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Old 07.08.2011, 15:52
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US Taxes: Come Clean or Jump Ship?

Hi guys!

I'm an American citizen, about to turn 39. My parents were American expats (they both live in the US now); I grew up almost entirely in Europe, studied here and have been married to a Swiss for about 16 years. I currently have double citizenship (US + CH).

For various reasons - in particular, frittering away my earning potential on the way to a doctorate - I never managed to do much earning until now. I've always known that I ought to be filing income tax returns - but the US has always seemed very, very far away (about 3 visits to family over the last 20 years ... ), and besides: I've never been anywhere near the point where I'd actually have had to pay anything, so I've never really had a bad conscience. Mostly, I got used to ignoring the whole issue in my early 20s ... and ... well, yeah ...

However, I've finally escape academia and settled into a Swiss job that will paying (brutto) around 130K per year - which is probably has me a little north of the money line. Also, my passport will be due for renewal in about 3 years. Also, I have kids (12 and 14) interested in obtaining citizenship via my mother (I don't qualify).

So ... I guess I need to make a decision. Either I make an effort to "come clean" with the US authorities or else I just pay a visit to Bern and toss my passport over the fence of the US Embassy.

That decision, in turn, has a lot to do with how much grief would/will be involved in getting into the taxman's good books. Can I hope for some kind of amnesty?

Also: *Have* they actually started checking tax history when they renew passports?

For that matter: how does one actually renounce one's citizenship??

BTW, I'm not feeling too cavalier about renouncing. Despite my very vague relationship with the US - I do sort of think of myself as an American. My parents were the real deal, I have a US accent, I was home-schooled in the US system, I like american football - the thought of simply giving it up doesn't feel quite right. Then again, my life is completely Swiss - I even speak CH-German with a Bündner accent - I'll probably never go back for more than a tourist trip for the rest of my life ... (Any yet, re-reading: note that I just wrote "go back." Why "back" ... ?)

So ... to reiterate: How painful would it be to come clean? And: what kind of knowledge do you guys have about similar situations?

TIA!

Mike
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Old 07.08.2011, 16:00
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Re: US Taxes: Come Clean or Jump Ship?

There is a lot of info here.

Tom
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Old 07.08.2011, 16:03
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Re: US Taxes: Come Clean or Jump Ship?

How does renouncing citizenship relieve you of your duty to file tax forms for your former years a US citizen ? In my experience, if you owe, you owe. Delaying repayment just becomes expensive, and hangs over your head.
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Old 07.08.2011, 16:05
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Re: US Taxes: Come Clean or Jump Ship?

Okay, start here:
Us citizens and us taxes

Have a search on the forum for 'taxes' and you'll find much more.

At the moment I don't think it's a great time to be a US citizen ... and to pay for all their debt the taxes are going to have to go up! You should also search for 'accountant' on the forum and find one to speak with. I also remember reading something about high tax penalties for those who don't file ...

Good luck!
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Old 07.08.2011, 16:09
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Re: US Taxes: Come Clean or Jump Ship?

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Also, my passport will be due for renewal in about 3 years. Also, I have kids (12 and 14) interested in obtaining citizenship via my mother (I don't qualify).

For that matter: how does one actually renounce one's citizenship??


Mike

How is it that you think your kids can't claim US citizenship through you?

As for renouncing citizenship, you can find the info on the Dept of State website. http://travel.state.gov/law/citizens...nship_776.html
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Old 07.08.2011, 16:22
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Re: US Taxes: Come Clean or Jump Ship?

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How is it that you think your kids can't claim US citizenship through you?
Because he never lived there after age 9. That's how it works, you need to have spent 5 years there, two of which after age 14.

Tom

Last edited by st2lemans; 07.08.2011 at 16:36.
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Old 07.08.2011, 16:28
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Re: US Taxes: Come Clean or Jump Ship?

don't renew your US passport...
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Old 07.08.2011, 16:31
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Re: US Taxes: Come Clean or Jump Ship?

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How does renouncing citizenship relieve you of your duty to file tax forms for your former years a US citizen ? In my experience, if you owe, you owe. Delaying repayment just becomes expensive, and hangs over your head.
That, at least, seems pretty unlikely. For one thing, I don't think the US even really knows I exist. Although I do have a SS#, I wasn't able to get a US bank account with it.

For that matter, the most I ever earned until two months ago was about 80K CHF, for the most part considerably less. So, AFAIK, if I had done all the paper work, I would never have had to pay anyway.

BTW, the 80K was roughly 10 years ago and lasted two years. And, come to think, it was actually less than 70K ...

Mike
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Old 07.08.2011, 16:32
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Re: US Taxes: Come Clean or Jump Ship?

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That decision, in turn, has a lot to do with how much grief would/will be involved in getting into the taxman's good books. Can I hope for some kind of amnesty?
Most likely, you won't need any amnesty. Provided you didn't owe any US tax (and given your brief background presented above, I suspect you don't owe anything), there is no penalty for late filing.

You don't need to file a US tax return at all if you fall under the minimum income for filing (~$8'000 for tax year 2010). Assuming you earned more than this, but less than ~$90'000 (and all of it outside the US), you can likely exempt all your income with the Foreign Earned Income Exclusion, meaning that you would have a zero US tax liability.

With an income of CHF130'000, you may or may not have an additional US tax liability.

If you want to get on the right side of the IRS with no consequences, this is the right time. My advice would be this:

File your back taxes. If you are wondering how many years back to file, the rule of thumb is to begin by filing the current year’s return and the preceding three years. If a tax liability is incurred for one of those years, then you should file for an additional two prior years (or a total of six years).

File your taxes for this year as normal.

You should also file your FBAR forms this year, but I wouldn't worry about filing them for previous years. Provided you're not laundering huge amounts of money or funding a terrorist organisation, starting FBAR forms now and continuing into the future is unlikely to get you unwanted attention. Note that any account you hold jointly with your wife also needs to be declared on your FBAR form.

You'll find lots of good advice in the Expat's Guide to US Tax. Especially look at sections 1.3 & 1.4, which discuss your situation specifically.

If you're comfortable with US tax forms, the easiest way to handle your back taxes is to buy a copy of previous years' tax filing software. I like TurboTax, as it handles the expat tax better than the other packages.

If you've never filled out a US tax form before, you might be better off getting a professional to handle your returns. I haven't used them personally, but the prices advertised by Taxes for Expats, who advertise here on EF, seem very good.
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Old 07.08.2011, 16:33
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Re: US Taxes: Come Clean or Jump Ship?

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Okay, start here:
Us citizens and us taxes

Have a search on the forum for 'taxes' and you'll find much more.

At the moment I don't think it's a great time to be a US citizen ... and to pay for all their debt the taxes are going to have to go up! You should also search for 'accountant' on the forum and find one to speak with. I also remember reading something about high tax penalties for those who don't file ...

Good luck!
Thanks! I read that thread with considerable interest. What I didn't see was anything from people in my situation who have actually made an attempt to rectify things.
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Old 07.08.2011, 16:43
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Re: US Taxes: Come Clean or Jump Ship?

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You'll find lots of good advice in the Expat's Guide to US Tax. Especially look at sections 1.3 & 1.4, which discuss your situation specifically.
Thanks! The whole post (not just the link) was a BIG help. The situation is sounding a lot better than I expected.
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Old 07.08.2011, 16:52
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Re: US Taxes: Come Clean or Jump Ship?

I was in nearly the same situation, but I had been living in a high-tax country for a number of years. In my case, it made sense to file a total of 10 years of back taxes to gain the maximum foreign tax credit, which I now apply to the US taxes I owe each year (since my US tax rate is higher than my Swiss rate). I didn't have any US tax liability in those 10 years, so there were no penalties or interest to pay. It took me two full weekends, plus searching for a lot of old records (I'm not the most organised guy in the world), but once it was done, it was done.

FWIW, the tax software from 2007+ did a better job of handling expat taxes than earlier years. Provided you don't have Foreign Tax Credits to carry forward, it's probably easiest to start with your 2010 taxes and work backwards, comparing each year's returns as you go along. I noticed that years prior to 2007 were miscalculating the AMT (Alternative Minimum Tax), so I had to go back and calculate it myself for those years. But I wouldn't have noticed if I didn't have the later years to compare against.

The most important thing is this: filing back taxes for years where you don't owe anything doesn't cause any problems, but not filing taxes in a year when you do owe causes big problems. Since this is the first year that you're likely to have a US tax liability (and most likely, not a very large one), this is the perfect opportunity to 'come clean'.

The only place where you'll technically run the risk of any penalties is the FBAR reporting requirement, but this requirement is really designed to catch out big tax evaders, money launderers, terrorist supporters, etc. There is nothing definitive out there, but all the anecdotal evidence I've seen is that Average Joes aren't prosecuted for FBAR violations. Start filing an FBAR this year, and continue in the future, and you should be fine.
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Old 07.08.2011, 17:28
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Re: US Taxes: Come Clean or Jump Ship?

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Because he never lived there after age 9. That's how it works, you need to have spent 5 years there, two of which after age 14.

Tom
Not entirely right. Both of her parents were expats, but US citizens and both live back in the US now. She has full citizenship because she is the child of two US citizens and they did the paperwork, I assume, at birth or shortly thereafter. Her children would get automatic citizenship if she had lived in the US for 5 years before birth, 2 of those after the age of 14 (wtf that's from, who knows). If she were unmarried, that would be reduced to 1 year.

There's one more option, though...they can naturalize through the grandparents before the age of 18. Whatever they want to do, do it before they turn 18 as after that it gets much more difficult.

I had my daughter in the US on purpose since I wanted to avoid these sorts of draconian rules. Damn bureaucrats.

Btw- to the OP - Keep the passport/citizenship as they tax you for 10 years after the fact or so as I remember considering the option myself. Who knows, maybe someday the US will be back on top again....
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Old 07.08.2011, 17:57
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Re: US Taxes: Come Clean or Jump Ship?

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Keep the passport/citizenship as they tax you for 10 years after the fact or so
Only if you made an average of more than $145k year in the five years before expatriation, or have assets of more than $600k.

Tom
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Old 07.08.2011, 18:26
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Re: US Taxes: Come Clean or Jump Ship?

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Only if you made an average of more than $145k year in the five years before expatriation, or have assets of more than $600k.

Tom
Ah, I see they've changed the rules a bit, but I considered doing this more than a decade ago and I also had, at the time, active EU citizenship through my father so it may have been complicated by that. Keeping dual citizenship when living in a third country can be a real PITA sometimes as everyone wants a piece of your pie. Thankfully, I haven't had any real issues with the IRS but I'm curious to see what the US does with me not having an income this year and my green card husband with his CHF salary and no sort of tax treaty between the US and CHF regarding taxes as far as I know - thankfully, this will be taken care of by some professionals hired by the company my husband works for.

Still, it never hurts to hang onto the right to US citizenship, especially for your kids if they want to go to school there or want to work there someday.
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Old 07.08.2011, 18:51
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Re: US Taxes: Come Clean or Jump Ship?

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Only if you made an average of more than $145k year in the five years before expatriation, or have assets of more than $600k.

Tom
$145K is not income but tax liability. Not the same thing.
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Old 07.08.2011, 19:00
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Re: US Taxes: Come Clean or Jump Ship?

I am dropping my US passport. For me, the tax rules are too complex and potential penalties too scary for me to want to hang on to a passport I don't use. I can figure out how to file the forms but it is a HUGE hassle. I love the US but I don't want to pass on the "burden" of US expat citizenship to my kids. I don't want to my son to have to register for selective service, fill out FBARS and FATCAs and whatever silly papers they decide to impose on us in the future.

Like I said, I still love the US. I will always be an American, whether or not I have the little blue book.
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Old 07.08.2011, 19:03
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Re: US Taxes: Come Clean or Jump Ship?

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I don't want to my son to have to register for selective service
Well, if he does Swiss military duty, he won't have to!

Tom
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Old 07.08.2011, 19:10
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Re: US Taxes: Come Clean or Jump Ship?

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Well, if he does Swiss military duty, he won't have to!

Tom

Aha, thanks. Wasn't aware of that. (We are many, many years from this vecoming relevant. )
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Old 07.08.2011, 19:28
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Re: US Taxes: Come Clean or Jump Ship?

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I am dropping my US passport. For me, the tax rules are too complex and potential penalties too scary for me to want to hang on to a passport I don't use. I can figure out how to file the forms but it is a HUGE hassle. I love the US but I don't want to pass on the "burden" of US expat citizenship to my kids. I don't want to my son to have to register for selective service, fill out FBARS and FATCAs and whatever silly papers they decide to impose on us in the future.

Like I said, I still love the US. I will always be an American, whether or not I have the little blue book.
In certain, ahem, Nordic countries, the tax thing really isn't an issue and not much of a hassle overall in terms of value of being able to work wherever they want to or go to university there if they want to. I think of it as a gift that she can appreciate or reject at her leisure if she wishes since it's a lot harder to get into the US than many other places. I'm an American, born of two Europeans, who understands the value of keeping the doors open and, at least until recently, the US has always been the land of opportunity and dreams, especially for the well educated and well connected which does describe 99% of most expats.

Being an expat helps you define both what made you leave the US and why you might want to return. I love the US even though I may not return for many years...and I'm glad to have given my child at least a few years of experience there. Where else can you go where the neighbors show up within days of your moving in around xmas time with a plate of cookies and a 'welcome to our neighborhood' artwork made by their 3 year-old who is stoked to have a new kid on the block? I miss the US, I miss the US I grew up in and, though it will never be the same again, it is the country, the landscape, by which all others are judged in my heart. I may live in other countries and love living in them, but my home will always be the US and to give that gift to my daughter is, in my mind, the greatest gift I will give to her as it is her birthright. I may cringe at the state the US is in now, but I still hope for the future and hope that things will get better....
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