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IRS Tax dispute for non US citizen, former Visa holder

IRS Tax dispute for non US citizen, former Visa holder

Old Nov 20th 2018, 1:14 pm
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Question IRS Tax dispute for non US citizen, former Visa holder

Hello,

I need a bit of help with an IRS issue I have. My wife and I were a non-resident L2 visa holder in the US from 2013 - 2016. We filed our tax returns annually and left the US in 2016. We are now back in the UK.

We received an IRS letter in 2017 saying we owed for 2014. When we moved over my wife was consulting and getting paid to her UK bank account by her US company for a few months at the beginning of 2014. She was paid into her US account when she was a US employee in June 2014. We did our joint tax return for 2014 with our W-2 forms but since filing - her company declared the total amount paid to her to the IRS. This took some time to filter down into the IRS but once it did, they readjusted our 2014 return to the sum of $13K (different in tax plus penalties). In 2014, we did not file a UK tax return, my wife was actually told in person not to declare the money anywhere by her companies financial guy, evidently this was bad advice. The letter arrived to us in the the UK once we had left the US. I have been slowly dealing with it but want to now get it resolved. As it stands we have no US bank accounts, assets or anything. The only thing we have in the US is about $5K in my wife's 401K. I have said the IRS can have this but they said I need to seek financial advice.

I spoke to a company (taxes for expats) who said they would help if I paid $200. I did and they have not really helped at all but just asked for more money to talk to them about this particular issue. They advised me to file a CP-71 form which would mean I would pay a minimal amount of the tax to stop accruing interest. I called the IRS and they had not heard of this form. The IRS also told me we are going on a list soon which freezes our US assets and would put our names on a list so we would be stopped at any US airports/borders. I asked Tax for Expats and the IRS about the 401K and they both said seek financial advice. I tried to do this and it seems it would be subject to a penalty and I could get about 40% (assume the rest ironically goes to the IRS) but still, I would not have a problem giving whatever is left to the IRS. I will have forgotten about this account by the time I am 65.

I believe I have a few options:

1) Pay in full or set up a payment schedule (will incur more interest)
2) Request a hearing to appeal the amount - Do not think this is reasonable as bad advice is not enough of a reason
3) Re-file a 1040 form for 2014 highlighting my wife's expenses for 2014 as a consultant - If we did this, could we include things like rent and amenities as consultant expenses?
4) Apply for an Offer in Compromise - Offer to pay 20% of the final amount to close the issue. IRS would clearly need to accept.
5) File for bankruptcy in the US (yikes)

As a non-US citizen, I believe they cannot access my bank account or assets. I know the US and UK have a bilateral income tax treaty but I believe the UK does not have a collection assistance provision with the US.

Just wondering if anyone has any insight into the above. The US tax system is hard to navigate (The IRS even said that to me) and we did pay our taxes when there. We probably will not live and work in the US again but I would like to travel. Any insight appreciated. Regarding the 401K, can I close it and pay an early penalty? If so, would I have to file a tax claim in 2018 for such a nominal amount?
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Old Nov 20th 2018, 1:57 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

I have dealt with IRS re back taxes owed and it is a complete nightmare. They basically want their money, so if you are able to pay it, I would just do that and forget about it. I tried for 6 months to explain why my case was different, but it got me nowhere and I ended up paying the tax plus interest.

I believe if you close the 401K early, then yes, you'd have to declare that add income on this year's tax return, but if that will free you from IRS, it might be worth it. They will not leave you alone.

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Old Nov 20th 2018, 3:03 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

I've fought the IRS at the beginning of this year and was successful. But the circumstances were different than yours and I had the assistance of our tax accountant to navigate the IRS system.

The advice given you to not include your wife's US income for part of 2014 on your joint 2014 tax return was incorrect as you discovered. If she had paid taxes on that in the UK, there might have been a different outcome as once declared in one country, she would have paid the appropriate taxes on the declared income where ever she declared the income.

I see it as yes, she does indeed owe tax on that money and yes, there is the penalty charge to be dealt with (paid). You can file an amended 2014 tax return to include that income and declare additional deductions for office space, supplies, etc. Will it be enough to eliminate the debt to IRS? I honestly don't know. Or you can just go ahead and pay the amount IRS has declared is owed.

I would suggest rather than dealing with the IRS, that you find an accountant who is familiar with international tax laws and filing US tax returns. There have to be some in the UK that you can retain to help you deal with this.

As for the 401K, if the money is taken from the account before age 59-1/2, there is a 10% penalty in addition to the withholding of federal taxes. If the balance is $5,000.00, the penalty is $500 leaving you $4,500 before taxes are withheld. At 40% withholding (percentage you suggested), the remaining funds to go to your wife would be $2,700. So with receipt of that money, that would reduce the tax bill by $2,700. You will then have to file a federal return for 2018 before April 15, 2019. Chances are you might get some of those monies back, but perhaps that is wishful thinking.

It will not wipe out your debt but you might be able to negotiate a lower amount. Don't have a clue how that is done. In our case we got them to cancel the entire debt without having to pay anything.

Last edited by Rete; Nov 20th 2018 at 3:31 pm.
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Old Nov 20th 2018, 3:26 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Thanks Rene & Rete,

I also stumbled across the 10 year period that the IRS has to chase you for taxes:

5.1.19.1.1 (04-26-2018)
  1. Each tax assessment has a Collection Statute Expiration Date (CSED). Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government's right to pursue collection of a liability.
From what I understand, there is an IRS statute of limitations on collecting taxes. The IRS is limited to 10 years to collect back taxes, after that, they are barred by law from continuing collection activities against you. Is this correct and if I file an Offer in Compromise, would this reset the 10 year period?
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Old Nov 20th 2018, 3:30 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Honestly, I have no clue. The issue we had was a mistake by our accountant who did our US taxes with my husband's Canadian pension. I'm 70 and have been filing taxes since age 16 and never had a problem IRS before until this year with our joint return for 2016.
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Old Nov 20th 2018, 4:44 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Just realised this is not a feasable option as the Collection Statute Expiration Date (CSED) is wavered if the taxpayer is outside the US:

5.1.19.3.7 (04-26-2018)

Taxpayer Living Outside the U.S.

  1. The period of limitations on collection after assessment is suspended while the taxpayer is outside the United States if the absence is for a continuous period of at least six months per IRC 6503(c) .
  2. To make certain that the Government has an opportunity to collect the tax after the taxpayer's return, the period does not expire (where the taxpayer has been out of the country for six months or more) before a minimum of six months after the taxpayer's return to the country. As the application of this provision can result in the CSED being suspended for a very long time, policies for the administration of this code section are now established.
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Old Nov 21st 2018, 8:50 am
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Originally Posted by cheeseandpickle View Post
Hello,

I need a bit of help with an IRS issue I have. My wife and I were a non-resident L2 visa holder in the US from 2013 - 2016. We filed our tax returns annually and left the US in 2016. We are now back in the UK.

We received an IRS letter in 2017 saying we owed for 2014. When we moved over my wife was consulting and getting paid to her UK bank account by her US company for a few months at the beginning of 2014. She was paid into her US account when she was a US employee in June 2014. We did our joint tax return for 2014 with our W-2 forms but since filing - her company declared the total amount paid to her to the IRS. This took some time to filter down into the IRS but once it did, they readjusted our 2014 return to the sum of $13K (different in tax plus penalties). In 2014, we did not file a UK tax return, my wife was actually told in person not to declare the money anywhere by her companies financial guy, evidently this was bad advice. The letter arrived to us in the the UK once we had left the US. I have been slowly dealing with it but want to now get it resolved. As it stands we have no US bank accounts, assets or anything. The only thing we have in the US is about $5K in my wife's 401K. I have said the IRS can have this but they said I need to seek financial advice.

I spoke to a company (taxes for expats) who said they would help if I paid $200. I did and they have not really helped at all but just asked for more money to talk to them about this particular issue. They advised me to file a CP-71 form which would mean I would pay a minimal amount of the tax to stop accruing interest. I called the IRS and they had not heard of this form. The IRS also told me we are going on a list soon which freezes our US assets and would put our names on a list so we would be stopped at any US airports/borders. I asked Tax for Expats and the IRS about the 401K and they both said seek financial advice. I tried to do this and it seems it would be subject to a penalty and I could get about 40% (assume the rest ironically goes to the IRS) but still, I would not have a problem giving whatever is left to the IRS. I will have forgotten about this account by the time I am 65.

I believe I have a few options:

1) Pay in full or set up a payment schedule (will incur more interest)
2) Request a hearing to appeal the amount - Do not think this is reasonable as bad advice is not enough of a reason
3) Re-file a 1040 form for 2014 highlighting my wife's expenses for 2014 as a consultant - If we did this, could we include things like rent and amenities as consultant expenses?
4) Apply for an Offer in Compromise - Offer to pay 20% of the final amount to close the issue. IRS would clearly need to accept.
5) File for bankruptcy in the US (yikes)

As a non-US citizen, I believe they cannot access my bank account or assets. I know the US and UK have a bilateral income tax treaty but I believe the UK does not have a collection assistance provision with the US.

Just wondering if anyone has any insight into the above. The US tax system is hard to navigate (The IRS even said that to me) and we did pay our taxes when there. We probably will not live and work in the US again but I would like to travel. Any insight appreciated. Regarding the 401K, can I close it and pay an early penalty? If so, would I have to file a tax claim in 2018 for such a nominal amount?
I would expect you elected to file as full year residents jointly for 2013 to maximise excess foreign tax credits carried forward. Assuming so, you should have enough excess foreign tax credit in 2014 to eliminate the liability. I suggest appointing a UK based US qualified tax adviser to prepare an amended 2014 return for you at this stage. If you did not elect to file jointly for 2013; it may be wise to file amended 2013 returns as well.

I expect you will owe nothing beyond professional fees to get this corrected.
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Old Nov 21st 2018, 8:57 am
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Thanks - would you know any UK based US qualified tax advisers? I was thinking this was going to be my next move as working with US based tax professionals is not working.
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Old Nov 21st 2018, 11:31 am
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Originally Posted by cheeseandpickle View Post
Thanks - would you know any UK based US qualified tax advisers? I was thinking this was going to be my next move as working with US based tax professionals is not working.
NOT recommendations because I have had no personal dealings with them, but I have seen reference to these from time to time:

American Tax Returns - US and UK Tax Experts Tel: 020 8946 0523

US Tax Solutions, US & UK Tax Specialists for Americans Living in the UK, US Taxes for Expats, US & UK Tax Advisors for Americans in the UK

Welcome to British American Tax - British American Tax

https://www.ustaxfs.com/individual-tax-2/
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Old Nov 21st 2018, 1:53 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Although the IRS office in the US Embassy is closed there is a link to qualified US Tax preparers.

https://uk.usembassy.gov/u-s-citizen...ice-u-s-taxes/

https://www.irs.gov/tax-professional...x-professional
https://irs.treasury.gov/rpo/rpo.jsf
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Old Dec 11th 2018, 5:33 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Just coming back to this - Does anyone have any knowledge / experience with paying an outstanding tax bill in the US but agreeing not to pay the penalties / interest? I have read about a form 843 but that is a form that can be filled once you pay the tax plus any penalties / interest and you file a claim to get the money back from the IRS once paid. I do not have the money for the interest (I do not even have the money for the tax but will try to get it). I wanted to know if anyone managed to get the IRS to agree to pardon the penalties / interest.
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Old Dec 11th 2018, 6:32 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Originally Posted by cheeseandpickle View Post
Just coming back to this - Does anyone have any knowledge / experience with paying an outstanding tax bill in the US but agreeing not to pay the penalties / interest? I have read about a form 843 but that is a form that can be filled once you pay the tax plus any penalties / interest and you file a claim to get the money back from the IRS once paid. I do not have the money for the interest (I do not even have the money for the tax but will try to get it). I wanted to know if anyone managed to get the IRS to agree to pardon the penalties / interest.
You could either not pay at all or go the "offer in compromise" route. If I were in your position I would probably do the latter, although apparently it's quite difficult to do and they may refuse any offer if they deem you have sufficient assets to pay them:

https://www.irs.gov/taxtopics/tc204

Edit: I realize you've talked about offer in compromise before, but you could try to do an O in C and offer the amount due not including interest/penalties.

Last edited by Giantaxe; Dec 11th 2018 at 8:10 pm.
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Old Dec 16th 2018, 12:25 pm
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

cheeseandpickle, please post an update once you manage to sort this out. Good luck!

I've no personal experience but I heard good things about David Treitel of American Tax Returns.
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Old Oct 7th 2019, 8:56 am
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Default Re: IRS Tax dispute for non US citizen, former Visa holder

Hello tbm I resolved this with the IRS eventually. I paid what was owed plus interest. It was not an easy decision. I received advice from expat tax 'experts' in the UK who said a number of things - Pay what you owe, don't pay, dispute it all. Disputing could have cost about $3000 and taken a couple years which would have still accrued interest and I may not have won the dispute. I was also told not to pay as the IRS use out dated systems that eventually might just stop tracking me after a while, weird advice.

The real problem was getting solid financial advice in the UK. I worked hard to find people who could help but it was a low priority for them and a minefield. It all became a full time job. If I was never planning on gong back to the US ever I would have not paid but I would like to go back and the IRS started threatening me with not being allowed in the country. The tax expert said they could not uphold this but it all felt like too much stress. I have enough going on, having
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