USA CITIZENS AND INCOME TAXES

Thank you for this information mugtech. It will prove to be quite helpful to the other members.



Shaazia
Expat.com Team

Shaazia wrote:

Thank you for this information mugtech. It will prove to be quite helpful to the other members.



Shaazia
Expat.com Team

Thank you for the inspiration.

I just read today that two members of the senate finance committee have introduced legislation to allow the IRS to regulate paid tax preparers, which more and more people are using as the laws become more complex.  The IRS lost a court case in 2013 when they tried to force tax preparers to take and pass classes to be allowed to prepare tax returns for others.  The IRS had argued that it had the authority to do this under an 1884 law that was originally intended to apply to federal regulation of compensation claims for dead horses killed during the Civil War.  The US District Court in the District of Columbia was not buying it,  ruling that the IRS had exceeded its statutory authority in imposing mandatory testing and continuing education for independent tax preparers.  Attorneys and CPA's are already required to take 32 hours of tax updates every two years to maintain their status as paid preparers and to represent clients before the IRS.  Be interesting to see what, if anything, changes as a result.  Many expats have told me that moving overseas did not change who does their taxes, either they continue to do them for themselves or they continue to use the same preparer they always used back in the USA.

mugtech wrote:

I just read today that two members of the senate finance committee have introduced legislation to allow the IRS to regulate paid tax preparers, which more and more people are using as the laws become more complex.  The IRS lost a court case in 2013 when they tried to force tax preparers to take and pass classes to be allowed to prepare tax returns for others.  The IRS had argued that it had the authority to do this under an 1884 law that was originally intended to apply to federal regulation of compensation claims for dead horses killed during the Civil War.  The US District Court in the District of Columbia was not buying it,  ruling that the IRS had exceeded its statutory authority in imposing mandatory testing and continuing education for independent tax preparers.  Attorneys and CPA's are already required to take 32 hours of tax updates every two years to maintain their status as paid preparers and to represent clients before the IRS.  Be interesting to see what, if anything, changes as a result.  Many expats have told me that moving overseas did not change who does their taxes, either they continue to do them for themselves or they continue to use the same preparer they always used back in the USA.

I am a former CPA who mostly worked in the corporate environment although I have done some individual preparation as well.   It was in part due to my disinterest in the profession that led me to become an economic refugee. 

Last year my former neighbor´s tax accountant in the U.S. retired and I offered to do their returns.  Being a bit cocky I told them not only was I better than than their former preparer, but I would be a hell of a lot cheaper. I told them that went double with respect to any of the retired former accountant expats from the states trying to drum up business on Gringo Tree.  They decided to accept my offer to do their tax returns after such a convincing sales presentation.  I was going to need to file a 1040 return, a Pennsylvania non-resident return, and two city of Philadelphia returns.  The city of Philadelphia returns were required due their ownership of two apartments.

It was not long after starting the return process that I realized that the IRS had implemented these new requirements that you mentioned for paid preparers.  I told my firends that I couldn´t "prepare" their returns because I was not eligible. However, I told them that I could "help" them prepare their return and I would simply leave blank the field for the name of the paid preparer and they would have to accept responsibility for errors in the event I screwed something up (not likely I told them). So, they said fine and I essentially prepared the returns for them, sent them copy of their returns as pdf files to review, and then carried my laptop over to their apartment so they could file electronically the 1040 using Turbotax.  The Philadelphia returns I had to file online using the website of the city of Philadelphia. The Pennsylvania return we had to file manually I recall, because it was a non-resident return.

Many months after finishing those returns, the supreme court overruled the IRS, but it was too late for me to put my name on it.  Just as well, because I don´t think the version of Turbotax I used would allow me to fill-in those fields for the paid preparer information.   I probably will be "helping"  my friends again this year for that very reason. 

P.S.
They were charged $700 in the prior year by their tax accountant for all four returns. I charged them $200 for the same.   A few weeks later I did the FBAR filing for them for $10.

Nards Barley wrote:

I am a former CPA who mostly worked in the corporate environment although I have done some individual preparation as well.   It was in part due to my disinterest in the profession that led me to become an economic refugee. 

Last year my former neighbor´s tax accountant in the U.S. retired and I offered to do their returns.  Being a bit cocky I told them not only was I better than than their former preparer, but I would be a hell of a lot cheaper. I told them that went double with respect to any of the retired former accountant expats from the states trying to drum up business on Gringo Tree.  They decided to accept my offer to do their tax returns after such a convincing sales presentation.  I was going to need to file a 1040 return, a Pennsylvania non-resident return, and two city of Philadelphia returns.  The city of Philadelphia returns were required due their ownership of two apartments.

It was not long after starting the return process that I realized that the IRS had implemented these new requirements that you mentioned for paid preparers.  I told my firends that I couldn´t "prepare" their returns because I was not eligible. However, I told them that I could "help" them prepare their return and I would simply leave blank the field for the name of the paid preparer and they would have to accept responsibility for errors in the event I screwed something up (not likely I told them). So, they said fine and I essentially prepared the returns for them, sent them copy of their returns as pdf files to review, and then carried my laptop over to their apartment so they could file electronically the 1040 using Turbotax.  The Philadelphia returns I had to file online using the website of the city of Philadelphia. The Pennsylvania return we had to file manually I recall, because it was a non-resident return.

Many months after finishing those returns, the supreme court overruled the IRS, but it was too late for me to put my name on it.  Just as well, because I don´t think the version of Turbotax I used would allow me to fill-in those fields for the paid preparer information.   I probably will be "helping"  my friends again this year for that very reason. 

P.S.
They were charged $700 in the prior year by their tax accountant for all four returns. I charged them $200 for the same.   A few weeks later I did the FBAR filing for them for $10.

For what you did for them for $210 you are a true friend.  The PA non-resident can be e-filed on the software we use, but mailing it in works since you are not a paid preparer.  Getting a PTIN to file a few returns for friends is not worth the effort, and I am sure you do not want to leave any trail that you did $500 in tax prep and therefore owe self employment taxes and are forced to file a 1040.  Just a heads up on PA, this year they are insisting that anyone who had $33 or more in PA taxable income must file a PA40 income tax return or be subjected to hundreds of dollars in late filing or non-filing penalties.  In the past a kid with $50 in interest or dividends was not required to file a US 1040 and also blew off the PA40.  Now, even if not required to file a 1040, the PA 40 must be filed and the dollar or two in taxes paid or else.  Philadelphia is a show of its own with the school district income taxes required.  I have eliminated all of my Philadelphia tax clients since my niece moved to Illinois last year.  Not looking for any new ones, I would rather sit through a Phillies rain delayed extra inning game.

Attributing it to years of budget reductions, the IRS commissioner has warned that refund checks will be delayed this year for millions of taxpayers.

For the same reason, the IRS has decided to close the last of its overseas taxpayer assistance centers (London, Paris, Frankfurt), a popular program for Americans living or traveling abroad. 

IRS officials state that technical advances in communications have made overseas field offices expendable.

(Bloomberg)

cccmedia wrote:

Attributing it to years of budget reductions, the IRS commissioner has warned that refund checks will be delayed this year for millions of taxpayers.

In addition, the information and frequent wrong answers one can get on the phone will involve longer waiting times, just when that did not seem possible.  In an effort to get everyone to e-file, they are saying refunds will take 4 weeks if you e-file, but 6-8 weeks or longer if you paper file.  Since any business which prepares 10 or more tax returns must e-file all returns with certain exceptions, a huge percentage of tax returns are now e-filed.  The confusion over ACA compliance could also make the waiting time for refunds increase.  If you are expecting a refund I would paper file or e-file on Tuesday, 1/20/15, or as soon as possible thereafter to insure getting a refund ASAP.

cccmedia wrote:

Attributing it to years of budget reductions, the IRS commissioner has warned that refund checks will be delayed this year for millions of taxpayers.

For the same reason, the IRS has decided to close the last of its overseas taxpayer assistance centers (London, Paris, Frankfurt), a popular program for Americans living or traveling abroad. 

IRS officials state that technical advances in communications have made overseas field offices expendable.

(Bloomberg)

Most people who filed early got their refunds in 4 weeks or less.

The IRS announced that about 800,000 of the forms 1095A were incorrect, corrections are coming, and you probably owe money.  However, if you filed early with bad info you will not have to amend nor will you be charged the extra money owed, another advantage to filing early.

Have some "fun" and test your knowledge:

http://www.marketwatch.com/story/americ … -24?page=1

SawMan wrote:

Have some "fun" and test your knowledge:

http://www.marketwatch.com/story/americ … -24?page=1

Don't need to take it. Already know I'd fail it miserably. Thank goodness for smart people like mugtech that understand all this. Is Greek to me. Why I have a guy that I pay to do it. So far no problems, and everyone seems happy with that formula.

SawMan wrote:

Have some "fun" and test your knowledge:

http://www.marketwatch.com/story/americ … -24?page=1

Nice test, preparers should know the material but most clients do not, don't bother to waste their time.
Just saw a new gig in action today to the taxpayer's advantage.  They way underestimated their 2014 income, got the health insurance through the exchange, and based on their low balling their income got $1400 more in credits than they were entitled to once they reported their real income.  There is a complex formula that determined that they only had to pay back $750, they got to keep the $650 they were not entitled to?  When my coworker showed me the calculation it took me back to MASH Col. Blake and Radar, as in:

"But Radar, that doesn't make any sense"

"None of it makes any sense, sir, you just have to fill out the right forms"

mugtech wrote:

SawMan wrote:

Have some "fun" and test your knowledge:

http://www.marketwatch.com/story/americ … -24?page=1

Nice test, preparers should know the material but most clients do not, don't bother to waste their time.
Just saw a new gig in action today to the taxpayer's advantage.  They way underestimated their 2014 income, got the health insurance through the exchange, and based on their low balling their income got $1400 more in credits than they were entitled to once they reported their real income.  There is a complex formula that determined that they only had to pay back $750, they got to keep the $650 they were not entitled to?

So the government allowed them to actually keep $650 of their own earned wages? How benevolent.

70,000+ pages of US tax code. A walk in the park, designed to be transparent and fair to all, no doubt.... 

gardener1 wrote:

So the government allowed them to actually keep $650 of their own earned wages? How benevolent.

No, when they got the credit adjusted, they got to keep $650 of other people's money, out of the $1400 of other people's money they originally got.  The credit is paid for by other taxpayers.

Yes it would be nice to be able to keep more of our own money!  But more and more in the US seem to think the government is there to "take care" of them and provide their every need and want.  And the government is happy to respond to that, and take more money away from the producers...

gardener1 wrote:

So the government allowed them to actually keep $650 of their own earned wages? How benevolent.

70,000+ pages of US tax code. A walk in the park, designed to be transparent and fair to all, no doubt.... 

The government allowed them to keep $650 that the government paid directly to their insurance provider under false pretenses.  They "earned" the money by lying to the healthcare exchange.  i guess the message is, if you gonna buy through the exchange, underestimate your income and make a few hundred bucks on the deal.  Gotta wonder how long it will take EVERYONE buying through the exchange to do exactly that.

the latest report from Accounting Today, which I got today, lists 4 reasons why this is and will be the worst tax season ever
1. Obamacare created a new hassle compounded by sending out wrong information.
2. Fraud is growing on the state level, Minn shut down TurboTax for a while it was so bad
3. The IRS is broke, their customer service is slower and less accurate than previously reported
4. Even though tax season started 11 days earlier this year (1/20/15 vs 2/1/14), 335,000 less have filed as of 2/28 than the previous year.  It is best to not procrastinate because it gives identity theft a bigger window, plus from now until 4/15 tax preparers will be raising their rates for new clients as they view a mob scene the last month of the season.

Just got the stats on IRS audits, and due to budget cuts the percentage of audits is going down in every category except one.  It went up for US citizens living overseas.

You have been warned

"How am I supposed to live without you?" was a tribute song to the IRS sung on the John Oliver show on HBO by Michael Bolton.  John was lamenting how there are no young people working for the IRS these days, saying the ages of the workers should be more like the ages of fans at an Eric Clapton concert.

Just read in Accounting Today that the IRS Criminal Investigation unit was involved in the busting of FIFA and the $150,000,000 in bribes and payoffs, and 4 individuals and two corporations already pleaded guilty.  Good to know they are using their resources to cleanse FIFA instead of expats.  Weren't we all suspicious when Qatar was awarded the 2022 World Cup?  Latest report is they expect about 4,000 migrant worker deaths while building the stadiums required.  FIFA must be very proud.

Yesterday the IRS issued new guidelines for the agents investigating FBAR (Foreign Bank Account Reporting, not to be confused with FUBAR).  For unwillful non-reporting, and one wonders who has reportable foreign accounts and does not know the reporting requirements, the maximum penalties guideline is now 50% of the largest value of all accounts in the highest amount of all the years being investigated.  For individual years the maximum is $10,000, which means if one did not report a balance of $10,000, then all of it could be confiscated.  Of course these are guidelines, one taxpayer lost his case in a jury trial and the jury set the penalty at 150% of the value of the accounts.  Probably no one on the jury had FBAR requirements personally.

According to Accounting Today, the IRS has put three offerings on U-Tube to help expat tax filers, one about who has to file, another explaining the overseas earned income exclusion and a third one on ITIN's(Individual Tax Identification Numbers) for non USA citizens, how to get one and how it could be used.  Supposedly there will be more in the future to help fill the gap left by closing foreign offices.

Thanks for the updates. Keep the good news coming, Mugs.

Ugh!!!!!!!!

Hello suefrankdahl


What are your views on the updates ? Feel free to share your opinion on the matter.

Cheers,
Bhavna

Bhavna wrote:

Hello suefrankdahl


What are your views on the updates ? Feel free to share your opinion on the matter.

Cheers,
Bhavna

I believe she already did.

No, it was more like an one-word utterance.  No coherent views were expressed in that post.

But there's still time.

cccmedia wrote:

No, it was more like an one-word utterance.  No coherent views were expressed in that post.

But there's still time.

I understood

And now the IRS is involved in another whistle blower case, refusing to pay an informant the 22 million reward requested.  The person was involved in money laundering and tax evasion through a Swiss bank.  When caught he avoided jail time by helping nab the perps by setting up a phony money laundering scheme supposedly using income from the sales of pirated dvds and cds.  He convinced a bank exec to fly to the USA to help him get $1.2 million out of a tied up Bahamian account.  The bank paid over $74 million in penalties and went out of business after 272 years.  The judge said the plaintiff's case had merit, and the lawyer for the snitch said the IRS should be happy to pay the man, and if they don't it will decrease the incentive to rat out fellow co-conspirators.  IRS argues no jail time, could have gotten 10 years, was sufficient reward.  12 Whistle blowers have been paid so far, with another 6 cases pending.

cccmedia wrote:

No, it was more like an one-word utterance.  No coherent views were expressed in that post.

But there's still time.

Just a visceral reaction to the machinations, fair and unfair, of the IRS. Mugs understands it because he is from the great state of Pennsylvania where the author of  the line about "death and taxes" being the only sure thing in life was so influential. Getting all the colonies to agree to pay them was a sticking point in the founding of the new nation. How else to pay off the war?

Vatican bank agrees to open its books to US tax authorities

Under the terms of Wednesday's agreement, the Vatican will be party to the Foreign Account Tax Compliance Act in the US, which was passed in 2010....

Read more:
http://www.theguardian.com/world/2015/j … uthorities

Newest IRS proposal is to change the gambling rules to make casinos issue form 1099G and report winnings of $600 or more, the current threshold is $1,200.  Write to the IRS with your tale of woe, over 10,000 have already.  This would increase paperwork for the casinos and taxable income for many gamblers.

gardener1 wrote:

Vatican bank agrees to open its books to US tax authorities

Under the terms of Wednesday's agreement, the Vatican will be party to the Foreign Account Tax Compliance Act in the US, which was passed in 2010....

Read more:
http://www.theguardian.com/world/2015/j … uthorities

Hmmmmmmm..... Wonder what Putin was doing there for his unannounced visit with pope.

mugtech wrote:

And now the IRS is involved in another whistle blower case, refusing to pay an informant the 22 million reward requested.  The person was involved in money laundering and tax evasion through a Swiss bank.  When caught he avoided jail time by helping nab the perps by setting up a phony money laundering scheme supposedly using income from the sales of pirated dvds and cds.  He convinced a bank exec to fly to the USA to help him get $1.2 million out of a tied up Bahamian account.  The bank paid over $74 million in penalties and went out of business after 272 years.  The judge said the plaintiff's case had merit, and the lawyer for the snitch said the IRS should be happy to pay the man, and if they don't it will decrease the incentive to rat out fellow co-conspirators.  IRS argues no jail time, could have gotten 10 years, was sufficient reward.  12 Whistle blowers have been paid so far, with another 6 cases pending.

Sounds like he got a plea deal and now wants to renegotiate a better deal.  He is not a whistle blower but a cooperating defendant.

suefrankdahl wrote:

Hmmmmmmm..... Wonder what Putin was doing there for his unannounced visit with pope.

Probably his annual confession.....                                                                                        Ooops, he's not Catholic, he's Russian Unorthadox

No, I was thinking he was going to try to schmooze Francis into unfreezing some assets that he or his pals might have there. Not gonna happen with this pope. The Vatican Bank is supposed to be clean as a whistle now. It was his first project after he got elected

IRS issued a reminder that the FBAR form 114 must be e-filed by 6/30/15 for 2014.
IRS claims that in 2014 over one million were filed, up considerably from the 280,000 filed in 2005 and many more than the 3,000 who renounced USA citizenship in 2014.

The house proposed a budget that cuts 800,000,000 out of the 10 billion IRS budget, while the president suggested giving them an additional 2 billion.  IRS claims the difference of almost 3 billion will result in collecting 12 billion less in taxes, further decreasing their fight against identity theft.  And they claim their phone service and walk in office service will be worse, and only 40% of calls were answered this year.

Rand Paul, one of many potential GOP presidential candidates, released his idea of replacing the current tax code with a 14.5% flat tax.  The only deductions would be for charitable giving and mortgage interest.  This would mean that every USA citizen with any income would have to file and probably pay some tax.  An expat living on 20,000 a ýear income, probably not getting any deductions,  would owe 2,900 in taxes.  Currently an expat earning 12,000 in SS and 8,000 in other income owes zero taxes.

In other tax protest news, a brothel owner in Salzburg claims he pays too much taxes, decided to protest by offering free entrance, drinks and sex the entire summer.  Hermann Mueller owns 4 other brothels in Austria and Germany, said he will continue to pay his prostitutes up to 10,000 euros a month in compensation.