Larry's 2012 Tax Guide For U.S. Expats & Green Card Holders - In User-Friendly English!

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The sections of this book

The introduction – A literary (assuming you do not think that ‘tax literature’ is an oxymoron) wonder, this opening section – an absolutely delightful way to ease on down the tax system road that the IRS has placed before us! Not only are you sufficiently warned about the new goodies the IRS has added to your workload of ongoing tax obligations but if you die without having planned properly, even with a minimum estate, Merrill Lynch provides an example of how it will make it rough for your heirs to get that to which they are entitled…..and need!

The final tax acts of 2011 – tax changes we need to know in 2012…..On 23 December, 2011, the House of Representatives, Republican controlled, rather than be blamed for a possible economic sink hole that would cost the Republicans the 2012 elections, agreed to the Senate passed legislation that will impact you, the expat, ONLY if you are earning wages from which social security tax is being deducted – read on to find out what you have for 2011 and 2012 but is subject to end, 31 December 2012…..

What is income – at least what the IRS considers income and which categories you fall under, having to classify your income. For all intents and purposes, this is a good ‘executive summary’ of what the U.S. tax system is like. Other than some numerical updates, in fact, nothing has been changed in this section – after all, if it works, then why ‘tamper’ with it???

Tax rules applying to you, the expatriate U.S. tax filer (the real ‘nuts and bolts’ reason you’ve probably thought of that justified buying this book – We’ve updated where updates are necessary. Otherwise, we’ve left this section pretty much the same as that of last year because we had such wonderful comments about it. This section contains the things you really need to know to take advantage of the various and sundry exclusion laws, rules and regulations – the only ones you truly want to take advantage of!

F(u)BAR & TDF90.22-1 – my narrative about that F(u)BAR form you have to file by 30 June 2012 as your calendar year 2011 report. A copy of this form and its instructions is at the back of the book, within the appendix. By the way – I take sole responsibility for adding that ‘u’ between the F and the B for FBAR…..Let’s face it, you cannot pronounce the two letters FB – you need a vowel! Besides, that FUBAR acronym is truly fitting and proper for these regulations!

FATCA – with a little bit about the voluntary disclosure programs thrown in – Foreign Accounts Tax Compliance Act is one of the dumbest things the U.S. Congress has ever passed. Just how disastrous is it? Read this section and see! I’ve added a bit about voluntary disclosure, as ‘envisioned’ by the IRS here because I just like the way this essay reads – but it should probably have been included within the F(u)BAR section…..such is life…..

Forms 2555 and 5471 (with mention about the partnership information return, Form 8865) – Do you own a business – either a corporation or a partnership – outside of the U.S.? Then you have to adhere to filing requirements for Form 5471 and/or Form 8865. Are you earning income overseas that is eligible for exclusion from U.S. individual income taxes – then you MUST file Form 2555. Here’s an attempt to make these forms appear ‘user-friendly’…..

Form 8938….again! Now it is for real, folks….. THIS IS BRAND SPANKING NEW FOR THE TAX RETURNS YOU DO IN 2012!!!!! After reading this essay, if you are liable for filing the 8938, how much time do you think it’s going to take you to do it?

Gifts, the Gift Tax and Trusts….. and those trust returns forms 3520 & 3520A and the gift tax return you might have to file in 2012 – This is the year to give – if you’ve got it, do it!!!!! Of course, any year is a good year to receive! But if you are a recipient of anything from someone who is not a ‘U.S. person’ did you know that you are responsible for reporting it, with the burden of proof falling upon you to prove that it is free of tax…..and that even if it is free of tax, if you don’t report it you are still potentially liable for a steep penalty?

Penalties, penalties….and more penalties – Here it is, folks, in one fell swoop! All the penalties you need to give you sleepless nights – They are, by and large, ‘confiscatory’!

The U.S. – Canada Tax War Oh yes, there is one that is taking place right now – ask any dual citizen – especially those who didn’t even know they were dual citizens. Speak with them and you’ll hear all about rage, north of the border.

Expatriation, the ‘ultimate’ experience – Were you amongst the ‘best and brightest’ from your homeland, leaving for the States during the 1970s when there was so much uncertainty regarding the future? Have your returned to the land of your birth, now that your children are grown and have lives of their own? Are you concerned about your ongoing US tax obligations even though you are no longer there? If all this applies, then this section is especially for you.

The ‘India Papers’ - extracts from a series of articles about the U.S. tax system that Larry wrote for Tax India International during 2011. This is where Larry is truly ‘unleashed’ as he criticizes the U.S. tax system and its treatment of U.S. tax filers abroad.

2012’s Voluntary Disclosure Program – Yes, there is a reason for not publishing this towards the end of 2011: on 9 January 2012, IRS Commissioner Doug Shulman announced the new program.

Phil’s List, Plus One – Every tax form that the overseas American tax filer might encounter is listed here….and those forms with the asterisk are included in the appendix!

The appendix – These are the essential overseas forms that one should always be able to find at the U.S. Consulates but never can…..they are available off of the IRS website but that site is so ‘busy’ that it ain’t very user-friendly (although, I’ve got to admit, it is easier to download most IRS forms than it is to get a refund from the iTunes store for an incorrect bill!)

Introduction

…..in the beginning…..there’s always got to be an INTRODUCTION: A literary (assuming you do not think that ‘tax literature’ is an oxymoron) wonder, this opening section – an absolutely delightful way to ease on down the tax system road that the IRS has placed before us! Not only are you sufficiently warned about the new goodies the IRS has added to your workload of ongoing tax obligations but if you die without having planned properly, even with a minimum estate, Merrill Lynch provides an example of how it will make it rough for your heirs to get that to which they are entitled…..and need!

Welcome, dear reader, to the 2012 edition of Larry's U.S. Tax Guide for Expats and Green Card Holders - in User-Friendly English! You guys are doing something very, very bold: you've actually purchased a book about the world's most confusing tax system. I am trying something equally as bold - to write a book that is readable! Now, my friends, go on and do something more bold than that: read the sections of this book which interest you.....you don't have to read the whole thing but read those sections that are applicable to you. You'll find it informative.....I guarantee it! Well.....not really an iron-clad guarantee. If you do not find it informative, I'm not going to give you your money back!

I'm in Shanghai as I start to write this book. Writing might be easier, this time around, as I've had a year to think this one out. Last year, I wrote as I thought.....and that thinking process, while obviously necessary, seemed to 'get in the way' of my being able to write. Last year, too, I got involved in a couple of 'huge' IRS tax audits/cases that some very large professional firms turned down because of 'fear': the fear of getting involved in situations that were essentially without precedent; the fear, perhaps, of being sued for choosing an approach to take in that audit/tax case that, in retrospect, might not have been the wisest of approaches to take. My advice to you all: DON'T BE AFRAID! The IRS is empowered by Congress to collect revenues but it is not funded adequately by that same Congress that empowers them. Computer generated letters are routinely sent by the IRS, assessing incorrect amounts. If you receive a letter from the IRS and it is wrong, then do not pay that assessment. Challenge the IRS: send them a response through registered mail, keeping that registered receipt (as well as a copy of what you send to the IRS - you'd be surprised how frequently I encounter clients who have kept neither and hence, cannot prove their compliance!). And be prepared to have to re-send that letter perhaps three or four times prior to the IRS recognizing that you are asking the IRS to correct their errors. I seriously wonder if the IRS would ever let us know how much money they collect from correspondence that should never have been sent out in the first place. Patience and patience and patience: don't give in to the IRS if you are right and they are wrong - unless, of course, that incorrect assessment and penalty is so small that it is cheaper to pay than to be bothered by it!

Last year, the first year of what will hopefully become an annual 'activity', I started writing 'Larry's 2011 Tax Guide for the U.S. Expat and Green Card Holder - In User-Friendly English' with a question. Well, a year later, as I start the 2012 edition, why change a successful way to start - I'll ask another, albeit, different question.

What do the governments of Greece, Italy and, I suppose, the United States have in common with my wife (aka 'Tiger CFO')? The answer: they all must have a balanced budget and reign in their respective deficits. Yet unlike those jurisdictions, Tiger CFO has definitely learned to cope with economic realities of life and has eliminated all of our credit card debt, bringing us peace of mind and a balanced budget!

One simply cannot say the same for the three governments mentioned above. It is entirely possible that the Euro, while likely to survive, will lose some nation-members in the coming year. It is equally likely that U.S. tax law will change, making life rough for the U.S. expat. Although, truth be told, those changes will likely come sometime in 2013, after a new administration takes office as a result of the 2012 elections. Yet beware - it is quite likely that even though new legislation will be voted upon by the two houses of Congress and signed by the President, mid-2013, that new legislation will be retroactive to 1 January 2013. Thus, some 'user-friendly' knowledge of the tax laws applicable to 2012 should be looked at quite seriously by the expat or green card holder because taxes (especially for capital gains) are likely to go up the year after (and for that you will simply have to read my 2013 edition!).

The United States has always functioned best when there is an outside enemy and it just seems possible that the U.S. expat will be the 'chosen target' this time. When was the last time you tried to open up a bank account using your U.S. passport as your nationality designated proof of who you are? Well let me tell you, my friends, you simply cannot - at an international bank - or any bank, for that matter, which has income producing assets in the United States. The FATCA section of this book will tell you why.

We expats have grown quite accustomed to both the foreign earned income and foreign housing exclusions. For the first time in the 21 years I've been an expat, I think we are in danger of losing them. Oh, all those apps I purchase through iTunes, which are paid through Apple's Luxembourg corporation are tax-free. Many U.S. corporations are tax-free and we, the tax filing (if not tax paying) individuals, are paying for this. We should definitely feel outraged by this but there is little we can do. Taxation without representation is tyranny.....and no, I am not a Tea Party believer!

Douglas Shulman, IRS Commissioner, to my knowledge, is still not filing his own tax returns - we should be annoyed about this because if the head honcho of the IRS has to pay someone else to prepare his tax return, what does that tell us? This is as outrageous to me as the bonuses being paid to Freddie Mac and Fannie Mae bosses - government bureaucrats (even if they do not view themselves as such) who, in spite of those humongous losses their respective, guaranteeing organizations have incurred, are getting bonuses more than 2-1/2 times their base salaries. More outrageous, though is the IRS's perception that the expat is a tax cheat! Why is the expat or green card holder lumped together with the domestic US tax filer with offshore accounts - our everyday needs are different but how can you explain this to our 536 elected officials (both Houses of Congress plus the President), most of whom do not have passports, who have never left the country, who simply cannot comprehend