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Update for Tax Year 2013:

Form 2555:  The maximum foreign earned income exclusion is adjusted annually for inflation. For 2013, the maximum exclusion has increased to $97,600.  You need to file an income tax return to claim the exclusion.

FBAR E-Filing now Mandatory.  Since July 1, 2013, FBAR filers must set up an account with the Treasury Department's BSA website after which they can download the customized FBAR Form 114 to prepare, upload and e-file.  According to the Treasury Department, paper FBARs no longer are accepted.  For joint filers, the non-signing spouse will need to complete and sign a Form 114a authorization before the signing spouse e-files the joint FBAR.

Currency Exchange Rates:

Average.  The average annual exchange rate published by the IRS is USD 1 = EUR 0.783.

Year-End.  The Treasury Department's year-end exchange rate for Form 8938 and the FBAR  is USD 1 = EUR 0.7260.

Net Investment Income Tax or "Double Taxation Rears its Ugly Head".  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). The NIIT is 3.8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over:  $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status.  As of this posting, foreign tax credits cannot be used to offset this tax!  Time to contact your representatives in Washington to get this fixed.

Tax rate on net capital gain and qualified dividends.
The maximum tax rate of 15% on net capital gain and qualified dividends has in-creased to 20% for some taxpayers.

Samesex marriages. If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage.  This change also can have negative consequences for expats who are married to nonresident alien spouses, forcing them into the generally-unfavorable category of "married filing separately" -- unless the alien spouse wishes to be taxed as an American.

"OBAMACARE" Exchanges Open.  People may be wondering whether expats are required to obtain health coverage under the Affordable Care Act.  Currently, it does not appear that this is the case IF you do not reside in the United States.  

Code Section 5000A sets forth the requirement for all "applicable individuals" to maintain "minimum essential coverage" after 2013.  Subsection 500A(f)(4) applies to individuals residing outside the US and provides that:  Any applicable individual shall be treated as having minimum essential coverage for any month--

(A) if such month occurs during any period described in subparagraph (A) or (B) of section 911(d)(1) which is applicable to the individual, or

(B) if such individual is a bona fide resident of any possession of the United States (as determined under section 937(a)) for such month.

So, the Code links the exception for coverage to meeting either the physical presence test or the bona fide residence test required to claim the foreign earned income exclusion (Form 2555) for the relevant period.  For most long-term expats, this should not be a problem, but some issues may arise with respect to persons on temporary assignment abroad.  Even green card holders living abroad may have to think about the effects on their LPR status of claiming that they satisfy the physical presence test. 

TAX UPDATE FOR TAX YEAR 2012

Form 2555:  The maximum foreign earned income exclusion is adjusted annually for inflation. For 2012, the maximum exclusion has increased to $95,100.  You need to file an income tax return to claim the exclusion.

Currency Exchange Rates: 

Average.  The average annual exchange rate published by the IRS is USD 1 = EUR 0.809. 

Year-End.  The Treasury Department's year-end exchange rate for Form 8938 and the FBAR (Form TD F 90-22.1) is USD 1 = EUR 0.7590. 

TAX UPDATE FOR TAX YEAR 2011

Form 2555. The maximum foreign earned income exclusion is adjusted annually for inflation. For 2011, the maximum exclusion has increased to $92,900.

Form 8938.  If you had foreign financial assets in 2011, you may need to file Form 8938 with your tax return.  This is in addition to the FBAR filing requirement.

Currency Exchange Rates: The average annual USD/EUR exchange rate for 2011, as per www.oanda.com , is USD 1 = EUR 0.71897. According to the US Treasury Department, the year-end exchange rate was USD 1 = EUR 0.7650.

IRS re-opens Offshore Voluntary Disclosure Initiative.

 SELECTIVE SERVICE REGISTRATION

Even though no one currently is being drafted in the United States, men are required to register with the Selective Service as soon as they reach age 18.  Failure to register, or otherwise comply with the Military Selective Service Act is, upon conviction, punishable by a fine of up to USD 250,000, imprisonment for up to five years or both.  All male United States citizens, regardless of where they live, must register during the thirty days before and after their 18th birthday.  It is possible to register online by visiting the Selective Service Website and clicking on their online registration form.  With few exceptions, male green card holders and aliens residing in the United States must also register.  The registrant will receive an acknowledgment of registration that may need to be produced to receive certain benefits.  The registrant also is required to notify the Selective Service if he moves or changes his name.

TAX UPDATE FOR TAX YEAR 2010

The maximum foreign earned income exclusion amount for tax year 2009 is $ 91,500.

Generally, the amount of income you can receive before you must file an income tax return has increased.  See IRS Publication 54 for more details.

Reminder: The FBAR (Report of Foreign Bank and Finanacial Accounts) has a due date of June 30, 2011 for calendar year 2010.  Currently, there are no extensions possible.  See the Links & Resources section of this website for resources relating to the FBAR requirements.

Winter 2010

WIDESPREAD REPORTS OF CBP CHALLENGING LPR's WHO HAVE BEEN OUT OF THE COUNTRY FOR OVER SIX MONTHS BUT LESS THAN ONE YEAR

Anecdotal evidence suggests that green card holders ("LPRs") returning from absences of over six months, but less than one year, frequently are being subjected to questions at the US port of entry as to whether they have abandoned their LPR status.  I am even coming across stories of frequent business travelers between Canada and the US, for instance, who are being questioned about the issue, even if they have been out of the country for less than six months.  There appears to be a significant disconnect between America's stated policy of promoting international trade and our border policy of challenging precisely the kinds of people who promote America's globalized economy.

THE EXIT TAX TRAP FOR GREEN CARD HOLDERS

While I'm on the topic of US policy disconnects, the new exit tax under IRC Sections 877 and 877A also applies to long-term permanent residents ("LTRs").  Often, green card holders decide to return to their native countries after they retire, or get stuck there because of health insurance or family reasons.  If they do not return to the US within one year, they most likely will have their green cards confiscated at the border.  This triggers an involuntary "expatriation" under the tax code.  For wealthier taxpayers, this can include having to pay US tax on unrealized gains, or worse, having to pay US taxes on the present value of pension rights, i.e. on pensions that have yet to be paid out and that may never be paid out depending on how long the taxpayer actually lives.  Such taxpayers also lose certain treaty benefits.  This trap for long-term green card holders cries out for a legislative solution.  If we are going to impose an exit tax on long-term permanent residents, then we should adjust the abandonment of status rules under our immigration laws to remove long-term LPRs from involuntary loss of status based on time spent abroad -- as long as they continue to file their US tax returns.  Better yet, remove LPRs from the purview of the exit tax.

Spring & Summer 2009

IRS announces more aggressive approach to enforcing foreign bank account reporting compliance ("FBAR"). 

In March the IRS announced a new voluntary disclosure program to encourage nonfilers (taxpayers who have not filed income tax returns) with foreign bank accounts to come forward to file back tax returns and FBAR reports in order to avoid criminal prosecution and/or the imposition of severe fines.  In the past, very few cases of imposition of the harsh penalties contained under the FBAR rules have been made public.  The voluntary disclosure program includes paying back taxes and the application of a FBAR penalty on all undeclared foreign accounts in the amount of 20% of the maximum balance of each account during the period 2003 through 2008.  Technically under the FBAR rules, the maximum penalty could be 50% of the maximum balance for each of the years of noncompliance, not just for one year as contemplated under the voluntary disclosure program.  In particular, the IRS appears to be focusing on wealthy UBS clients who hid funds in Swiss bank accounts and did not report the income from those accounts, but the FBAR rules affect many, if not most expats.

manent Residents ("LPRs") will be subject to the same biometric screening procedures on entering the US as nonresident aliens.

Summer 2008

New Online Registration System for Visa Waiver Travel to the US to Enter Test Phase

Beginning August 1, 2008, the Electronic System for Travel Authorization (ESTA) will be accessible via Internet for citizens and eligible nationals of Visa Waiver Program (VWP) countries to apply for advance authorization to travel to the United States under the VWP.ESTA will initially be available in English only. Other languages will follow. Effective January 12, 2009, all VWP travelers will be required to obtain an electronic travel authorization prior to boarding a carrier to travel by air or sea to the U.S. under the VWP.

Applications may be submitted at any time prior to travel, however, DHS recommends that applications be submitted no less than 72 hours prior to travel. In most cases you will receive a response within seconds:

1. Authorization Approved: Travel authorized.

2.  Travel Not Authorized: Traveler must obtain a nonimmigrant visa at a U.S. Embassy or Consulate before traveling to the U.S.

3.  Authorization Pending: Traveler will need to check the ESTA Web site for updates within 72 hours to receive a final response.

An approved travel authorization via ESTA is:• Required for all VWP travelers prior to boarding a carrier to travel by air or sea to the U.S. under the VWP beginning January 12, 2009;• Valid, unless revoked, for up to two years or until the traveler’s passport expires, whichever comes first;• Valid for multiple entries into the U.S. As future trips are planned, or if an applicant’s destination addresses or itineraries change after their authorization has been approved, they may easily update that information through the ESTA Web site; and• Not a guarantee of admissibility to the United States at a port of entry. ESTA approval only authorizes a traveler to board a carrier for travel to the U.S. under the VWP. (For additional information, please visit "For International Visitors" at www.CBP.gov/travel.)

IRS Imposes Exit Tax on Expatriating US Citizens and Long-Term Residents

As reported in February, the planned exit tax on "wealthy" US citizens and longterm permanent residents (LTRs) has been passed by both House and Senate and signed by President Bush.  Persons to whom the legislation applies will be required to mark all assets to market value as of the day before expatriation and will be taxed on unrealized gains above the (current) threshold of USD 600,000.00.