More Expatriate Americans Break Up With Uncle Sam -2-
In a June 3 speech, IRS Commissioner John Koskinen said the agency may not have been accommodating enough to U.S. citizens who have lived abroad for years. “We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas,” he said.
This prediction model is worth noting because it nearly triples the market’s average yearly gain.
Important: A second free report based on that model reveals all of Zacks’ MUST-SELL stocks. See if AAPL or any of your holdings are on this list.
Get both free reports right now »
Scrutiny of Americans abroad will intensify, however, under the Foreign Account Tax Compliance Act, or Fatca, which Congress passed in 2010. The law’s main provisions, which take effect in July, will require foreign financial institutions to report income of their U.S. customers to the IRS, much as U.S. banks and brokers file 1099 forms.
Middle-class Americans “face overwhelming problems when they try to engage in standard financial practices, such as having a small business, saving for retirement, investing, buying life insurance, and making wills and trusts,” because of the laws governing assets abroad, said David Kuenzi, a financial planner with Thun Financial Advisors in Madison, Wis., who works with expatriates.
The U.S. tax code, for example, doesn’t recognize Australia’s version of an individual retirement account, Mr. Kuenzi said. American taxpayers with these accounts must file at least two forms a year declaring the account a “foreign trust,” and paying taxes on annual appreciation.
The penalty for failing to file can be as much as 35% of both contributions and withdrawals each year, plus 5% of the assets, said Mr. Hodgen, the Pasadena tax lawyer.
Ms. Moon learned that U.S. law requires her to file annual reports on retirement accounts, such as her Tax-Free Savings Account–similar to a Roth IRA.
Her husband, Ken Whitmore, objected to divulging financial information on joint accounts to the IRS. “Would you want the Canada revenue service to know what your financial situation is?” he said.
Ms. Moon concluded that even if the IRS didn’t levy the stiffest fines, the potential consequences down the road for missing a deadline or making a mistake were too costly. She later learned she would have been required to pay U.S. taxes on part of the gain on the couple’s Toronto house, which they hope to sell for a retirement nest egg. They bought the house in the mid-1980s for $125,000, she said, and it was now worth an estimated $800,000
Before renouncing her citizenship, Ms. Moon spoke with her sister, Sue Moon, a certified public accountant in Kansas City, Mo.
“U.S. citizenship is the most coveted citizenship in the world. To give it up, it has to be pretty serious,” Sue Moon said. “There was just a sadness on her part, that she had to make that decision. She didn’t take it lightly.”
Months after Ms. Moon renounced her citizenship, her official notice arrived in Toronto. Ms. Moon went to the U.S. consulate to pick it up and paid a $450 processing fee. She told the clerk it was “the saddest $450 I’ll ever spend.”
