No Confirmation From The IRS? Seriously?

By: Pete
Date posted: 08.20.2012 (11:28 pm) | Write a Comment

After waiting for a few weeks to hear back from the IRS following my sending out the revised filings, I was anxiously waiting for a confirmation from the IRS that instead of owing almost $10K, my revised amount was $0. How sweet that would be. But I waited, waited and waited. Nothing came in the mail.

After a while, I sent out an email to the tax specialist that I had consulted. He informed me that: “No news is good news”. What did he mean? Turns out that the IRS does not send out a confirmation if no money is owed. That sounded crazy. In Canada, no matter what you end up reporting, you would receive a statement that will confirm the numbers and whatever you end up owing (or not).

It Can’t Be That Hard?

I mean right now, I’m half happy that everything “seems” over but also wondering if they ever did received my revised form or if it could have gotten lost in the mail. How would I know? Just seems like a bad system, especially when you consider the cost of actually providing me and others with a confirmation. I’m sure it would avoid confusion for a few others (including myself).

What’s Next?

Given how my first call to the IRS went, I can’t say I’m thrilled about the idea of calling them back to confirm that everything on my first is ok. That being said, I’d really prefer to know rather than assume… so chances are that I will end up calling. Have any of you gone through this? Did you get anything back from the IRS if you owed nothing? If not, did try to call to confirm?

Taxes Are Such An Imperfect Science

By: Pete
Date posted: 08.01.2012 (6:08 pm) | Write a Comment

It’s amazing really. I’ve always wondered what the difference was between using an accountant, a firm like H&R Block or a private accountant. It turns out that testing was fairly easy and interesting.

A Businessweek magazine reporter decided to do a test for his personal taxes and he used 4 different sources. I was very curious to see how close they would be. One source was way off but even the 3 others turned out to be very different.

How Can Taxes Be Interpreted So Differently?

It’s amazing when you think about it. Taxes are at their core about revenues, expenses and deductions. You might not think that there would be so many differences between methods but it does turn out that there are.

It’s Not (Necessarily) That Some Do It Wrong

I personally think that as our financial situation becomes more complex, especially for those that have a personal account, there is a lot more interpretation involved. Which expenses can or should be deducted? There is a lot more involved than what those of us (non-accountants) can imagine.

How Aggressive Are Accounting Methods?

I would imagine that most cheaper alternatives (H&R Block, some software, etc) don’t make enough to try to battle it out with the IRS, or put much energy into trying to interpret the right move. Those would probably result in more taxes to be paid.

Is it better to be more agressive?

I guess to an extent it is as long as the accountant is ready to stand by you if the IRS eventually knocks on your door (odds of that happening have increased in recent years). Personally, it is not a big issue for my US taxes because I fully expect to never owe money to the US Govt as long as I pay taxes here in Canada. For those domestic taxes, as I can increase my income, it becomes more worthwhile to get better accounting and save more on my taxes.

IRS Offering Deal For Expats That Want To Comply

By: Pete
Date posted: 07.11.2012 (3:29 am) | Write a Comment

Clearly, the IRS continues to work hard on trying to get expats to comply both by filing its taxes but also report their financial assets held in foreign banks. The IRS announced a deal for such expats. Basically, individuals that have been non-compliant can use the terms of this deal by submitting:

-three years of back taxes
-six years of bank reporting forms – so-called Report of Foreign Bank and Financial Accounts, or FBARs –
-a signed letter explaining why they haven’t filed

Such individuals will see any amounts owed to the IRS (up to $1500 per year) waived. The IRS seems to estimate that 90% of such individuals fall within this range. Also, the IRS seems to be willing to exclude income from Canadian retirement accounts from the income calculation which will make life much easier for US citizens living in Canada.

Is It Working?

The IRS seems to be having decent success. In their press release they stated: “The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens”

Hiding Will Become Increasingly Difficult For Expats

In Canada alone, there are around 1 million US citizens but all of the recent legal changes as well as the new agreements that will make it possible for the US government to get access to banking information from foreign (including Canadian) banks will make it very difficult to simply ignore the law as many seem to have tried to do in the past few years.

Filing the FBAR (Foreign Bank Accounts Reporting)

By: Pete
Date posted: 06.04.2012 (5:00 am) | Write a Comment

Today, I sat down to actually prepare my FBAR reports. The first step of course was gathering all of my financial statements. Then, I had to verify what the highest amount of assets that I had owned in foreign accounts was in order to fix according those numbers. Luckily for me, in 2011, that was easy to do since my wife and I did buy a house so our highest level of assets was just before that purchase went through.

Specified in the instructions for the FBAR is the fact that using month end statements is a reasonable way to determine which date to use. In my case, the date is the end of May 2011. So I gathered all of my brokerage and bank accounts from the end of May and prepared to file. Compared to filing tax forms such as form 1040, the FBAR s relatively simple to file once you do have the information. Here is a basic video regarding the FBAR:

In my next post, I will describe exactly how I filled out the FBAR:)

My Latest Taxes Update

By: Pete
Date posted: 05.10.2012 (10:32 am) | Write a Comment

For those who are reading this blog for the first time, I presented my situation as an expat American living in Canada who was not aware of my duty to report revenues to the IRS. I eventually decided to file myself, explaining the forms and process that I ended up taking. Then, I received a letter from the IRS describing how I owed nearly $10,000 for my 2010 taxes. Shocking. It had to be a mistake right? I was convinced it did of course so I contacted the IRS to straighten out everything. The problem was trying to speak to the right person in order to rectify my things, which proved to be a major challenge.

My Latest Update

As discussed, I decided to contact a professional accountant specialized in cross-border taxation in order to get my situation resolved. The person I hired ended up finding a few things that needed to be corrected in my 2010 filing and also helped out with my 2011 filing. Needless to say that I was relieved to see that he agreed that I would not owe any money.

What’s Next?

The first step for me will be to send my amended filings to the IRS, I will then contact them 10 days later or so in order to confirm that they did receive my amended filing

Hopefully, I will then receive a confirmation from the IRS of the amount owed (0$)

I will then look into the corrections that were made and discuss those on this blog! Make sure to sign up for the newsletter if you want updates!

Finally, as discussed, I will also be working on the declaration of my financial assets that must be declared to the US Treasury

Once all of that is done, I might try to work on a more descriptive post on filing taxes as an expat although it’s always tricky given the differences from one individual to another.

Some of you have contacted me regarding your own situations, I’d love to hear what your status is and if you’ve had any adventures during your process.

Filing The Report Of Foreign Banks And Financial Accounts

By: Pete
Date posted: 04.23.2012 (5:00 am) | Write a Comment

I know that this blog is mostly about tax and more specifically IRS tax requirements for US citizens living abroad, usually better known as expats. Initially, that was also the extent of what I believed was expected. It does turn out that one other US government agency requires an annual filing that I am late on.

The US Treasury requires all US persons to file a statement to inform the treasury of their financial assets. I’m not exactly certain when this started or how it is used although I guess reporting huge assets to the treasury but little income to the IRS could help trigger further investigation. Maybe not. I’m really not certain how this info is used but since I have nothing to hide and want to be in good standing with all US agencies, I started preparing to file.

I got both the form and explanations here:

http://www.irs.gov/pub/irs-pdf/f90221.pdf

Here are some conclusions from my readings!

Who Must Report?

United States citizens or residents that hold over $10,000 in accounts held outside the United States at any time during the year.

What Should Be Included?

Very broadly, this includes securities, brokerage, savings, demand, checking, deposit, time deposit, insurance policy with a cash value, annuity with a cash value, etc.

Determining The Amount To Report

Basically, you must use a reasonable way to determine the maximum amount that you had during the year (using monthly statements seems to usually be ok) then when necessary, convert back to $USD using the year end rate of the US Treasury.

When It Needs To Be Filed?

At the latest on June 30th for the previous year. The penalties for not filing can be up to $10,000 per year and penalties for intentionally misreporting can go up to $100,000…

My Next Steps

I will be preparing this form for the past 6 years and will then send them over to the US Treasury.. As usual, I will keep you posted on how things go. I do not expect to get a bad surprise as I did with the IRS (still working on that) but better file earlier than later to deal with any issues.

Let me know if you have questions, comments or anything to add:)

Latest Update (Consulting Cross-Border Tax Specialist)

By: Pete
Date posted: 04.10.2012 (12:10 am) | Write a Comment
After a few calls to the IRS, I did finally decide to go ahead and consult a tax specialist in cross border taxation. Why? Simply because I wanted to stop running around tring to find the solution. No, he will not be filing everything on my behalf but he will be able to give me better explanations and also tell me what is missing in my files.
I had assumed from the start that I would be able to get such answers directly from the IRS and while I’m sure that is possible, after calling several times, it has proven a big challenge to talk to people that had good knowledge of taxes for expats. There might be some number that I’m not aware of to speak about such issues but I honestly was lacking the time to keep trying.

What’s Next?

I expect to be able to conclude my 2010 and 2011 taxes and will now be moving to file my “Report of foreign bank and financial accounts”. What is this? It’s the other part that is mandatory for US citizens which requires us to report assets that we hold outside of the US. These are not filed to the IRS but rather to the Treasury. Why? I guess some of it might be related to simply knowing, being able to make sure that the US government is aware of all assets owned by US citizens, which makes it easier to make sure that fiscal laws are being respected.
I will of course keep you posted on my progress in both regards:)

My Call To The IRS

By: Pete
Date posted: 03.23.2012 (2:42 am) | Write a Comment

I had a very optimistic view that one call and everything would be settled and fixed. I wish it were that easy. Unfortunately, it has proven a bit more complicated. I did call the number given to me in the answer from the IRS which directed me to another number where I was able to speak to someone. Unfortunately, that person did not seem to be any type of specialist on expat taxes as most of my questions seemed fairly new, especially regarding the RRSP credits.

She seemed to think that my file was showing I had not claimed a foreign tax credit which I was certain to have done. In the end, while the lady was useful and did give me the information I was looking for regarding forms that I need to fill… I still don’t feel as if this were resolved.

More Questions

The problem is that even though I did call the IRS and get some questions, I’m feeling less convinced about my situation now. First of all, the RRSP deductions do not seem to be as straight forward as I was hoping for. There might be some limit to who can get an exemption for such a credit. Also, it’s unclear to me why she was saying that I had not asked for the foreign tax credit.

My Next Step

I feel like at this point, I need to review the letter that they sent a lot more carefully. I will also be sending an answer by email which might help the communications but also will help both them and myself understand the other more clearly.

Still Believe I Will End Up Paying Nothing

At this point, I am certainly not feeling amazing but I remain very confident that I will be able to find the best possible solution:) Will keep you posted of course

Answer From The IRS

By: Pete
Date posted: 03.23.2012 (2:34 am) | Write a Comment

Wow, the last time I wrote a blog post, I was getting ready to call the IRS after not getting any answer. Not that I felt it was shocking (these things tend to take a while) but I just wanted to follow up.

On the day I had planned to call I did actually receive a letter from the IRS. I was insanely busy and while I was happy to get the letter, I feared whatever would be inside. Thus, I waited a couple of days before opening while being fearful of the result.

I Wish Those Feelings Would Have Been Wrong

When I opened the letter, I very quickly got to the part where the result was and was shocked to see that the IRS was reporting that I owe 9K $USD or so!!! They had found one issue on my report that added up 5K or so. Add up interests and so on and it increases oh so quickly. You can imagine that I did not feel so great.

Cooling Off

I then headed to work trying to avoid thiking about that letter but of course that did not go so well. I was trying to figure out what I could have forgotten or messed up. Then it hit me! I had contributed 25K or so in RRSP’s in 2010.

RRSP Deductions For The IRS

I started doing some research about how RRSP’s could be deducted for US tax purposes and found out the existance of form 8880 that exists exactly for that reason. Clearly, I should have found out about this and filed it on my first request. Arghhhh

Should Be Ok

I am hoping that all will have a good ending. My first reflex will be to contact the IRS to explain what happened. According to the letter, I have 60 days to make changes to my letter thus I should be ok. I can’t say that I’m feeling great but I do feel like there should be a good way out of this.

Learning Experience

I did not expect to get it right the first time but i certainly would have preferred not getting such a huge bill. I expected small issues but nothing that would come with a bill for almost $10K… oh well! I will give the IRS a call and report back.

Following Up With The IRS

By: Pete
Date posted: 02.13.2012 (5:00 am) | Write a Comment

I would love to say that I expected to already have an answer from the IRS but truth is that I didn’t. In fact, I expected a long delay and that I would probably need to contact them for a follow up. Unfortunately, that day has arrived. To give you some context if you are new to this blog, I am a US citizen that lives in Canada and had not known about my duty to report my income and assets to the IRS. I got information about different ways to get this done and in the end, the only viable option seemed to be to learn how to do it myself and send everything to the the IRS.

I emailed the IRS for instructions, got a very detailed email about what I needed to do. It took me a bit over a month to figure out which files I needed to use and how to actually fill them out, I ended up filing using form 1040, form 2555 and form 1116.

Then, I sent the material along with proof and a letter explaining my situation off to the IRS. I did not (and still don’t) expect everything to be perfect but I think most of it should be ok and hopefully the IRS can inform me of any possible modifications that need to be done.

Additionally, I hope to get some guidance from the IRS regarding past years and how far back I should go when reporting my income. In the initial email, the IRS had mentioned 6 years and that would certainly be fine, especially since I don’t expect things to be very different from one year to another since so few sections actually apply to me.

Here I am, 1 month later with no answer which is not shocking in any way. I will however prepare to call the IRS to get more information about my file. Is something missing, did they receive it alright, can I do anything further to make it easier for them? I actually have a decent amount of questions and will be sure to prepare everything before calling them. I’m hoping for a very nice conversation with them but in all honesty, I don’t know what to expect. Hopefully I will not be disappointed.

If anyone has had experience calling the IRS, I’d love to hear from you. On one hand, I have clearly been wrong about not producing this earlier and could probably deserve to not get much “sympathy”. However, I am now volunteering and trying to do the right thing, I would hope that it would help me out.

In my next post I will be reporting back about how discussions were.