Last month while I was in Switzerland, I had the “opportunity” of visiting the US Embassy in Bern so that I could obtain a replacement for my stolen U.S. passport.
While I was there, I met several interesting people. One was attempting to obtain a U.S. Social Security Number so that she could file the U.S. income tax returns that the IRS was demanding that she file, since she was born in America, although technically German and Swiss. She had never been to the U.S. since she was 5 years old, and was now in her 50’s and the IRS wanted her returns.
Another lady was there to renounce her U.S. citizenship, under very similar circumstances. She had also been born on U.S. soil, technically making her a U.S. citizen. She had no family or other ties to the U.S., and not visited the U.S. since her teens, but had dutifully filed a U.S. tax return for the past dozen years. She was in her mid-30’s, had no intention of ever living in the U.S., and was very happily Swiss. She was renouncing her U.S. citizenship and turning in her U.S. passport for no other reason than to get away from the hassle of filing a U.S. tax return.
For those two individuals, it made absolutely no sense for them to being filing an American tax return.
But what if you do live in America, or intend to keep your U.S. citizenship, but spend time overseas? If you have overseas assets, especially banking and investment accounts, the IRS has you right in their crosshairs, and they are increasing the pressure.
The recently enacted Foreign Account Tax Compliance Act is the latest in a series of measures by the U.S. government to track down overseas assets and make sure that they are getting their cut. This legislation created a new form for us all to fill out, Form 8938, for certain overseas accounts. This is on top of the old Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR).
Now keep in mind, there is absolutely nothing wrong, immoral, or illegal about having overseas assets or investments. Holding overseas assets can be a perfectly valid component of your financial planning strategy.
But what the IRS doesn’t like is when you are earning returns on that money, and not paying U.S. income tax on it. You see, America is one of the few countries … Continue reading