Larry's 2016 U.S. Tax Guide 'Supplement' for U.S. Expats, Green Card Holders and Non-Resident Aliens in User Friendly English. Laurence E. 'Larry'
Revenue Service
Taxpayer Advocate Service
City View Plaza, 48 Carr 165
Suite 2000
Guaynabo, P.R. 00968-8000
What do the governments of Greece, Spain, a whole lot more than Europe, Russia with the unanticipated combination of sanctions and oil price drop and, I suppose, also, the United States have in common with my wife (aka 'Tiger CFO') ? This is a question I ask annually. Last year’s answer: they all must have a balanced budget and rein 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! This year’s question: what do they not have in common? This year’s answer: the same as last year…..sad as it may be…..
Go to the IRS website, my friends, go to forms and publications and download a copy of Publication 54. http://www.irs.gov/pub/irs-pdf/p54.pdf . This is the IRS’s sole tax guide for Americans overseas: “Tax Guide for U.S. Citizens and Resident Aliens Abroad”. It is free, it is decently written and it contains lots of helpful information that will supplement this book. Why this book instead of the official IRS publication? I’m funnier!
The United States has always functioned best when there is an outside enemy and as impossible as it might have seemed the U.S. expat – us – seem to have become the enemy. When was the last time you tried to open up a bank or brokerage account outside of the U.S. 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 25 years I've been an expat, I think we are in danger of losing them. Starbucks in the UK – and their application of comprehensive worldwide tax strategies - is back-peddling faster than Starbucks really has a chance to react. 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 rushing toward international corporate mergers to leave the U.S. system leaving us, tax filing (if not tax paying) individuals, the ultimate payers. 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! I am simply a politically disillusioned American who happens to live outside of America. Taxes have gotten needlessly complex. There should be absolutely no reason that my professional services are still in demand at this stage of my life. The system no longer works: its dysfunctionality seems to be increasing. I wonder: how many of the elected members of Congress and Senate actually do their own tax returns – do you think there are any?
It is with the permission and blessing of Tiger CFO (the Comptroller of our currencies) that I write this 2016 edition. It is to those of you who purchased all prior editions, bringing in sufficient royalties to nearly but not quite cover the costs of writing this book whom I thank as well – without you guys generating royalties, Tiger CFO would have never given me permission! This book is priced to sell and, hopefully, both cynical enough and funny enough for you, the reader, to sit back and enjoy it.
The sad fact of the matter is that now, more than ever before, you, the reader are being held responsible for understanding an absolutely incomprehensible tax system because, if you do not cover your behind and file annually, you are deemed to be 'willfully negligent’ and subject to potential penalties, even though you do not owe any tax.
Taxation is one issue that helped determine the results of the 2014 national elections. Income inequality and additional taxation of the rich is going to be a major issue in the 2016 Presidential race. That growing gulf between the haves and the have-nots of American society has manifested itself in many ways, few of which seem to have shown tangible benefits. We are concerned as tax filers and tax payers but what about those disenfranchised poor who do not pay taxes (and likely do not file tax returns, either); those minorities living in the inner city barrios or ghettos? They need assistance, usually provided by the states and municipalities, already cash-strapped. Where's the tax money necessary for their assistance going to come from? What does the future portend as this gulf increases? This is a worldwide problem.
You’ve gotten this far through the introduction…..and theoretically, I have not yet put you to sleep and you’re actually going to finish reading this section. So what do you read next? Go back and take a look at that 'semi-annotated' table of contents. See which essays (and that is what I've essentially written - essays about certain areas which I believe are applicable to you, the overseas American tax filer) interest you. Read them! No, you do not have to read the whole shebang - read ONLY what interests you. If it doesn't interest you and late one night, you find yourself simply unable to go to sleep, then read the uninteresting sections at that time: they just might serve as a wonderful, holistic sleeping pill!
Yeah, there are some sections that are repetitions of sections included last year. But no, these are not repeats, per se - for those few sections, there are some major re-writes contained within!!! If you are a 'new' reader to my writings and have not seen any of the earlier editions, you might consider purchasing some of them as well - it's affordable and contains information quite complementary to this edition! And it is the only chance you’ll get to laugh about taxes!
In ending the introduction to that 2011 edition, I wrote about Form 8938 and its introduction on the sly by the IRS during Thanksgiving week, when it would be least likely to attract any attention. This is year six for that form. Six consecutive years of form revisions and we are still without adequate instructions. That form, the 8938, is now supposedly error-free. If you believe that, then there is a bridge in Brooklyn I’d like to sell you – at a real bargain price!
I ended my 2012 introduction to this book with a notification issued by Merrill Lynch:
NOTICE TO ALL NON-U.S. INDIVIDUAL CLIENTS AND U.S. CITIZENS RESIDING ABROAD
"Certain U.S.-situs assets held within your account with Merrill Lynch may be subject to U.S. estate taxes in the event of your death. To ensure any U.S. estate tax liabilities are satisfied, U.S. law imposes a lien on all your assets held with Merrill Lynch at your death. As a result of this lien and the potential liability of Merrill Lynch for any unsatisfied U.S. estate tax, all of the assets in your account(s) with Merrill Lynch at your death will be restricted from withdrawal or transfer until (i) Merrill Lynch concludes that an exception applies based on an affidavit confirming your total U.S. assets held at death, your country of citizenship, and your country of permanent residence; (ii) Merrill Lynch receives documentation satisfactory to Merrill Lynch confirming that your assets are subject to a probate proceeding within the U.S.; or (iii) a release from the U.S. Internal Revenue Service (IRS), known as a 'Federal Transfer Certificate,' is provided to Merrill Lynch (obtaining this from the IRS can take up to a year or more). As Merrill Lynch does not provide tax advice, please seek guidance on this topic from your own legal or tax advisor."
That was 2012. Now, going into 2016, all banks, brokerages and realty companies are starting to send out this notification. If you reside outside of the U.S. but have assets in the U.S., it is time to look at exactly how up-to-date your estate planning really is. Or, for that matter, whether your U.S brokerage will permit you to trade any longer because you live outside of the United States. Those brokerage houses are quite happy to sell your stock but what if you want to buy another stock? Times have changed for American tax filers living outside the U.S. And now to the book itself…..and what a better way to start than telling you what is new for 2016, based upon a bi-partisan vote, mid-December, 2015, The PATH Act (Protecting Americans from Tax Hikes):
•The F(u)Bar form, FinCEN 114 – no, nothing new this year but for next year, 2017, you’re going to be able to get an extension to file by October 15, 2017 for calendar year 2016. Now let’s look at things a bit more closely for 2016 – you