Larry's 2015 U.S. Tax Guide for U.S. Expats, Green Card Holders and Non-Resident Aliens in User-Friendly English

season!!!!!

The introduction – for the sixth time I’m doing an introduction to a tax book.

Am I tired of writing tax books? Yes and no – I’d love to write fiction but recognize a distinct lack of passion to drive me all the way through a piece of fiction. For the same reason, I’ll never amount to much of a musician in spite of my fondness for virtually every type of music, except, perhaps, Chinese opera. Regardless, or perhaps because of my not being able to fictionalize that which follows, I’m going to have fun writing this book, this year…….and I thank, in advance, those who are reviewing the text to make sure I don’t get myself in trouble.

Well, well, well, here we go again – six books, five of them in this series, and I am once again happy to say:

Welcome, dear reader, to the 2015 edition of Larry's U.S. Tax Guide for Expats, Green Card Holders and Non-Resident Aliens - in User-Friendly English!

This time around there’s a section specifically for the non-U.S. ‘person. It is being written specifically for that non-U.S ‘person’ – someone with investments in the United States - who has to report on an annual basis and is subject to some real pain-in-the-ass penalties if the return is not filed. With the exponential increase in expatriation from U.S. citizenship, many former U.S. citizens join others throughout the world in having U.S. investments for which that person just might have to file – we’ll go over it this time around – welcome to the book title!

You guys out there, the readers of this 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!

And so I begin…..I'm sitting at my desk in our leased apartment in Bangkok, just a few days before 2014 ends. Last year I started writing while at home in Guangzhou, PRC, vowing at that time never to write in the Guangzhou winter. I grew up in Brooklyn, New York, envious of the old farts who abandoned NYC for the warmth of Miami during winter. As I start to write this book, It’s mid-afternoon on December the 29th and no, it is not 6 degrees (C.) outside, it is 27 degrees and my fingers don’t feel as if they are going to fall off from pounding the keyboard in my study. Irving Berlin wrote in his introductory lyrics to White Christmas that he was yearning to be up north…..not me, my friends, I like being south – Bangkok is my Miami now that I am certifiably an old fart!

This year, the U.S. Congress didn’t screw up at all – how could they when they just didn’t do anything? Remember that ‘fiscal cliff’ warning of a few years back? It was as ultimately meaningless as the Y2K scare at the turn of the century. But there are financial problems out there; no one will deny that. And is there any coherent tax directional responsibility being taken by Congress or the President? In essence, no, thereby giving the IRS free reign to go where they have boldly never gone before, without anyone truly objecting. I don’t like much of what they are doing and seriously disagree with what they have enacted but will never disregard it – the law is the law is the law……and we’ve got to comply.

I will never retire! The word ‘retirement’ is simply not part of my vocabulary. I don’t look for the ‘orthodox’ type of tax work ‘business’, anymore – after 48 years of doing it, enough is enough! There are far, far better things to do with my life. Yet I feel like Al Pacino in Godfather 3: Just when I thought I could get out, they pull me back in.

I have no will power and continue to get involved in those ‘interesting’ IRS tax audits/cases that other professional firms turn 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. Yes, you should work with a specialist – if you can find one. But if you have to do it yourself, go ahead and write to the IRS! 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 a few 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 you 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

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…..

I’ve added a ‘non-tax’ essay in this issue that was derived from a 2012 series of conferences at which I spoke in India, mid-October, 2012. The presentation was entitled Sound International Planning in the Midst of a Worldwide Depression. I think this will be a worthwhile read for you.

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 account 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 24+ 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 we, the tax filing (if not tax paying) individuals, are 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 2015 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. There is absolutely no doubt in my mind that it will be one of the central issues of 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? Look at that 'semi-annotated' table of contents which follows. 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 five for that form. Five 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 2015, 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…..

Read on.....enjoy.....and if you have any questions, email me at prctxman@yahoo.com!

What is income?

And so we begin! WHAT IS INCOME. This is my take – my ‘real’ executive summary of the U.S. tax system as it applies to you – the person living outside the U.S. who may or may not owe any tax to the IRS but who is subject to a whole lot of penalties if he or she is responsible for filing an annual tax return but is not doing so…..or is not doing it correctly.

There are actually three sections, here: an overview of what is income and the categories you might fall under for reporting that income; a calendar of your tax filing deadlines for 2015; the ‘working basics’ for U.S. tax filers living overseas.

Yeah, you can skip the first two parts if you want but really, there’s not that much reading, so go ahead and skim through the preliminary stuff – you are really better off doing so! It’s just about 2,000 words, and this brief section explains what the IRS considers income and the categories under which you the tax filer fall and thus, how that income is treated. Yes, it is a convoluted process but if you believe in the ‘cover your ass’ doctrine, then read this ‘prelude’ and …..CYA! And go online, too!

The online stuff: GO TO THE IRS WEBSITE: www.irs.gov ! Don’t just take my word for it – this is where the IRS wants you to go to learn about what you are responsible for. See it for yourself….try it…..and then come back to this book as it’ll be a whole lot easier to understand! There’s an awful lot that you will find in the IRS site - some say that there’s too much and thus too difficult to navigate.

Anyhow, now that you’ve been thoroughly confused, here’s what you really need. Yes, sir, folks, here it is, the list of what you have to declare as taxable income - at least, according to the