US Expats and the Affordable Care Act (Obamacare) Requirements

We have had many questions from US expats whether or not they are going to have to purchase health insurance that qualifies under the Affordable Care Act (Obama care) or be penalized if they do not.

There is one safe harbor where you will not have to take any action.  If you are eligible to take the IRC 911  foreign earned income exclusion (Form 2555) either as a bonafide resident of a foreign country or under the physical presence test, you are specifically exempted from the health
insurance requirements of the Act.

Also, if you are working abroad but covered by the Group plan of your US employer or covered by medicare you are exempt from the Affordable Care Act.

Those who only work temporarily abroad for a few months and then return to the US are not exempted from the Acts requirements and must obtain health insurance or suffer penalties

Nonresidents who are not in the US long enough to become permanent residents (usually 183 days or more) are not required to obtain health coverage.

HSBC DEPOSITOR FOUND GUILTY ON FAILURE TO FILE FBARS AND SHOW TAXABLE INCOME FROM DEPOSITS

Read all details including a copy of the courts guilty verdict in the Federal Tax Crimes Blog by Jack Townsend.

Avoid these problems by catching up now. After IRS contacts you, it is too late to apply for the amnesty allowed in the Offshore Disclosure Program.  We can help

US SOCIAL SECURITY FOR THOSE OUTSIDE OF THE US AND US NONRESIDENTS

Sometimes there are problems receiving social security when you are outside the US or a nonresident of the US living in  another country.  The Social Security Administration has published a great pamphlet setting forth the rules.  They also are good at answering questions when you phone the SSA.  Their website is at www.ssa.gov.   The Pamphlet setting forth those rules can be Downloaded  HERE.

100th Anniversary of the US Income Tax

About 100 years ago in 1913 Congress and the states approved the 16th amendment  to the US constitution which created the US income tax.   Prior to that the US Supreme Court had held that the income tax was not Constitutional.

In 1913, the tax code consisted of 400 pages, but by 2012 the tax code was over 73,608 pages.  The US has gone form a simple system to a very complex unfriendly system.

But having some sort of taxation goes back to the country's beginning. From 1791 to 1802, the government was supported by tax revenue from the sale of such items as liquor, tobacco, sugar, property sold at auction and even through the sale of slaves.

The high cost of the War of 1812 saw the first sales tax on gold, silverware, jewelry and watches. But by 1817, Congress eliminated all taxes and relied on tariffs from imported goods for revenues.

It was in 1862, to fund the Civil War, that Congress enacted the first income tax. Anyone making between $300 to $10,000 a year paid a rate of 3 percent. That tax ended soon after the war.

Congress also established the Internal Revenue Service at the same time, which had much the same power and authority then as it does now.

Jumping to 1894, Congress passed the first peacetime income tax law, but a year later the Supreme Court declared it unconstitutional. The court said that taxes on rents and real estate income had to be divided among the states according to population, which the law did not allow.

But the court did make a crucial statement in its ruling. It said that Congress had the right to impose a direct income tax—and that led to the passage of the 16th Amendment on October 4, 1913.

Voluntary Regular Disclosure of Foreign Bank Accounts Goes Bad

http://www.forbes.com/sites/irswatch/2013/09/26/zwerner-answers-doj-effortsto-collect-multiple-50-percent-civil-fbar-penalties/

Disclose Your Foreign Financial Accounts or Else!

FATCA's Bleak Choices For Accounts, Income, Disclosure Read More in This Forbes Article

We have assisted, advised and represented hundreds of taxpayers disclose their foreign bank and financial accounts to the IRS.  If you need experienced attorney/CPA representation email us 

See tax reasons Why Americans Surrender Citizenship

Americans turn in passports as new tax law hits.  ~   Read the whole story here from CNN Money

Our firm has advised or represented over a hundred clients to date in this process!

Foreign Retirement Plans to Register & Report US Citizens Accounts to IRS.

Read more in Bloomberg's Business Week Article HERE

REDUCE YOUR IRS PENALTIES - Read their manual

Read the IRS Manual on Taxpayer Penalties HERE

Email us if you need experienced tax professional representation against the IRS

IRS SAYS ALL SAME SEX MARRIAGES OK FOR FEDERAL TAX PUPOSES

IRS Rules All Legal Same Sex Marriages Will Be Recognized For Federal Tax Purposes Read More Here

Better Hurry Up And Report Your Foreign Accounts!

Every American With Money Abroad--Anywhere Abroad--Is Impacted By Massive Bank Deal READ MORE HERE

FBAR NEW FILING METHOD PUZZLE?

Foreign Bank Accounts, IRS, FinCEN & Catch-22 http://www.forbes.com/sites/robertwood/2013/08/20/foreign-bank-accounts-irs-fincen-catch-22/

Expatriate ( surrender us citizenship) to save taxes

http://www.forbes.com/sites/robertwood/2013/08/12/thousands-leave-u-s-over-taxes-5-rules-if-youre-tempted/

FBAR form TDF 90-22.1 replaced by FinCen Report 114

The FBAR form TDF 90-22.1 that US taxpayers must use to report their foreign bank and other financial accounts (usually including foreign stock brokerage accounts and pension plans) has been renamed as FinCen Report 114.  It now must be filed on line and cannot be filed on paper.  The renumbering of the form will only ad to the confusion many taxpayers have concerning the filing requirements for this form and when they must file it.

DOWNLOAD THE INSTRUCTIONS ON HOW TO USE THE NEW ON LINE FORM HERE

In June, the AICPA reported that Financial Crimes Enforcement Network (FinCEN) took a big step forward and began allowing third-party preparers of FBARs to e-file on behalf of account holders.  To facilitate the e-filing of FBARs, FinCEN has released a new FBAR e-filing authorization form.  The new form, FinCEN Form 114a, Record of Authorization to Electronically File FBARs, is to be used by filers who submit FBARs jointly with their spouses, or through third-party preparers.  The form should not be filed with the FBAR but copies of it must be maintained by both the filer and the account holder and made available upon request by FinCEN or the IRS. 

FinCEN is also making technical adjustments to ease FBAR filing and allow for enhancements such as introducing new space on the form for filers to provide reasons for late filing as well as the addition of third party preparer information. In addition, an FBAR batch filing capability is now available for testing. These new capabilities and the ability for filers to test their batch files are available on the BSA E-Filing Test site. Updated FBAR Batch Filing Specifications are also located on the BSA E-Filing Test site. FinCEN anticipates the revised electronic FBAR and batch capability will be available for general use by September 30, 2013.

If you need assistance filing late FBARs (now FINCEN Form 114) please email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com 

TAX DEDUCTIONS FOR EXPAT PART TIME BUSINESSES

How Not To Run A Side Business: Navigating The Hobby Loss Rules http://www.forbes.com/sites/anthonynitti/2013/07/22/how-not-to-run-a-side-business-navigating-the-hobby-loss-rules/

WHAT IRS LOOKS AT TO DETERMINE IF IT WILL AUDIT YOUR TAX RETURN

Great flow chart graphic (see link below) showing the statistics and criteria for audit by the IRS.  Note that foreign bank accounts are one of the criteria.  The IRS has recently significantly increased teh audits of expatriates living abroad . Those audits are conducted by mail, phone, etc.  You will need written documentation to support anything they question on your return (without written documentation you will lose the deduction).

The IRS will often test your reported income by asking to see your bank statements, etc. to determine how much money is going through those statements and compare it with your reported income. Any difference must be explained.  Your lifestyle (home costs, living expenses, etc) must also be supported by your income or you may have to explain and prove where the additional funds to support it come from.

LINK TO AUDIT CRITERIA AND STATISTICS  http://www.entrepreneur.com/article/227437.

Email us if you need experienced attorney/CPA tax audit representation 

GAO: Foreign account “quiet disclosures” may be much higher than detected

Quite disclosure is when taxpayers with previously unreported foreign bank or financial accounts file amended returns to report the income and file the required FBAR forms (TDF 90-22.1) without going through the several formal IRS offshore disclosure programs.  The IRS does not approve of silent disclosure and has threatened to seek penalties against all taxpayers who try that method of filing past FBAR forms.  The Government Accounting Office has release a report which can be read below about the large number of quiet disclosures that have not yet been discovered by the IRS.

GAO: Foreign account “quiet disclosures” may be much higher than detected

4 Real Life Stories of Individuals Living Abroad who entered the IRS Offshore Disclosure Program

Marie Sapirie in Tax Analysts describes four real life scenarios of taxpayers who entered the IRS Offshore Disclosure program which includes the complications, problems and hardship suffered by these individuals. READ ARTICLE HERE

We have assisted well over a hundred expat US Citizens to date surface with the  IRS and through the complexities of the several programs available.  We can help you.  ddnelson@gmail.com  and www.expatattorneycpa.com 

FBAR Must be filed On Line by June 30, 2013 for 2012 - On Line Form Has a Flaw which may cause trouble

The FBAR form (TDF 90-22.1) (report of foreign bank and financial accounts) must be filed by 6/30/13 on line to avoid potentially horrendous penalties.  The process is fairly simple, but has one glitch. After you

register, and are given access to the form (which looks just like the paper form), to finally submit the form you must enter a PIN number which the screens says was sent to you by email (at your the email address you gave when you registered). That statement often is not true. Many have never received a pin number by email and you cannot file the form without the  8 digit PIN number.

You can get your pin number by going back to the main screen and looking at the left hand column for the link there that mentions PIN in its description.  Click on that link and you can then receive a new PIN number and then go back to the submission screen, enter it, and you are done. Be certain to print out your proof of filing and keep track of your user name and password for next year.  This handy hint may save you 40 minutes or more waiting on the help line for them to explain to you that the website is not correct and then tell you where to find the PIN number.

The link to register to file your FBAR on line is at:  http://bsaefiling.fincen.treas.gov/Enroll_Individual.html

After June, paper form filings will not be allowed. If you try to file on paper, your form must arrive by 6/28/13.  Unlike tax forms, date of postmark does not count!

Frequently Asked Questions (FAQs) About International Individual Tax Matters

The IRS has put together a list of the most common questions they receive from US Citizens and Nonresidents living abroad about their US tax returns and rules.  Click on the heads to each section to go to the questions set forth below it.

General FAQs

1. I’m a U.S. citizen living and working outside of the United States for many years.  Do I still need to file a U.S. tax return?
2. I pay income tax in a foreign country.  Do I still have to file a U.S. income tax return even though I do not live in the United States?
3. What is the due date of a U.S. income tax return?
4. I just realized that I must file U.S. income tax returns for prior years.  How many years back do I have to file?
5. What is the status of my refund?
6. I have completed my tax return and I have a balance due. How do I pay the tax liability?
7. How can I get a transcript for current or previous years?
8. Now that I live overseas, how can I find a tax preparer?

Mailing Addresses

1. What is the correct mailing address to file a Form 1040 from overseas?
2. What is the correct mailing address to file a Form 1040NR?

Filing Status and Dependents

1. I am a U.S. citizen married to a nonresident alien. What is my filing status and can I claim an exemption for my foreign spouse?
2. I am a U.S. taxpayer residing abroad and I have a child who was born abroad. Can I claim my child as a dependent on my tax return?

Exchange Rates

1. When converting foreign currency to U.S. currency for purposes of filing a U.S. tax return, what foreign currency exchange rate should I use?

Notices

1. I took a position on my income tax return based on a U.S. income tax treaty. However, I received a letter indicating that my treaty-based position is invalid.  What can I do?
2. What is the meaning of a notice I recently received from the IRS that says I owe a whole lot more money for my 2005 tax return that I already filed?
3. How does the U.S. Internal Revenue Service (IRS) calculate interest and penalties?

Green Card Holders

1. What are my responsibilities as a green card holder if I have been absent from the United States for a long period of time?
2. I was a long-term resident of the United States prior to surrendering my green card. What is my U.S. tax filing obligation?
3. I am a green card holder.  May I claim residence in a foreign country under a tax treaty and obtain benefits under the tax treaty?

Foreign Earned Income Exclusion (Form 2555)

1. What deductions and/or credits am I allowed on my U.S. income tax return as a U.S. citizen living and working in a foreign country?
2. If my foreign earned income is below the foreign earned income exclusion threshold amount, am I still required to file a U.S. individual income tax return?
3. Do I need to have a tax home in a foreign country in order to claim the foreign earned income exclusion?
4. I have been working abroad for many years and claiming the Foreign Earned Income Exclusion using a Form 2555. I claim the Physical Presence test every year. Can you explain the difference between the so-called Physical Presence test and the Bona Fide Residence test?
5. Can foreign pensions be excluded on Form 2555?
6. What is the difference between Forms 2555 and 2555-EZ?
7. When am I required to use of the Foreign Earned Income Tax Worksheet when calculating my U.S. income tax?

Expatriation: Former Citizens and Long-term Permanent Residents

1. What is the purpose of Form 8854, Initial and Annual Expatriation Information Statement, and where can I get the form?
2. I terminated my U.S. resident alien status (gave up my green card) and was told that I may still need to furnish some documents to the IRS. Can you please explain?

Application for IRS Individual Tax Identification Number (ITIN) – Form W-7

1. Who needs to apply for an Individual Taxpayer Identification Number (ITIN)?
2. When and how do I apply for an Individual Taxpayer Identification Number (ITIN)?
3. I am a nonresident alien living in a foreign country and I will receive U.S. source royalty income.  Do I need to obtain an ITIN?
4. I am a nonresident alien in a foreign country. I was notified that I inherited some money in the United States. The executor requests that I provide a tax identification number. Is it sufficient to provide them with a foreign tax identification number?
5. I sent in an ITIN application with a Form W-7 and a notarized copy of my foreign passport. However, my application was not accepted due to the notarized copy. Why was the notarized copy not accepted?

Withholding on Income from U.S. Sources

1. What is the purpose of the Form W-8 BEN?
2. I am a US citizen residing abroad. I file my U.S. federal income tax return every year using my permanent foreign address. I just received a letter from my U.S. bank along with a Form W-8BEN. Does this form apply to me?
3. I’m a nonresident alien and received a Form 8288-A from the settlement title company or attorney who handled the sale of real property located in the United States that I owned for many years. Why did I get it and how does it affect me?
4. As a nonresident alien, do I need to report gambling winnings from the United States? If so, how do I report such winnings?

Reporting of Foreign Financial Accounts

1. I was reading the 1040 booklet in the section that covers Schedule B and I saw something that talks about reporting my Foreign Bank Accounts to the IRS. Is that something that affects me and is there something that I should do?

Top Frequently Asked Questions for U.S. Aliens and Citizens Living Abroad

1. I am a U.S. citizen. If I move to Canada to live and work there as a Canadian permanent resident, do I pay both U.S. and Canadian taxes?
2. Are the Canada Pension Plan and Canadian Old Age Security benefits taxable? If they are, please tell me where they should be entered on Form 1040.
3. What is foreign earned income? Is it income paid by a foreign person for working abroad, or is it income paid by a U.S. company for working abroad?
4. I live in a foreign country. How do I get a social security number for my dependent who qualifies for a social security card?
5. As a nonresident alien, I'm not subject to social security and Medicare withholding. My employer erroneously withheld these taxes from my pay. What should I do to get a refund of my social security and Medicare taxes?
6. Are nonresident alien students with F-1 or J-1 visas and employed by a U.S. company required to have federal income taxes withheld from their paychecks?
7. I am a U.S. citizen working for a U.S. firm in a foreign country. Are any of my wages or expenses tax deductible?
8. How do I know if the U.S. has an income tax treaty in force with another country?
9. Do I have to meet the 330-day physical presence test or have a valid working resident visa to be eligible for the foreign earned income exclusion?
10. Is there an Internet site with the exchange rates to convert foreign currencies to American dollars?

Need further help or explanations?  We have specialized in US Expatriation, International and Nonresident taxation for over 30 years. Email us at ddnelson@gmail.com or visit our websites at www.TaxMeLess.com or www.ExpatAttorneyCPA.com .  Skype: dondnelson