The U.S. Embassy in Oslo - Norway recently held a tax information seminar for American citizens here on January 31, 2013. The special guest was tax attaché at the Internal Revenue Service’s London office, who answered questions as well as presenting key points of interest at this time.
I was glad to have been able to attend. I was also glad to see our American Ambassador to Norway, Barry White, in attendance. Ambassador White expressed his interest and thanks to those who attended, and his attention and presence gave the meeting a necessary gravitas, demonstrating his concern for both the reporting obligations of Americans overseas, and the importance of listening to those in attendance and to the IRS’s representative.
Most attendees were Americans expressing a level of alarm and concern about their tax reporting obligations to the U.S. This is understandable only up to a point: the point at which people realize that their obligations to report their worldwide income to the IRS would rarely result in owing taxes to the U.S. – if they are paying taxes on their foreign income to Norway, as their tax home. Since I began this work, I have rarely seen the anomalous case – that is, the case of an American hiding or trying to hide income from the IRS. What I have seen is a standard scenario: the American works in the foreign country, and for a foreign entity. They pay tax to that foreign country, and that satisfies their obligations. Of course, it is also true that income whose source is the U.S. is, depending on the category, taxed by the U.S. In almost all cases, there is no ‘double-taxation,’ which is the point of the tax treaties.
I thought I would be the ‘fly on the wall’ in this blog – do a bit of journalistic reporting and drop the opinions (well mostly). So here it is: a recent tax seminar, which should be of interest to all Americans overseas, which means millions of people who have the obligation to report their worldwide income to the U.S. Internal Revenue Service.
What are the consequences of not filing? Well, that’s something you can look up. Thousands of dollars in fines and penalties are a possibility, although if you have unintentionally not filed and begin to do so – by filing the current year’s return and the 3 prior years’ returns, you can take advantage of what the IRS calls the Voluntary Disclosure Program, which has certain rules and conditions that can permit a person to simply start filing and not suffer terrible consequences (i.e. if they don’t owe much or any tax).
What about the FBAR bank reports? Well, those should be filed for the last 6 years, not three years – and every year thereafter, and are due in Detroit to be received by June 30th of each year (for persons with a total equivalent of $10,000 US dollars in foreign accounts of a wide variety). So, 2012 FBAR forms are due in the U.S. by June 30, 2013. By the way, the FBAR has been mandatory since 1979! Many millions are now filing this form , in part due to high profile cases, such as the UBS cases.
What about FACTA, the upcoming foreign bank reporting requirement that will affect foreign banks with American citizen accounts? Yes, the banks are already actively working on determining how they will comply. Some will do as the law states and report only Americans’ accounts if they are over $50,000 US dollars equivalent. However, other banks will find that cumbersome and simply report all Americans’ accounts – the banks can decide themselves. By the way, the regulations for this were just published last week, all +200 pages of them.
What about the Form 8938? That form reports bank information and must now accompany the IRS tax return – but only if the person has the total equivalent values indicated in all types of accounts, which are rather high – over $200,000 it was last year for one person.
Will there ever be an exclusion for Americans who simply live and work overseas, with a foreign tax home as permanent? The IRS has probably considered about every type of exclusion they can, but it seems you probably won’t get closer to this than the Foreign Earned Income Exclusion, (which lets you pretty much write down up to +$92,900 of foreign earned income (in 2011)(as against a formula based on how many days you were in the U.S. and whether your tax home is a foreign country.)
The U.S. and Norway have a good working relationship with the tax treaty. “Every dollar will get taxed once and no dollar will be taxed twice.” (Ah, well, they may be close . . . -June ) In addition, Americans in Norway won’t pay more than 15% tax on dividends, even when living in Norway as their tax home.
I have children but they don’t have social security numbers, can I claim them? Well, the IRS made huge gains when they discounted exemptions for children without social security numbers, since many people were cheating on the number of children they claimed. You have to look into it, and find out if your children are eligible to get social security numbers. (This is a good idea anyway since, if they are eligible, they can qualify to do other things later in life, such as invest in the U.S., open a bank account with ease, etc.)
What about revoking citizenship? We call this expatriation: this is someone who is relinquishing their citizenship or their green card, and their passport. There are certain filing requirements for these persons. In any case, filing must be updated before a citizen can be considered for revocation. Additional reports are also required.
Are you in compliance? Well, did you know that when you submit your American passport to enter the U.S., you are assuring that you are updated on all of your tax filing requirements? It’s in the fine print!
If I voluntarily file my updating tax forms to the IRS, can I be sure I won’t be penalized? Hard to know, without knowing your facts. The statute of limitations, though, is 3 years if you are filing, and if you are not? In that case, there is no statute of limitations: the IRS could demand that you present data and information all the way back to when you first moved abroad /had unreported foreign income.
On Recordkeeping: Keep good records! Use the ‘shoebox method’ if you cannot do more: If it is related to your tax report, put it in that shoebox and put it in the attic. Don’t throw anything away for at least 4 years and, even then, don’t throw away anything related to the price you pay for a house, or stocks, etcetera, as that can be related later to taxable income classification. Also: Keep your records in a format which is up-to-date! If you have old floppy discs that are essential to your tax information, you must get them into a format which can be used - as you go forward in time.
On Identity Theft: The IRS is seeing a remarkable increase in the amount of identity theft. One key suggestion is that you always shred documents which have important numbers and information on them, not just throw them away. Protect all materials of this nature from outside discovery.
On E-mail: The IRS never sends e-mail. The most profitable crime in the world today must surely be internet fraud, as it is nearly cost-free and involves making huge sums.
The IRS has information on all forms, including a publication on overseas filing, Publication 54, which you can see online. The IRS also has materials on how to protect yourself from identity theft and scams of various types, which you will find at their website, www.irs.gov. The website has also been reorganized so that it is easier to find materials using the search box function.
Well, a cold, dark and icy night was made a little less cold, dark and icy by the concerted efforts of the Embassy and IRS staff. And that’s all from the fly on the wall.
Of course, if you’re still confused, just write me, and I’ll do your individual personal income tax forms for you. That’s a part of my business!