Category Archives: FBAR Divorce

Poll: Is it common for #Americansabroad to have a higher U.S. income tax bill than a comparably situated Homelander?

Imagine the following two people:

We are comparing “Homelander Ted” to “Expat Benedict Arnold”.

Assume that “Homelander Ted” lives and works in the Homeland and purchases in ONLY U.S. dollars. He would not consider using any other currency.

Assume the Expat Benedict Arnold” (having escaped from the Homeland) lives and works in Canada and purchases in ONLY Canadian dollars. He would NOT consider using any other currency.

Assume that each of “Homelander Ted” and “Expat Benedict Arnold” own a home in their respective countries of residence, have employment income, engage in personal finance which includes retirement planning. “Homelander Ted” commits “personal finance” ONLY in the Homeland. “Expat Benedict Arnold” commits “personal finance abroad”.

Assume that “Homelander Ted” and “Expat Benedict Arnold” have financial situations that are comparable in their respective countries of residence.

To be specific both of them:

1. Have a principal residence in that they have owned for more than two years and that was sold on November 30 of the year. Assume further that there was NO capital gain measured in local currency. Assume that the sale included a discharge of an existing mortgage and that interest was paid on the mortgage up to the November 30 sale. Assume further that they each carry a “casualty” insurance policy on the property.

2. Have employment income and have pensions provided under the terms of their respective employment contracts.

3. Have and use mutual funds as a retirement planning vehicle.

4. Have a 401(k) plan in the USA and an RRSP in Canada.

5. Have spouses and must consider whether to use the “married filing separately” or the “married” filing category. “Expat Benedict Arnold” is married to an “alien”.

6. Give their respective spouses a gift of $500,000 on January 1 of the year.

 

U.S. Tax owing – versus TAX MITIGATION PROVISIONS

Assume further that each of “Homelander Ted” and “Expat Benedict Arnold” each prepare a U.S. tax return. Imagine that the Internal Revenue Code does NOT have (TAX MITIGATION PROVISIONS) either the Foreign Earned Income Exclusion (Internal Revenue Code S. 911) or the Foreign Tax Credits (Internal Revenue Code 901). Imagine further that there is no U.S. Tax Treaty that mitigates tax payable to the USA under these circumstances.

The question is how much tax “Expat Benedict Arnold” would be required to pay the U.S. Government if there were no TAX MITIGATION provisions.

How likely is that without the TAX MITIGATION PROVISIONS that the “Expat Benedict Arnold” would be required to pay HIGHER U.S. taxes than “Homelander Ted”. In other words:

Does the Internal Revenue Code:

First, impose higher taxes on “Expat Benedict Arnold” for the crime of committing “personal finance abroad“?

Second, mitigate those higher taxes through one of the TAX MITIGATION PROVISIONS described above?

Are U.S. Taxes (not including foreign taxes) actually higher for Americans abroad than for Homelanders?

Please consider the questions (without considering tax paid by “Expat Benedict Arnold” to Canada) in the following poll:

How does the U.S. tax bill of an American Abroad compare to the U.S. tax bill of a comparably situated Homelander?
(polls)

 

For Green Card Holders with #Offshore accounts relief may be on the way

And from the IRS Commissioner …

 

On June 3, 2014 IRS Commissioner Koshinken in prepared remarks commented on matters of interest to U.S. citizens abroad including:

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@AARO debriefing on #FBAR #FATCA renunciations and more

This is a very interesting video from AARO about their recent trip to Washington. Note the part at the end where they talk (NOT about renouncing U.S. citizenship) but about the fact that the renunciations are being noticed in DC.

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Guess who warned of the #FBAR Marriage in 1970?

The Globe has a really nice description of this here.

 

The Globe and Mail includes it’s daily “A moment in time”. On March 21, 2014, the Globe noted that on March 21, 1970, the song “American Woman” was released as a single. Along with the picture it included:

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The #FBAR Marriage continued – Is it the U.S spouse or the alien spouse that is the problem?

This post is based on a response to a comment at the Isaac Brock Society which included:

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Allison Christians CBC Interview – Citizenship-based taxation and #FATCA

#Americansabroad denied child tax credit for children who are NOT US citizens – Benefit or burden?

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Introducing the “FBAR Marriage”

The “FBAR Marriage” is a marriage between a U.S. person abroad and a non-U.S. person. The most important partner in the “FBAR Marriage” is the U.S. government. The most likely result of the “FBAR Marriage” is the “FBAR Divorce”.

American Exceptionalism = Exceptional Strains on the FBAR Marriage

We have seen discrimination in the following aspects of  the “FBAR Marriage”:

– requirement that the the U.S. spouse report on bank and financial accounts held with the non-U.S. spouse (FBAR, Form 8938, etc.) in the FBAR marriage;

– different and restrictive rules governing the transfer of assets from the U.S. spouse to the non-U.S. spouse (the transfer is a taxable event if the non-U.S. spouse is a “non-resident alien”;

– different and restrictive rules governing making of gifts by the U.S. spouse to the non-U.S. citizens spouse (regardless of residence);

– the considerations governing transfers of property and making gifts are a problem in the FBAR marriage, and they make divorce for U.S. citizens abroad far more difficult;

the tax penalty paid by the U.S. citizen spouse for taking the filing status of “filing separately” (instead of “married filing jointly”). Obviously the “non-resident alien” spouse cannot enter become a “U.S. person” for tax filing purposes. Note that this is going to become a bigger problem as the Obamacare tax kicks in;

On a more general level, there are the problems of :

– the family unit formed by the U.S. spouse and the non-U.S. spouse being unable to engage in responsible financial planning (no normal retirement planning products, mutual funds, etc.);

– the problems of the U.S. taxation of the principal residence of the family house;

– the possible problems of U.S. citizenship transmission if a child is born to the U.S. person and the non-U.S. spouse (interesting and complex area discussed on other posts). More on this in a moment.

And now, I draw your attention to another interesting fact:

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Marriage and American citizenship: The #FBAR Marriage and more

“The best way to get ahead financially is to be part of a married couple in which both partners have a college degree and a career.”

This was an interesting excerpt an article that first appeared in an article in Bloomberg View. The effect of marriage on financial stability is enormous. Marriages can either be financially advantageous or can lead to financial disaster.

That said, the reporting requirements of FATCA and FBAR have a huge impact on a non-U.S. citizen who is either married to or is considering marriage to an expat U.S. citizen. In a marriage many bank accounts and assets are owned and managed jointly. Imagine the following situation: Continue reading