Hello everybody,

This is a question to the american members of the forum:

I am an american dual national. I was born in the US from foreign parents and never lived there. I recently discovered that I was supposed to report my income to the US gov't.

I am wondering what would be my US tax liability? I earn around 150'000 CHF, my wife is NRA and I live in Canton de Vaud which is not really a low taxing Canton.

I contacted a CPA and he first said : "No problem. You will end up paying very little and may be nothing at all". That was my impression too.

And after he looked into my case, he said : "Well, you would actually owe 5000 USD (per year...) to the IRS".

I am wondering if he used all the (legal) ways to lower that because that seems really high.

Any opinion on these figures?

By the way, is it worth using a CPA whose fees are astronomical?

I heard of turbotax and others, are they useful, useable?

Thnaks in advance for your help

It is really too hard to say without knowing your full situation for possible deductibles etc. However, even with the double taxation treaty, most still owe a check to the IRS each year, and for high earners, it goes up more. You could do some strategic tax planning things, pension wise, etc. that could minimise the US side, but it could also make things worse on the swiss side. If you want zero US tax liablitly there is probably little hope other than renouncing citizenship (with some issues here too) or earning less than the foreign earned income/housing exclusions.

as a US citizen you're taxed in the US wherever you are. so (simplifying) you essentially end up paying tax in your local jurisdiction and if the US tax is more, you pay the difference to the US.

yes, you do owe the US some tax.

first, you take off about 90k USD from your 150k, leaving you with about 60k. (this is your foreign earned income exclusion at work)

this 60k is subject to US taxes, minus the taxes you paid on this amount to the Swiss gvt.

just for example, if the US taxes are about 30% and swiss taxes are about 20%, then you owe the US 18k. but you paid the swiss 12k. So you get a foreign tax credit for this 12k and you owe the US 6k.

Looks like I'll be knocking on your door scrambled for the tax help

Have you thought about revoking american citizenship? If you do not intend to live in the US at all, there is no point paying additional money to Uncle Sam, IMHO, since you are not receiving any socio-economic benefits from the US.

It may not be too costly for you to do so from a tax perspective, assuming that you are not a high income earner. check out the IRS website on Expatriation Tax.

http://www.irs.gov/businesses/small/...=97245,00.html

Kristo,

Every American I've met in your situation has never bothered to file a return. They continue to visit the US periodically and nothing ever happens to them.

Legal? No, but it seems like the way to show up on the IRS's "radar" is to file that first tax return.

I'd give up the US citizenship. It's a g***mn curse.

Its illegal to renounce US citizenship in order to dodge paying taxes. How they prove it i don't know.

It's not a rare thing for US citizens to not have filed returns whilst living abroad. Many don't realise they had to.

It's better to file a return and the prev two years rather than the IRS suddenly investigating you. Thats when the fines start.

In the end, I think renouncing citizenship is a personal decision - and most often it is not determined solely because of taxes, though it forms a significant part of it.

Actually you are correct...May not be legal but from situations I have known and heard about there is no problem until the people in question bring attention to themselves...

With apologies for a long reply, but a useful answer has to address a few problem's you didn't mention.

First, to your query: The tax estimate is probably "very close." From 2006 on, your federal tax rate is calculated as if there were no "foreign earned income exclusion", i.e. in your situation a 25% tax rate on the income above the exclusion amount.

So, you'd owe (approximately) US $10K less a credit for CH taxes paid on the "top portion", i.e. on the amount above US $91,400 for 2009. (You do not get a tax credit for all CH taxes if you also claim the earned income exclusion.)

This assumes, of course, that at least $91k or your income qualifies under the "earned income" definition.

Honestly, there is no way to be sure unless you sit down with the tax forms, and ruin a weekend by figuring them out (which you certainly can do for yourself, if your blood pressure can handle the aggravation).

The real problems are these:

First, the IRS amnesty has passed, and if you file prior years' tax returns now, you will face a 25% penalty for late filing, plus interest (avg 8% per year). So, this can get expensive rather quickly.

Secondly, you will face the $10k per year penalty for not filing the FBAR. (I assume you didn't, since the IRS hasn't matched the FBAR against the non-filed tax returns, and written to inquire.)

Further, if you (a) suddenly start filing returns, and are over 25 years of age, or (b) you renounce your US citizenship, which is reported now to the IRS, then they are quite likely to realize you haven't been filing for a very long time, and will send you a cordial letter. Or two.

Net: Unless there is some urgency, you may wish to wait for another "amnesty" program.

IMVHO, no. From your post, there is nothing overly complicated about your tax returns, you need merely look for a CPA who is familiar with the "foreign earned income exclusion" and with the forms for foreign tax credits (in short: find a CPA with many US expats as clients).

There is an American CPA in Zurich who would have exactly the right experience to help you: Steven E. Kraft (he's in the 'phone book).

TurboTax is very useful, but honestly you clearly can understand the forms etc yourself, and I would not trust TurboTax for non-resident returns and the tax credit (too unusual for their clientele).

But if you were unaware that you had file tax returns (as many are) and decided to sort it out, they won't come down on you mega hard. They want to get people into the system rather than make them run and hide.

I'd say do the last 3years and see if you owed anything. Then go from there

an american guy also told me that once you renounce your citizenship, they can still get you for tax 10 years afterwards.

I think if they believe fraud is involved

Thanks everybody for the replies!

To make a long story short, I was forced by my bank to sign a W-9 form (please don't ask for details). What is this W-9 all about? Is my identity going to land on some IRS desk somewhere? Does that make my case urgent? This is really the key question : if I was sure that this W-9 was harmless I would probably go on with my life the way it is at the moment....

I am aware of the stiff penalties for FBAR and non-filing but I also read about what they call the "reasonable cause". Wouldn't that apply to me? If I faithfully and honestly say why I am in this situation, wouldnt' they undertand?


It's very difficult to assess the lady I am in contact with (good or bad). I'll definitely get in touch with this Mr Kraft
Thanks for the recommendation.

I read that US customs at airports were now equipped to crosscheck US passports with the fiscal status of their holders. Rumor?
One thing is sure : when you go to the US consulate website to renew a passport, you are very quickly asked to provide your SSN. And you don't go further if you don't provide it....

To your three questions, a short reply this time (!):

* The W-9 is a form banks or brokers use to collect information they are required (by the IRS) to obtain. The W-9 is not submitted to the IRS, but the information is used to prepare a form 1099 (report of interest income, for example) which is sent to the IRS after each tax year.

* Yes, your identity will land in the IRS' computers, when the 1099 is submitted. (If you completed the W-9 in 2009, it is probably already there; if you did so this year, the IRS won't know you exist until early 2011.)

* Yes, urgent in that you are always far better off going to the IRS to explain your error than having the IRS find you.

I would remain concerned more about the FBAR penalty than the tax returns, unless you are talking about decades' of non-filing. My two centimes' remains the same: you need to have a candid discussion with a US tax accountant (or a US attorney) so you can balance the cost (of disclosure) against the risk (of the IRS finding you).

I don't know of any "reasonable cause" for not filing tax returns or the FBAR (i.e. I don't know of any cause the IRS would believe is reasonable), but if you can find any article by a US attorney that describes such cause, please post a link.

There is an old phrase used by US attorneys that "ignorance of the law is no excuse." (I've had a French avocat tell me the same thing about the French legal and tax codes.) Moreover, the FBAR filing requirement is at least 15 years old (I've been filing it for a decade, and it was an old form when I first started), and the tax filing requirements are even older.

Integrating the U.S. tax system through Voluntary Disclosure


How can the American citizen who has not been filing with the IRS correct the situation? Fortunately, the IRS has a program called Voluntary Disclosure which facilitates integration into the U.S. tax system. Caplin & Drysdale, Attorneys, held a conference in Switzerland on November 26, 2008, entitled “Declaring Swiss Bank Accounts: A U.S. Perspective”. H. David Rosenbloom & Scott D. Michel of Caplin & Drysdal note the following about the Voluntary Disclosure Policy in documentation distributed at the conference."

• Because the IRS has limited investigative resources and cannot hope to detect and pursue more than a small percentage of non-filers or tax evaders, it is obviously in the government’s interest to encourage taxpayers who owe additional tax to file amended and delinquent returns.
• Recognizing that fact, and the fact that a true voluntary disclosure makes conviction unlikely, the IRS for many years has followed a policy under which voluntary disclosure is, technically, deemed a factor to be considered in the decision whether to initiate a criminal investigation or recommend prosecution. The IRS takes great pains to argue that the policy does not provide an “amnesty.” However, as a practical matter and in our many years of experience in dealing with cases involving undeclared accounts, it is inconceivable that the IRS would recommend criminal prosecution as to a voluntary disclosure that meets all elements of the policy.
• The current version of the IRS policy is found in the Tax Crimes section of the International Revenue Manual.
• The IRS Manual makes it clear that the voluntary disclosure “policy” provides no legal or formal guarantee. It states: “It is currently the practice that a voluntary disclosure will be considered with all the other factors in the investigation in determining whether criminal prosecution will be recommended. This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice. A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended.”
• There are two approaches to voluntary disclosures – quiet disclosures and noisy disclosures. The traditional procedure for making a voluntary disclosure is the “quiet disclosure” – to mail the delinquent return with payment for tax and interest. According to Rosenbloom and Michel, such returns are rarely selected for audit and civil penalties may be avoided altogether. “Noisy disclosures”, on the other hand, involve contacting the Criminal Investigation Division in the appropriate district to see if the person is eligible for a voluntary disclosure, i.e. not under investigation by the IRS. However, this procedure raises flags at the IRS. A revenue agent may be assigned to examine the returns and there is a heightened risk of civil penalties.
  
  The Voluntary Disclosure program does allow people to integrate fairly smoothly into the U.S. tax system. If you want to take part, you should consult your tax advisor or a tax preparer for specific counsel. It may be sufficient to file prior year returns along with a letter of explanation, with your current year return or as a separate mailing before the current year return is due. Depending on your situation, the number of prior years to file may be up to 6 years; it may be less. You must also have a U.S. Social Security number for your tax returns to be accepted by the IRS. If you don’t have a U.S. Social Security number, you need to apply for one through the American consulate or from the Social Security office, and beware that it may take up to 6 months to receive it.This brief article highlights the growing danger for Americans overseas of not filing with the IRS and provides basic information concerning the IRS Voluntary Disclosure policy allowing non-filers to integrate into the system. ACA is in no way whatsoever qualified to provide specific professional tax advice or counsel. Any person interested in pursuing the Voluntary Disclosure policy should contact a professional for advice and for assistance in preparing the tax returns – the current one as well as those for prior years.

__________________
"What makes a good man go neutral? Lust for gold? Power? Or were you just born with a heart full of neutrality?"

That 10 year feature has already been done away with, per the revision to the Expatriation rules, for which I have posted a link above.