Uncle Sam wants part of your bank balances

by carl on September 11, 2011

At the end of August, I heard the bad news. All U.S. citizens with foreign bank accounts had to file full reports for the last eight years or face severe fines. As a dual citizen of United States and Canada, that meant me.

Earlier this year, I went to a tax seminar held by Democrats Abroad and was planning to file my back income tax statements but hadn’t done it when I heard the news. The deadline to the file the past eight years’ FBARs, or Foreign Bank Account Reports, was September 9. Also, we were on the hook to file U.S. income tax returns for the past eight years by the same date. This is the law, even though U.S. citizens abroad don’t owe anything to Uncle Sam unless they make more than US $91,500 a year.

Fortunately, I’m a pack rat, so I had the past years’ information, plus my Canadian tax returns, which gave me a good start. But as someone used to having a computer program navigate my Canadian tax forms, I was shocked to find just PDF forms on the website of the Internal Revenue Service. There were U.S. computer tax programs that claimed they would work for U.S. citizens abroad. Then I tried three. They were fibbing. None of them worked for my U.S. taxes.

Worse yet, there were two different ways of reporting your earnings outside the U.S. One way, basing my return on Form 1116, told me I owed Uncle Sam $2,000, even though I made less than the cut-off for paying U.S. taxes. The other way, using Form 2555, told me I didn’t owe a penny. Guess which one I chose.
For a day, I had been in U.S. income tax hell. Then I finally got my first return done, and soon tweaked my system with a spreadsheet I made to enter the exchange rate for each year from Canadian to U.S. dollars, my pre-tax earnings, the interest from my bank accounts, and the highest amounts of all my accounts and my RRSPs. Yes, they were even interested in how much I had in my RRSPs, although those accounts are free from tax under a US-Canada treaty.

Several days before the deadline, I got an urgent phone call from a friend of mine. He was also a dual citizen and was panicked about the regulations. He asked me if he could hire me to do his U.S. income taxes and his FBARs for the past eight years. I said yes, and as a friend, I gave him a discount on my hourly rate. Later I found that tax consultants were charging $11,000 to Americans abroad to do this service, a figure I find immoral.

I figured I still had a bit of a margin before the deadline of September 9 when my friend called me again. He told me that his wife, who had lived in Canada since age 4, had identified herself as a U.S. citizen in order to help her son get his dual citizenship. Could I do her FBARs and income taxes for eight years as well? I swallowed hard and said yes.

A day later, I was still on track to beat the deadline when my friend called and said, “I have bad news. It seems my wife has four other bank accounts that she hadn’t remembered when she gave you her data – and three of them are shared accounts with me.” At this point, I said, “I’ll get all her FBARs done and as many of her income tax returns as is humanly possible – I can’t promise you any more than that.”

So on September 8, despite my fears that I couldn’t make it, I was done. All I had to do was to adding a third page listing the contents to all of the cover letters for we three good dual citizens by 4:20 p.m. and had only to cycle to the UPS office, where they could courier the packages for next-day delivery. Now I’m all prepared for my 2011 U.S. tax returns – unless they decide to ask for a slice of our real estate, too.

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