Larry's 2013 Tax Guide for U.S. Expats & Green Card Holders in User-Friendly English

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The sections of this book

– an annotated piece of assistance for you to decide what you want to read…..READ THIS, FIRST!!! Then decide how much you want to read and in the order that makes most sense for you

The introduction – Hey – this is not a repeat from last year……I rewrote this – really I did, as I also did with any of the sections that appeared here, last year!!! 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! If you were in the ‘wealthier group amongst us’ with the ability to give a gift and reduce your net worth, tax-free, in 2012…..did you? Have you filed Form 8938, assuming you were responsible for doing so? Do you even know what Form 8938 is for? Have you ever heard of it? Read on, my friends……!

The final tax acts of 2012 – tax changes we need to know in 2013…..On January 1, 2012, A Democrat was President, the Democrats controlled the Senate and Republicans controlled the House. At the close of voting on November 6th, a Democrat will still be President, the Democrats still control the Senate and the Republicans still control the House…..all this, no change but for the billions and billions of dollars spent on what appeared to be a never-ending political campaign. Will there be a ‘fiscal cliff’ to fall from or is it really a steep, downhill walk into new tax laws? Your guess, like mine in mid-November, when I started writing, was really subject to speculation. We now know that a 2012 tax bill was passed on 1 January 2013 and that taxes were addressed but budget reduction was postponed until later, with a new tax phrase, ‘sequester’ , now being mentioned…..

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 – yeah, you are still liable for this one and the penalties are stiff! And…..the latest on VD (no, not what you think – this one is ‘Voluntary Disclosure’) - My narrative about that F(u)BAR form you have to file by 30 June 2013 as your calendar year 2012 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! 2013’s Voluntary Disclosure Program – This time it’s different – no end of program because this one’s never ending and subject to percentage changes in what the IRS might choose to extort.

FATCA – The 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!

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’…..and we’re including more about Form 8865 – we’ve had specific requests for this one!

Form 8938….again, for the very third time! Now it is for real, folks….. THIS IS BRAND SPANKING NEW FOR THE TAX RETURNS YOU MIGHT HAVE HAD TO DO IN 2012 IS LIKELY TO BE ENFORCED IN 2013!!!!! 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? Look at the IRS’s suggested time for this form and compare it with some of the other suggested times – do they really understand the concept of ‘time’?

The W-8 series of forms - The ultimate goal of the IRS is to make EVERY transaction a taxable one for the American tax filer. As a start towards this goal, any American filer doing business outside the U.S. but in or with the U.S. is going to encounter some type of W-8 form. This will be an attempt not to justify these forms (no, with the information they are asking for, the way they are asking for it, these forms simply cannot be justified) but to explain what the heck is going on…..

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 AMT: Alternative Minimum Tax – fiscall cliff or not, this is going to hurt more than ever because Congress won’t even touch it! There is one concept in taxation that simply defies rational explanation. I think you might understand the AMT immediately after reading this explanation but if you are like me, then a few days later, you’re going to have to read this, again. Don’t worry, don’t feel insecure: I have never really understood the AMT!

Expatriation, the ‘ultimate’ experience – more so than ever. 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 U.S. 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 2012. This is where Larry is truly ‘unleashed’ as he criticizes the U.S. tax system and its treatment of U.S. tax filers abroad.

Phil’s List, Again – Every tax form that the overseas American tax filer might encounter is listed here….and we’ll show you how to access IRS forms, direct, from the IRS’s far-too-confusing website. As with last year, Thank-you, Phil Hodgen, for your effort in listing these forms!

Sound international planning in the midst of a worldwide depression – Why are there so few of us out there, willing to call it as it is: we are in a depression, folks, and things are going to get worse before they get better. This subject was my keynote speech in New Delhi and Mumbai at two conferences held in October, 2012. That speech has been transformed into an essay for this book. Is it about U.S. tax? Heck, no! Yet the response I got to the speech gave me some ‘food for thought’ that this just might be some worthwhile reading matter for U.S. tax filers, wherever they may be…..

The appendix – Listed here are the URLs linking directly to the IRS website for 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 – and if you use the URL format I list here, you’ll be able to retrieve virtually any IRS form (assuming, of course, that you know the form number). 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!) …..AND…..the highlighted, official publication for the overseas American Tax Filer: Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad.

The introduction

– Hey – this is not a repeat from last year……I rewrote this – really I did, as I also did with any of the sections that appeared here, last year!!! 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! If you were in the ‘wealthier group amongst us’ with the ability to give a gift and reduce your net worth, tax-free, in 2012…..did you? Have you filed Form 8938, assuming you were responsible for doing so? Do you even know what Form 8938 is? Read on, my friends……!

Well, well, well, here we go again – for the third time around, I am happy to say:

Welcome, dear reader, to the 2013 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 that 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 home in Guangzhou, PRC, as I start to write this book. It’s mid-afternoon on December the 24th and no, I am not ‘yearning to go up north’, as the lyrics of ‘White Christmas’ read….. It’s funny how I thought that writing might be easier, this time around, as I've had a couple of years 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. This year, the U.S. Congress is starting to screw up my anticipated ease of writing because there is no tax law, yet, taking us into 2013. Is there going to be a fiscal cliff off of which we are going to tumble? Who knows what will happen over the next month or so – at the very least, life is interesting!

Both last year and the year before, 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 to do the funding. The sad fact of the matter is that the IRS is never to likely be funded to the extent it wished it was. 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! Let me add that if are an overseas resident getting absolutely nowhere in your battles with the IRS and you remain convinced that you are correct, then write to the IRS Taxpayer Advocate Service – this is an IRS ombudsman there to assist you. Now I don’t guarantee (no one can guarantee anything about the IRS other than that they are trying to get money out of you by scaring you – intimidation works!) that you’ll get the help you are looking for but you will get a response – and that is better than nothing at all!

Internal Revenue Service

Taxpayer Advocate Service

City View Plaza, 48 Carr 165

Suite 2000

Guaynabo, P.R. 00968-8000

Two years ago was 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 started the 2012 edition and this year as I start upon 2013, why change a successful way to start - I'll ask another, albeit different question.

What do the governments of Greece, Spain and, I suppose, the United States have in common with my wife (aka 'Tiger CFO') was the question I asked last year. 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…..

I’ve added a ‘non-tax’ essay in this issue entitled Sound International Planning in the Midst of a Worldwide Depression. This one is based upon speeches I made in New Delhi and Mumbai, mid-October, 2012. I thought that this one would be easy, too, converting it from a speech to an essay – I was wrong again. Yet I think this will be a worthwhile read for you.

I’ve also added a copy of Publication 54 in the appendix. This is the IRS’s sole tax guide for Americans overseas: Tax Guide for U.S. Citizens and Resident Aliens Abroad. But I’ve gone one step further: I’ve highlighted the sections I think are relevant to the average overseas American. Obviously there is far more than I underlined so if you want to look a bit more carefully (including the ‘frequently asked questions’ at the end), then, by all means, do so! Frankly, I think I’ve written a better, more comprehensive guide that is definitely easier to read and far