in life it can bite you badly if you make a pile of money selling your house, or you save with some tax-protected retirement schemes in your country of residence, or god forbid you invest in mutual funds or try to start your own business. That's when the pain starts. (See the the other thread, entitled "private pensions" - he can't plan a normal financial life in the UK with a US birthplace and tax compliance.)

@Nononymous Thanks for the info about PayPal. When I was referring to a previous poster's potentially having trouble with setting up a business, I meant what I read in the above quote (it's your own post, #5 in the relevant thread). Do you mind elaborating on this? (Sorry, I can't find the 'other thread' mentioned within the parentheses!)


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## Nononymous

So there are two bad things that can happen to a person in your situation - a dual citizen born in the US. These two things are not directly related - one does not necessarily lead to the other, or vice versa. It's important to keep the two separate as you think about this.

One, depending on where you live, your US birthplace can create problems with banking and financial services: FATCA reporting - sending year-end balance and interest income data to the IRS - and possible account closure, or refusal to offer certain types of investments.

Two, hassle and expense caused by filing US tax returns. This is what I'm talking about in the piece you quoted above. As I recall, it is a warning to a younger person who could file relatively simple US returns and owe nothing for years, but then as they grow older and wealthier they could face burdensome reporting requirements and/or US tax bills in addition to what they owe in their home country. Specifically, many common tax-deferred savings vehicles are not recognized by the US, and many countries do not tax capital gains on the sale of a primary residence, but the US does. This issue manifests itself both in the direct costs of compliance, and the opportunity costs of avoiding advantageous behaviours that are normal in the country where you live (i.e. using certain types of retirement savings or other investments) but have serious US tax disadvantages.

Note that the second set of problems are only problems if you file US tax returns. A non-compliant US citizen might still have banking problems due to place of birth, but if they have another passport and no US assets, they are perfectly safe ignoring the IRS, even if subject to FATCA reporting.

PS on edit: The advice from the other thread was given to someone born outside the US. They could easily avoid FATCA problems by not disclosing US citizenship - for example, showing a French passport with French birthplace when opening a bank account. They had absolutely no sensible reason to begin filing US tax returns unless they were planning a future move to the US.


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