DELINQUENT? NOPE!

“Streamlined.”  Sounds fast.  Something that is streamlined even looks fast. Gotta love that streamlining thingy, regardless of the who, what, where, how, and why.  Yes sir – in this day and age of motion and speed, one can’t go wrong with anything that is streamlined.

“Foreign” and “Domestic.”  Exact opposites. Yet the two most often appear together, like salt and pepper. Especially in government – “… against all enemies, foreign and domestic,” appears in most official oaths of office or positions of government service. Together, they’re all-encompassing; separately, they are most discreet, even in governmental issues.

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easy way“Offshore.” Somewhere, out there. Not being here, onshore, it’s a way of locating people, places, and things that are not contained by the natural boundaries formed by the shorelines of seas and oceans. In practical terms, it refers to objects on the “other side” of those shorelines.

“Procedures.” Methods; ways and means. If there’s a task to be accomplished, these are followed in order to successfully arrive at the desired conclusion in an efficient and timely manner.  “Proper” procedures almost always guarantee success, if followed.

Put these four selections together (we’ll let the selection of “domestic” rest peacefully in this article), and you have today’s topic:

STREAMLINED FOREIGN OFFSHORE PROCEDURES 

In continuing last week’s article, you dear readers who live outside of the U.S. are going to find that there is an easy way to  “become current” with U.S. Income Tax and financial reporting responsibilities.  You’ll also find that I won’t throw a lot of tax theory or tax law precedent or other fluff into the article.

The way a taxpayer with delinquent returns become “current” is to turn himself or herself in to the IRS, throwing him/herself on the mercy of the government for their past misdeeds.  Period.  I know, that sounds pretty drastic and cruel, but it’s really not as bad as it seems.

streamlinedOf course, the more delinquent returns and reports you have, or the more you not filing them tends away from forgetfulness and closes in on malice and intent, the more difficult will be the process for you to become current.  No one said it was easy, but then no one said it was impossible, either.

For those of you who may be thinking, “Well, since there are so many delinquent tax returns in my stack and no one has bothered me about them yet, maybe I can squeeze on by until the statute of limitations runs out,” here’s a surprise:  the clock that counts off the time stipulated by the statute of limitations regarding the filing of income tax returns doesn’t start ticking until the tax return is filed.  So that stack you have is one that will always be a problem, regardless of any incantations of “statute of limitations” pleas.

For those taxpayers who are not criminally bent when it comes to income taxes – those who didn’t file out of pure intent or malice – there is this easier way to get current.  And it goes by the title of this section.

THE NUTS & BOLTS OF IT ALL

I said I wasn’t going to load you down with a lot of legalese and tax mumbo-jumbo, so here’s the deal – plain and simple:  the nitty-gritty.

Lets use, for an example, a taxpayer (T) (a taxpayer in name only, not in activity) who lives overseas and hasn’t filed a tax return or required report in, say, 10 years time.  (That’s a long time to go without filing tax returns and not being caught.)  For some reason unnecessary to the example, T wants to change his errant ways, become current with his tax return and reporting responsibilities, and continue to file his required returns and reports from that day forward.

nutsbolts2T has the following delinquent returns:  10 years-worth of income tax returns and 9 years-worth of foreign financial account reports (FBARs).  While penalties for missing income tax deadlines can be stiff, they are nowhere near as draconian as those for not filing FBARs if required to do so.  So, it’s in T’s best interest to get current and stay current.

T goes to a tax professional for help (a licensed CPA, Enrolled Agent with the IRS, a tax lawyer, etc.).  He explains that he has those delinquent returns and want to become current.  He tells the professional that he didn’t intend to skip filing his reports and returns.  In fact, he really wanted to but was fearful of what would happen if he did.  As often happens, things get put off, and then put off further, then become routine.  There’s no hint of negligence nor is there any hint of intent to evade or defraud the tax system.

The tax professional informs him that he is eligible to become current by employing the streamlined foreign offshore procedures – a modified program for “turning oneself in.”  By employing these procedures, T will become current upon the acceptance of his application.  That application is a simple form, with which T certified that he has:

  1. Filed the delinquent or amended tax returns, including all required informational returns, for each of the most recent 3 years for which the U.S. tax return due date (as extended) has passed;
  2. Pay all income taxes plus all interest accrued that are due for each of those three years, computed in those tax returns;
  3. State that he failed to report income from one or more foreign financial assets during those three years;
  4. Certify that he meets the non-residency requirements for the Streamlined Foreign Offshore Procedures;
  5. Further certify that he meets all other eligibility requirements for these procedures;
  6. Filed the delinquent FBARs for any of the last 6 calendar years that are delinquent;
  7. Agree to retain all records related to income and assets during the period covered by the delinquent income tax returns until after 3 years from the date of his certification;
  8. Additionally agree to retain all records related to his foreign financial accounts until 6 years from the date of this certification;
  9. Certify that his failure to report income, pay tax. and submit returns and reports (including FBARs) was due to non-willful conduct (i.e., conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of law;
  10. State that he understands that the IRS could open investigations into fraud or more severe charges that could result in civil and criminal penalties if the IRS receives or discovers evidence of wilfulness, fraud, or criminal conduct; and
  11. Provide specific reasons for his failure to report all income, pay all tax, and submit all required information returns (including FBARs).

That’s it.  All contained on one two-sided form (Form 14653).  All T needs to do is everything he is certifying that he has done (filing this form being one of the final steps to be taken), complete the certification form, sign and date it, and file it.

jailUpon receiving word of its acceptance, T is considered to be “current.”  He filed 3 out of 10 delinquent income tax returns – 7 were completely forgiven without question.  He only paid tax and interest on the tax – no penalties, no interest on penalties, nothing else – for those three years.  Anything he may have otherwise owed is forgiven.

He filed 6 out of 9 FBARs – 3 were completely forgiven.  What a deal!  It sure beats the other way – going back to the last tax returns and reports you have filed that are in the IRS’ records, and reconstructing every year, computing taxes, interest, penalties, etc.

If you know someone who might benefit from this program, let him or her know and have them get in touch with a tax professional.  It’s great not being delinquent.  I’m current!

 

What do you miss in the Philippines? EAM

Is there something that you miss since you moved to the Philippines?  What about those of you who have yet to move, but are planning to move to the Philippines?  Do you think there will be things you miss from “back home”?

Well, I can assure you that you will certainly miss things when you move.  Whether you are moving half way around the world, or half a mile down the road, you will miss some things.  But, for sure, moving half way around the world, to the Philippines will certainly leave you longing for something from back home. What will it be that you will miss?  Well, the only way to find out is to make the move and see what you miss.  Truthfully, sometimes it is the most unexpected things that people miss when they are gone.  I know, because I have moved a lot over the course of my life!

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There is an old saying, though, which you should keep in mind when thinking about this issue.

It's True!
It’s True!

Time Heals all Wounds

Well, missing something is not really a wound, per se, but it does hurt.  And, I promise you, time does heal the hurt.  The more time you spend away, the less that you miss those things that you have been longing for.  I can assure you of that.

Listen by clicking the button just below this line!

Do You Have a Question?

If you want to send a question for inclusion in a future Podcast, just click on the blue button over on the far right side of this site, where it says “Send Questions via Voicemail”.

If you prefer, you can leave your question via email and I will still respond to that on my Podcast.  Just go to my Expat Answerman page to send the email to me.

Thanks again for listening, everybody!

Shoes in the House

By J. Peter Fitzgerald –

“Were you wearing your shoes in the house?” my Sweetie asked with a hard edge to her voice. It was not a rhetorical question. She stood pointing accusingly at a spot on the kitchen floor, expecting an explanation.

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“Why would I wear my shoes in the house?” I stammered, vamping, waiting for some plausible excuse to occur to me. I don’t like to lie to my Sweetie unless it’s absolutely necessary. I couldn’t see any evidence of my trespass; I didn’t think she had a case. She was obviously bluffing, trying to set a trap.

“Explain this!” she said, pointing to a perfectly normal kitchen floor. She bent over and with a moistened index finger she picked up what appeared to be a solitary atom of dust. “This dirt came from the driveway. And it came in on your shoes.” I don’t have access to an electron microscope, so I had to take her word for it.

Flip Flops - gotta have them in the Philippines!
Flip Flops – gotta have them in the Philippines!

Most of us are familiar with, and obedient to, the Philippine custom of leaving our shoes at the door when we enter the house. This, of necessity, has us wearing flip-flops. If we’re in and out of the house several times a day, it makes no sense to wear shoes that have to be untied, or socks that have to be removed, to change into indoor footwear that is approved by our spouse. We have an outdoor pair of flip-flops and an indoor pair. Heaven forbid we should ever get them mixed up.

And my Sweetie convinced me early in our marriage that marital bliss was unlikely unless I removed my shoes whenever I came in from the filthy outdoors, even in our stateside castle. So I have been duly trained. It wasn’t, I learned, just a custom; it was in the fine print of the marriage contract. It was the law.

But wearing flip-flops is not comfortable. And how much mileage can you get out of a pair of flimsy rubber sandals? Two weeks? A tsinelas blowout is always just around the corner. We live in a remote farming barangay where there are almost as many carabao as people. When the inevitable flip-flop blowout occurs, I am sure to be a half-kilometer from the house, passing the day in halting conversation with one of my barrio mates.

A half-kilometer is a long barefoot walk down a road heavily traveled by carabao, which, as you know, are manure machines. And they do not squat discretely in the bushes when nature calls. The barrio road is a bovine minefield. Even wearing intact flip-flops it’s a challenge to make it back to the compound unsoiled with farmyard residue. Technically, it is some sort of misdemeanor in the barangay to permit your carabao to despoil the right of way, but this is never enforced. And pooper-scooper laws have proved unworkable where large animals are concerned.

Rural Filipinos wear shoes only on special occasions or when traveling to the city, and they usually go barefoot in the house. Though they also experience the occasional flip-flop blowout, they are able to perform remarkable feats wearing cheap, thin rubber sandals, feats that would result in serious physical damage if a Westerner were to temporarily forget his non-flip-flop roots.

Filipinos as young as five can easily run, leap and climb in flip-flops. It’s truly remarkable. Somersaults? Cartwheels? Jump rope? Not a problem. I have heard that in the Visayas there are rodeos. I would not be surprised if the bull riders wear flip-flops. Barrio men regularly work in flip-flops, constructing houses, tending cattle, rebuilding engines and even chainsawing logs. For six months of the year we live in rural Maine, one of the chainsaw centers of the universe. The thought of operating a chainsaw in flip-flops sends goose bumps down my well-padded spine and makes me wake in the night with cold sweats.

Another sensitive flip-flop problem is my nearly luminous paleness. We ashen-hued Westerners feel self-conscious about our lack of melanin. I can’t explain this feeling. It’s an odd human characteristic to never be satisfied. The less likely something can be changed, the more dissatisfied we are with it. Skin color is one of those things. Go figure. And what is the palest part of the human body that’s usually visible in a sandal-wearing country? The feet. Yes, there is another even paler part of the body, but if you regularly expose it, you’re probably unconcerned about your flip-flops.

Because of the inconvenience of always removing my shoes – and because of my Sweetie’s famous temper – I have become a flip-flop man. But there is a small problem. As part of my New Year’s determination to whip myself back into shape, I have embarked on an exercise regimen that includes brisk walking. At my age, this is a completely irrational idea, but I have foolishly announced it to my few remaining friends and my ego will not allow me to back down, no matter how much it hurts.

Brisk walking is impossible, at least for me, in flip-flops; I need sneakers. As I rapidly approach the tottering confusion of senility, I prefer solid, dependable support for my tootsies. So I have a pair of exercise sneakers. But there are times during my daily walk when I have to pop back into the house for some forgotten item, like my hat or my sunscreen or my common sense. And I confess that if my Sweetie is away on one of her gossip harvests I will violate the rule, rationalizing that shoes in the house is similar to the five-second rule of dropped food. If the food (or the shoe) remains on the floor for less than five-seconds, it is safe to eat – or likely to escape the Sweet Ones notice. This, I have discovered, is not the case.

My Sweetie is a wonderful lady. She is smart and beautiful, a gourmet cook and a treasured companion. And she has OCD. She is obsessive about cleanliness. This is actually a beneficial quirk. You could eat your lunch off our bathroom floor, and that’s a good thing (not that your would actually dine in the bathroom, but that it’s cleaner than an operating room). So she has this fetish about dust from outside where it “belongs,” being carried inside where it doesn’t. Even one molecule of outside dust will not go unnoticed by my keen-eyed Sweetie.

In the final analysis, I suppose rubber sandals are a small price to pay for marital harmony.

-Peter

My Journal

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DELINQUENT? Who, Me?

Last week, I, ah …… hey, is it just me or is time really flying in this new year of 2015?  Already, most of this new week has passed us by like a sidewalk motorcyclist at an Edsa rush hour?  (Oh yes, I know that “Edsa traffic” and the word “rush” go together like “balut” and “egg whites,” but you get the idea – and that’s what counts.)

round tuitLet’s get right “tuit” then, before the publisher comes knocking.  (Everyone should know what a “tuit” is. For those moving slowly today, I’ll explain that a “tuit” is a powerful motivational object.  Most work on earth is accomplished whenever the laborers get a round one.)

MORE Q&A

As I was saying, last week I mentioned two questions that were statistically tied in the number of times that they had been voiced over the past couple of months.  We talked about one.  Now, it’s the other’s turn in print.  Though you may not imagine it to be of such great importance, various changes in the world entwined in economics and administration and taxes serve as this question’s “tuit”

Q:  With all of these acronyms flying about, like FATCA, ACA, and others, I’m getting scared.  The U.S. has put its worldwide reporting and information collection system in operation about a month ago, and here I am in the Philippines without having filed any U.S. Income Tax returns for a very long time. I didn’t know that I still had to file them since I live here, but now I hear the tsismis about the long arm of the IRS stretching out even farther.  What can I do so that my chances of being discovered are zero?

A:  THIS IS A REAL PROBLEM, and it’s much more common than you can imagine.  I know that some of you, dear readers, may be trembling a bit and might be in the same position.  Are there any answers to this one?

answerYes, there are a lot of answers.  Just talk with anyone about it, and you’ll either hear an old one or an ingenious but skillfully wrong new one.  It’s time to dispel some of the troubling bogus answers and help get the word out on how a taxpayer with delinquent returns can “get current” with their income tax responsibilities.

1.  Letting go of the past, turning a new leaf, and starting to file returns starting with this year and trying not to miss any future years.

BAD NEWS.  Following this answer merely raises a red flag when that first in a long time tax return hits the return processor’s desk.  The taxpayer’s name and Tax ID Number are the first items entered into the dreaded IRS computer system.  It’s programmed to recognize what’s happening, there being no record of tax returns being filed for some period of time.  This taxpayer’s return gets an immediate pass to an auditor’s desk, where further investigation starts as the return is being processed. That computer, by the way, will automatically generate a form letter and send it to the taxpayer, asking, “WHAAAZZUPP?”  It’s the start of a new adventure, better described as an ordeal.  You DON’T want to go there.

unfiled2.  Gathering all of the old information that can be found and quietly filing all of those delinquent returns right before filing the current year’s tax return.

A LITTLE BETTER, BUT NOT MUCH. Yes, the “quietly catch up” artist has an extremely slim chance of “slipping one by the man,” but remember that computer system I mentioned?  It has a programmed response for that move, too – especially if a big lump of delinquent returns hits the in baskets almost all at once or not spaced out by some reasonable amount of time, say, one year between returns.  It’s made very much worse if any taxes were due with those returns.  Trouble for taxpayers compounds faster at the IRS than interest on a savings account.  Now, we’re talking about the possibilities of penalties, interest, and possible fines and jail time (in the really bad cases).  You DON’T want to go there.

safe wayIS THERE ANY WAY THAT’S SAFE? one might ask.  Well, there’s one way that I recommend to delinquent return laden taxpayers who failed to meet their tax return – and FBAR reporting – responsibilities for a while, and their lack of filing those returns and reports wasn’t intentional or purely neglectful.  If “intent” and “pure negligence” are part or all of the rationale employed over the years then, for this recommendation, “FUGGEDDABOUTIT!” Such delinquent return owners can only “come clean,” voluntarily disclose their prior mischief, and be prepared to take their lumps.  They’ve entered the dark world of tax evasion, where even the publicity can be punishing.

The answer that’s available for the unintentional, simply careless taxpayer who failed to timely file income tax returns and FBAR reports in the past is called the Streamlined Foreign Offshore Procedures, for those residing outside of the U.S., and the Streamlined Domestic Offshore Procedures for U.S. residents.  These are fine programs developed to bring non-compliant taxpayers current.

serialNow that I’ve piqued your interest, you have something to think about (and, perhaps, Google) until this article continues next week. (Just like in the old matinée serials on Saturday afternoons of yore, the story gets continued just when it starts getting good.) For now, I have to get back to the “big computer” and get some tax work done.   The clock, and the word counter on this publishing medium, have presented me with a “tuit.”

Yes, it’s round.

Life Can Be Taxing

The best laid plans of mice and men ………

I planned to be here every week or so to provide you, dear readers, with another helping of the finest eggs that my mind can scramble. Well, two failures are the result – one obvious and one not.

Obviously, unlike MacArthur, I didn’t return.  As I’ve whined before, “Life Happens” and “Life gets in the way.” Oh, I went through all of the motions: setting aside time in my weekly schedule for writing, additionally intense observations of the world around me, etc. ‘Twas all for naught.

Not obvious, and maybe I should keep it that way, I’ve run out of eggs. Frying pan and whisk are at the ready, my mind is suitably well-heated, the mental lard is bubbling, but no eggs. Rthremembering some advice from long ago that addresses not knowing what to write about, I’ll follow it. I’ll write about what I know. 

So, until Life throws another curveball to this batter, I have returned.  Hopefully, my stay and my contributions to this fine Web Magazine will be more to everyone’s liking over the upcoming “so many” weeks, months, years, decades, whatever.  Right now, I’ll try my best and present an article that is fitting for this time of year. Yes, dear readers, it’s “Tax Time.”

A “MOST OFTEN ASKED” QUESTION

Over the past few months, this question has tied with another (that will be discussed in another article) for the most frequently asked question about U.S. Income Tax by taxpayers living in the Philippines.  Like all things “tax,” the answer is not simple. It can be summarized in a single word, however: “Maybe.”

Q: I’m an Expat from the States living in the Philippines. Do I have to file an income tax return?

A: That all depends on your individual circumstances, you may have to file a U.S. Income Tax return, or a Philippine Income Tax return, or both, or neither.

DoINeedtoFile-Cartoon1First, let’s look at the U.S. Income Tax filing requirements. Mandatory filing of a tax return with the IRS is determined by three factors:

  1. The amount of your “gross income” received during the tax year;
  2. The filing status that you are eligible to use; and
  3. Your age.

Simply put, for U.S. Income Tax purposes, “gross income” is the total amount of income (regardless if it’s cash, property, or services) that is received during the tax year from any and all sources worldwide EXCEPT any income that is EXEMPT from income taxation.  Note that I did not say income that was “excluded,” “safe-harbored,” or otherwise not counted as “taxable income.” I said, “EXEMPT.)  (Did I say, “simply,” too? Well, that’s as simple as it gets. Remember, with all things “tax,”…………)

There are five different filing status options that a U.S. taxpayer might employ:

  1. SINGLE – no need for explanation there;
  2. MARRIED FILING JOINTLY (MFJ) – two eligible taxpayers (e.g., spouses) combined their income tax reporting and tax paying into one tax return.
  3. MARRIED FILING SEPARATELY (MFS) – each taxpayer of the couple (e.g., each of the spouses) file their own individual income tax return, independent of the other.
  4. HEAD OF HOUSEHOLD (HOH) – a lone taxpayer with qualifying tax dependents, who live with the taxpayer for the 12 months of the tax year, and for whom the taxpayer provides at least 50% of the housing and living expenses; and
  5. QUALIFYING WIDOW(ER) (QW) – a taxpayer who lost his MFJ partner through death, having filed MFJ for the tax year immediately prior to the year of the death, who has a dependent gross-income1child, and who has not remarried. (A QW can file MFJ for the tax year of the death, then file as a QW – more beneficial than filing SINGLE – for each of the followers two tax years in which the QW taxpayer remains unmarried.)

The difference involved with age is a little simpler. Taxpayers who are 65 years of age and older are treated differently than their younger counterparts.  It gets a little complex for MFJ filers, where there are the permutations of a) both taxpayers are 65 or older; b) one of the taxpayers is under 65; or c) both taxpayers are under 65 years of age.

IF IT’S TAX-RELATED, THERE’S A TABLE FOR IT

Taking all of the information gathered – as described above – into consideration, the determination of whether or not a U.S. Income Tax return must be filed comes down to a single focus: Does the dining-table-clip-art-9bnchnu6taxpayer(s) “gross income” exceed the mandated return filing threshold obtained from the appropriate tax table?

The IRS loves tables. They have a table for almost every complex and simple tax issue that can be thought of, and they don’t mind developing an impromptu table for unique issues not covered by established tables. (More tables than a furniture store!)

Here is the table we need for the 2014 tax year – yes, they update the tables annually, adjusting some for inflation, some for changes in economic and other environments, and some just to stay busy between tax seasons (personal comment).

Filing Table

There you are.  Just determine which filing status line (remember to figure in age) you should be looking at, and check out the amount in the column labeled, “2014.” As you can see, the adjustments for 2015 have already been projected and published.

An example:  Both you and your spouse are 65 years old and plan on filing under the MFJ filing status.  For 2014, the mandated filing threshold for you is $22,700.  If your “gross income” does not exceed $22,700, then you are not legally bound to file a U.S. Income Tax return for tax year 2014.

A final note, there are other instances where filing a U.S. Income Tax return is either mandated or is beneficial to do so voluntarily.  If the couple in the example above had any income taxes withheld by the source of their income, they would want to voluntarily file a 2014 U.S. Income Tax return and claim the amount of income taxes withheld as a tax refund.  Some of the other mandatory filing instances are:

  • A taxpayer who works for tips that may not have been reported to the IRS;
  • A taxpayer whose employer failed to withhold income taxes or report income tax withholding;
  • A taxpayer who filed an income tax return in the previous year and was subject to the Alternate Minimum Tax (AMT); and
  • That’s enough, already!

PHILIPPINE INCOME TAX RETURN FILING

Not being a Philippine Certified Public Accountant, and not holding myself out as a Philippine Certified Public Accountant, I can only pass along a synopsis of the tax laws to you with regard to filing a Philippine Income Tax return.  For a non-citizen of the Philippines living in the country, as well as for dual-citizens, the requirements are much simpler.  If you earn or receive income within the physical boundaries of the Philippine Islands, you are subject to Philippine Income Taxation on that Philippine-sourced income alone.   An income tax treaty between the Philippines and the U.S. allows for this, as well as allowing for income exclusions and tax credits being available to prevent double taxation (being taxed by both the Philippines and the U.S. on the same income).

I recommend that if you are in a situation where you think you might be liable for Philippine Income Taxes, contact a Philippine tax professional for assistance.  Trust me:  You don’t want to mess with the Philippine Bureau of Revenue (BIR).

There will be more in future articles.  For now, I’m really taxed for words.  Think I’ll go get an egg salad sandwich.