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Old 15.03.2012, 10:39
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IRS letter! Unexpected Bill

So I came home yesterday to find a letter from the IRS. As soon as I saw it, I expected the worst. So I opened it, and in big letters it said I owed 16K+ in taxes. They reviewed my 2009 Tax Form, assesed me 12000 taxes, a $3400 penalty and over $1000 in interest. No explanation was given, just the date I had to pay by. I have 60 days to contest this. They sent the letter on February 6th to an old address and it bounced around until it came here, about 25 days till the deadline.

I called them up and they said my 2009 2555 form was rejected because I did not meet the physical presence test. Well, I have been an expat since mid 2007 and in switzerland since january 2008, so that is easily provable. I am guessing i filled out the form wrong that year. (definitely should have not done it on my own)

Well I have the option of reviewing an amended tax form with one of their tax lawyers and they should reverse the tax and interest. The penalty worries me and its because i filed late. Because of a big misunderstanding, I filed very late that year (by about 6 months). I wasn't too worried about it as i heard there are no penalties if you dont owe taxes. (is that right?)

I guess the point I am trying to make is be very careful when filing taxes. (it sounds like common sense, I know) The IRS definitely is on top of things. So fill out your forms carefully, don't be sloppy this tax year.....and probably don't do it yourself!!
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Old 15.03.2012, 10:46
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Re: IRS letter! Unexpected Bill

Penalties for late filing are computed as a percentage of tax owed. If on review it turns out that you didn't owe any tax, then I would expect them to rescind the penalty as well. Have they said they're not going to?
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Old 15.03.2012, 11:01
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Re: IRS letter! Unexpected Bill

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I called them up and they said my 2009 2555 form was rejected because I did not meet the physical presence test. Well, I have been an expat since mid 2007 and in switzerland since january 2008, so that is easily provable. I am guessing i filled out the form wrong that year. (definitely should have not done it on my own)

[...] The penalty worries me and its because i filed late. Because of a big misunderstanding, I filed very late that year (by about 6 months). I wasn't too worried about it as i heard there are no penalties if you dont owe taxes. (is that right?)
MathNut is right -- your penalties and interest are calculated as a percentage of the tax due, so if it turns out that you did not have a liability, you should not have to pay any penalty.

Are they saying that you did not qualify under the physical presence test? That you spent too few days outside the country?

If you're a long-term Swiss resident and most of your 'centers of interest' are here, I'm curious as to why you didn't file under the bona fide test.
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Old 15.03.2012, 11:46
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Re: IRS letter! Unexpected Bill

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MathNut is right -- your penalties and interest are calculated as a percentage of the tax due, so if it turns out that you did not have a liability, you should not have to pay any penalty.

Are they saying that you did not qualify under the physical presence test? That you spent too few days outside the country?

If you're a long-term Swiss resident and most of your 'centers of interest' are here, I'm curious as to why you didn't file under the bona fide test.
Because I rushed through the paperwork, didnt read it carefully enough. In 2010 I definitely used the bona fide test. At that time i didnt think there was any difference.


Good to know that if I dont owe taxes then the fee will probably be rescinded as well
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Old 15.03.2012, 20:21
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Re: IRS letter! Unexpected Bill

Did you travel back to the states at all during 2009? I dug this up on the US Treasury site.
http://www.treasury.gov/tigta/auditr...1040091fr.html

***2(f)***
In addition, based on our review of travel information for a statistically valid sample of 150 Tax Year 2008 tax returns with a foreign earned income exclusion claim, we estimate that potentially 13,877 individuals claiming the exclusion may not have met the physical presence requirement. Travel information showed that not all taxpayers were in a foreign country for at least 330 full days during a period of 12 consecutive months including all or part of the filing tax year. Management advised us that some of these erroneous claims may be the result of transcription errors - IRS employees incorrectly entering date field information from paper tax returns into IRS computers. However, our statistically valid sample identified that the dates were correctly entered for 97 percent of the 150 tax returns we selected in our sample.

***2(f)*** I.R.C. § 911(d)(1)(A) and § 911(d)(2) require individuals to have foreign earned income and a tax home in a foreign country to qualify for the foreign earned income tax exclusion. Although both foreign earned income and foreign residency (via either the bona fide residency or physical presence test) is needed to claim the exclusion,

In addition, we reviewed the statistically valid sample of 150 accounts to determine if the individuals met the physical presence test (330 calendar days in a foreign country). Our review identified that 82 individuals were bona fide residents of a foreign country. A bona fide resident is an individual that lives in a foreign country or countries for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their tax returns on a calendar year basis. For these individuals, we accepted the individual’s identification on their tax return that they were a bona fide residence of a foreign country.
For the remaining 68 individuals, we requested data from the U.S. Department of Homeland Security that details time periods of the individuals leaving and entering the U.S. Our review of this data identified 9 (13 percent) of the 68 individuals did not meet the physical presence requirements and therefore did not qualify for the exclusion they claimed. The number of days short of the 330 calendar day requirement averaged 109 calendar days (the range was from 10 to 287 calendar days.

So it seems like this is something the IRS has really been looking into.
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Old 16.03.2012, 11:36
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Re: IRS letter! Unexpected Bill

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So it seems like this is something the IRS has really been looking into.
Well, crap. I had to go out of Schweiz for 2.5 months in 2009 to wait for my permit application to go through. Of course I visited family in the US! I can't even remember exactly which foreign resident test I used… but hopefully I made such a small sum of money here and had adequate moving costs, etc that I was in the right about my taxes. It's not like I earned any US income.

Makes me so nervous though! I'm hoping I never get one of these nasty letters from the IRS!
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Old 16.03.2012, 11:57
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Re: IRS letter! Unexpected Bill

Foolishly, I dont remember what I filled out but I believe I was physically in the country for less than 330. (I did a lot of travelling) However, my time int he USA, totaled about 2 weeks.
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Old 16.03.2012, 12:05
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Re: IRS letter! Unexpected Bill

So what does that mean then? If a person is less than 330 days outside the US, then the exclusion falls away altogether? I am going to consult the tax accountant this but I was just curious if anyone on this forum had answers to this question.
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Old 16.03.2012, 12:20
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Re: IRS letter! Unexpected Bill

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So what does that mean then? If a person is less than 330 days outside the US, then the exclusion falls away altogether? I am going to consult the tax accountant this but I was just curious if anyone on this forum had answers to this question.
In this case, you have to qualify under the 'bona fide' residency test instead of the 'physical presence' test.
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Old 16.03.2012, 13:49
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Re: IRS letter! Unexpected Bill

It shouldn't matter how many days you were physically outside the US in 2009. If you
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have been an expat since mid 2007 and in switzerland since january 2008
, then you should qualify for Foreign Income Exlcusion for 2009 under the Bona Fide Residence Test.

The Physical Presence Test is, imo, more difficult to qualify if you travel back to the US often enough. And other than your first tax filing, you should always try to use the Bona Fide test instead (which can be fulfilled by the taxpayer being a resident of a foreign country covering the entire tax year Jan 1 to Dec 31).

Try to talk to IRS and tell them that you actually qualify under the Bona Fide test instead of the Physical Presence test and see what they say. Otherwise, find an expert to help you.

And FYI:
Bona Fide Residence Test
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Uninterrupted Period Including Entire Tax Year
To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business.
To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.
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Old 16.03.2012, 13:56
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Re: IRS letter! Unexpected Bill

Uncle Sam is broke he need`s the dough

Last edited by cannut; 16.03.2012 at 15:55.
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Old 16.03.2012, 14:14
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Re: IRS letter! Unexpected Bill

Interesting letter.

Once you complete a full calendar taxy ear outside of the US, than you are a Bona Fide Resident. You can claim the s.911 exclusion.

PPT you have the benefit of the slide rules, which are particularly useful in transitional years..

What annoys me about this approach by the IRS is its moronic. It is evident you qualify for BFR, they will know this from prior year returns and indicating your tax home and date on Form 2555, so why they go to the administrative effort, force a citizen of their country to panic, worry, or worse yet, pay fees to seek professional advice. What for? Absolutely nothing. Its a waste of money.
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Old 16.03.2012, 14:40
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Re: IRS letter! Unexpected Bill

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Once you complete a full calendar taxy ear outside of the US, than you are a Bona Fide Resident. .... What annoys me about this approach by the IRS is its moronic. It is evident you qualify for BFR, they will know this from prior year returns and indicating your tax home and date on Form 2555....
JordanBarr, Your comments (in boldface) are not correct. The determination of your residence is made for each tax year. Thus, where a taxpayer resided "last year" is not relevant for determining his/her tax residence "this year."
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Old 16.03.2012, 17:44
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Re: IRS letter! Unexpected Bill

You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer.

- If you have a student visa or a temporary work visa, the renewal of which is contingent upon your employment - you are not a Bona Fide resident. Any time spent in Switzerland on a B Permit DOES NOT count toward bona fide residency requirements. A B Permit(annual residence) has a finite period. One of the requirements to be considered a bona fide resident is to have intentions of staying inside that country indefinitely. You can't do that on a B permit.
- In order to legitimately pass the bona fide residency test, you would need to have a C permit( permanent residence) or better (dual citizenship). The clock wouldn't begin until you received this visa.

** When it came to filling out these forms, I was always one of those people who thought, "How will they ever know".

After reading this TREASURY INSPECTOR GENERAL report, http://www.treasury.gov/tigta/auditr...01040091fr.pdf, I feel like a fool for ever thinking that. Identifying erroneous foreign earned income tax exclusions is something IRS is taking very seriously and have initiated several compliance projects . By cross referencing tax return info with Homeland security databases, the IRS has found an easy audit target. An examination of 2008 tax returns found that 10% of filers claiming the foreign earned income tax exclusions submitted erroneous returns resulting in a loss of revenue to the gov't of close to $100 million.
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Old 16.03.2012, 18:08
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Re: IRS letter! Unexpected Bill

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If you have a student visa or a temporary work visa, the renewal of which is contingent upon your employment - you are not a Bona Fide resident. Any time spent in Switzerland on a B Permit DOES NOT count toward bona fide residency requirements. A B Permit(annual residence) has a finite period. One of the requirements to be considered a bona fide resident is to have intentions of staying inside that country indefinitely. You can't do that on a B permit.
Unless you've got a B-permit without time limitations (eg, you are an EU national with a Green Card).
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Old 16.03.2012, 18:13
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Re: IRS letter! Unexpected Bill

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...One of the requirements to be considered a bona fide resident is to have intentions of staying inside that country indefinitely.
Nonsense. Please see IRS Pub 54: "You could have...a bona fide residence in...Scotland...even though you intend to return eventually to the United States."
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Old 16.03.2012, 18:20
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Re: IRS letter! Unexpected Bill

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Unless you've got a B-permit without time limitations
Which I had for a number of years (seven, I think).

Tom
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Old 16.03.2012, 18:36
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Re: IRS letter! Unexpected Bill

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JordanBarr, Your comments (in boldface) are not correct. The determination of your residence is made for each tax year. Thus, where a taxpayer resided "last year" is not relevant for determining his/her tax residence "this year."
No your wrong. I do this for a living. Would imagine I'd be struck off by now.

Ok, re-reading what I wrote I can see actually how my sentence may have been misintepreted.

You can qualify after a full calendar / tax year for bona fide residence. Providing you establish permanent quarters i.e. even if you are on an international assignement for 2 years, you can still be a bona fide resident irrespective if you will return to the United States.

Likewise, in the case of the OP, he advised he had been an expat in Switzerland since 2007, thus my comment in reference to him was correct.
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Last edited by JBZ86; 16.03.2012 at 18:52. Reason: Edit: clarity
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Old 16.03.2012, 18:49
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Re: IRS letter! Unexpected Bill

per that example...
You can have a domicile in the US AND a bona fide residence in Switzerland.. Even though you may eventually return to your US domicile, you still must establish bona fide residence in Switzerland in order to qualify for the tax exclusion.

How does one prove to the IRS their intention to remain in Switzerland for an "indefinite or extended period" when they only have a B permit? Just because you WANT to stay indefinitely doesn't mean that you CAN stay indefinitely. 'My B-permit was not renewed' is a pretty popular topic here at EF and reinforces the temporary nature of B permits.
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Old 16.03.2012, 19:28
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Re: IRS letter! Unexpected Bill

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per that example...
You can have a domicile in the US AND a bona fide residence in Switzerland.. Even though you may eventually return to your US domicile, you still must establish bona fide residence in Switzerland in order to qualify for the tax exclusion.

How does one prove to the IRS their intention to remain in Switzerland for an "indefinite or extended period" when they only have a B permit? Just because you WANT to stay indefinitely doesn't mean that you CAN stay indefinitely. 'My B-permit was not renewed' is a pretty popular topic here at EF and reinforces the temporary nature of B permits.
But your intention is to remain for some indefinite period. And if you have an open-ended work contract, then there's no final date for your time. Situations always change but the intention is there. It's a fuzzier test to meet.
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