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Paying back taxes (J1, UK tax treaty 20A)

Paying back taxes (J1, UK tax treaty 20A)

Old Aug 19th 2009, 3:55 am
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Default Paying back taxes (J1, UK tax treaty 20A)

I did a search, didnt find anything that answers my specific questions.

Anyway, here we go:

OK, so now I am an O1 and am back in the US, I have to pay back the two years of taxes I didn't have to pay as a J1. UK citizens are exempt for 2 years, but have to pay it all back if they don't go home for 2 years afterwards. Since I'm back in the US within that timeframe, I have to pay.

I've been in touch with the IRS and they have explained that I need to submit a completed 1040 and 1040x, and they will then send me a bill, at which point I can set up a payment plan. I'm not in trouble, everything is fine.

That seems simple enough, but I have heard that people can actually renegotiate the total amount they owe. Since I have barely a dime to my name, this is a very interesting prospect.

So.....should I employ an accountant or tax attorney? What's the difference between the two?

Secondly, if I do enlist profesional help, is it normal practice to get a free consultation to discuss my case and see if they can do anything? I never like paying lawyers or whatever up front just to hear there is nothing they can do that makes a difference.
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Old Aug 19th 2009, 4:18 am
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by caleyjag View Post
So.....should I employ an accountant or tax attorney? What's the difference between the two?
A tax attorney can represent you in tax or civil court if need be, in addition to handling audits etc. Additionally, your discussions with them have client-attorney privilege and the IRS can't question them as to what they've discussed with you. An accountant can handle audits etc, but can't represent you in court, and nor do discussions you have with them have client-attorney privilege. As you say you're not in "trouble", I doubt there's much point in hiring an attorney, especially as they cost a lot more.

Originally Posted by caleyjag View Post
Secondly, if I do enlist profesional help, is it normal practice to get a free consultation to discuss my case and see if they can do anything? I never like paying lawyers or whatever up front just to hear there is nothing they can do that makes a difference.
Tax attorneys will usually give you a free consultation in which they'll talk about your situation in general terms. However, they're unlikely to give you specific advice unless you hire their services. I suspect the same is true of accountants.
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Old Aug 19th 2009, 7:08 am
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Neither a normal tax attorney or tax accountant will help getting your taxes reduced. Neither knows how to negotiate with the IRS.

You will need to make an appointment with a firm that specializes in negotiating with the IRS (ex IRS employeees). Although you see adds stating that a persons tax liability was reduced to zero or very low, those seldom occur unless the person can prove that he/she is insolvent.

I don't know how much they can help you but it is probably a good idea to have a consultation.

Maybe at least they may be able to eliminate the interest and penalties and negotiate the payment plan for you.

Last edited by Michael; Aug 19th 2009 at 7:15 am.
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Old Aug 19th 2009, 1:20 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by caleyjag View Post
I've been in touch with the IRS and they have explained that I need to submit a completed 1040 and 1040x, and they will then send me a bill, at which point I can set up a payment plan. I'm not in trouble, everything is fine.

That seems simple enough, but I have heard that people can actually renegotiate the total amount they owe. Since I have barely a dime to my name, this is a very interesting prospect.
I think you should be focused on paragraph one. I doubt there's much hope for paragraph 2 in your case. The latter probably refers to an "Offer in Compromise" (see here). Since you're an employed O-1 professional, I doubt you'll get the IRS to bite on that hook. I don't think you need a lawyer, but an accountant or Enrolled Agent could help you set up your payment plan. Good luck.
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Old Aug 19th 2009, 3:45 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

You might qualify for the offer in compromise program if the IRS doubts your ability to pay: however the IRS will look at all your assets, not just how much cash you have.

However- success under the offer in compromise program is very rare.

To address the comment above about tax accountants not knowing how to negotiate with the IRS: I strongly disagree that ex-IRS employees are any better at negotiating with the IRS than other tax professionals.

There are no tricks or loopholes in negotiating with the IRS. The IRS has very specific procedures laid out that have to be followed each time.

As an Enrolled Agent, I have successfully negotiated with the IRS many times. The key is to follow the procedure to the letter and ensure all bases are covered.

Ok- rant over!
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Old Aug 19th 2009, 3:46 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

One other thing: it is generally cheaper to take out a personal loan to pay the IRS rather than set up a payment plan with them. That assumes you have a reasonable credit rating of course.
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Old Aug 19th 2009, 4:51 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

One thing that you definitely should do is to make sure that you claim every legitimate deduction that you are entitled to when doing your US tax returns for those two years to make sure that your tax liability is as low as possible.
Unfortunately if you were a single student for those years there may not be much that you can claim, but you should still make sure that you do deduct everything that you are entitled to.
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Old Aug 19th 2009, 7:28 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Thanks guys, I think this clarifies things.

Knowing this was coming, I changed jobs to make sure I had enough money coming in to pay the additional burden that these payments would introduce. With that in mind, I doubt I will be able to qualify for renegotiation.

I don't have any money right now, so a payment plan will be essential. I don't have a credit rating here either, so a loan is out the question. I'm going to have to suck it up and pay the IRS directly.
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Old Sep 9th 2009, 7:26 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

I'm currently in the exact same situation. Can you please tell me the latest with your situation? Who did you call in the IRS to ask questions? When I call they say I don't need to pay backtaxes (!) but I don't really trust the telephone operators that much - they're not specialists...

When you found out that you had to pay back the taxes, was there an option that you could pay it back in full there and then with no interest or penalties? I'm simply saving the exemption money and could pay it back if I wanted to stay on for longer than two years, but I'm not keen on paying interest/penalties just to keep that option open...

Thanks for your advice!
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Old Sep 10th 2009, 2:12 am
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by bdobke View Post
I'm currently in the exact same situation. Can you please tell me the latest with your situation? Who did you call in the IRS to ask questions? When I call they say I don't need to pay backtaxes (!) but I don't really trust the telephone operators that much - they're not specialists...

When you found out that you had to pay back the taxes, was there an option that you could pay it back in full there and then with no interest or penalties? I'm simply saving the exemption money and could pay it back if I wanted to stay on for longer than two years, but I'm not keen on paying interest/penalties just to keep that option open...

Thanks for your advice!


Yup, when I called the IRS person said I don't need to do anything, which I must say was a big surprise.

This was apparently due to the fact I am no longer an academic. I went back to the UK and returned (after only 4 months) and am not continuing in my academic role. New job, new visa. Neverthelss I thought if I came back without staying in the UK for 2 years, I'd be in trouble.

I wasn't sure that the IRS person was telling me the correct facts, but I am not sure how I am supposed to figure it out if they don't even know. I recorded the agent's ID and the date and time of the call. The call was very unambiguous. She said I definitely did NOT have to resubmit ammended tax returns, which is contrary to what I thought (I was calling her to find out exactly which forms I needed to send).

I wasn't able to locate a professional in my area with experience in this particular matter. I did however find an online site similar to this where a resident tax expert told me that I should be fine, keep the agents details in case of arguments...

So I'm not sure what to do. I don't want to pay if I don't have to, but on the other hand I don't want to get in trouble down the line.

And I have no idea how I fill in 2009's tax return without getting in all kinds of headaches, since the first 3 months were on the J1, with no tax withheld.

I think the main problem is that citing the agent's advice on the phone is pretty shaky ground when I am arguing about non-payment penalties down the line, should it turn out that I was supposed to pay after all.

So....... to cut a long story not very short, I'm still trying to figure out what to do.

(On a final note, apparently if it turns out that if I DO owe the tax, I can negotiate a payment plan, over a period of up to 5 years. Penalties are negotiable, interest is not).

Last edited by caleyjag; Sep 10th 2009 at 2:15 am.
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Old Sep 10th 2009, 3:30 am
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by caleyjag View Post
So....... to cut a long story not very short, I'm still trying to figure out what to do.
Keep some cash on the side and hope for the best. (The agent won't lose his job if he was wrong.)
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Old Sep 10th 2009, 2:40 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

So I think you're going to be fine. I called through to the IRS a second time and when they asked where should they direct my call I asked for someone who deals with tax treaties. I got through to someone who at least seemed to know what they were talking about and had the relevant documents at hand to refer to (901, 519 - I think). He said that provided that I leave the US and return under a different visa I have fulfilled my tax treaty exemption conditions and will not have to pay backtaxes. He said the return to the UK could be as short as one day (!) provided I come back under a different visa. Again, I'm not entirely sure about this because I believe there is a minimum number of days that I must be away from the US to be deemed non-tax resident, and I would imagine that that value is the minimum time you need to spend away.

I think your case is ok as you have come back under a different visa and under a different capacity i.e different class of job for which the original treaty doesn't apply. To double check try calling the IRS and asking to speak with someone who deals with tax treaties as I did.

I think (having read the treaty documents myself) that it is very vague. It certainly doesn't say in black and white what you need to do, so I'm not sure where the IRS agents get their 'insight' from. Sadly I'll be staying here in the same capacity and under the same visa so I think I'll have to pay up

if I were you, I'd pay for an accountant to fill your 2009 forms for you and let them worry about it. It'll cost ~$400 but if the IRS says it's wrong sometime down the line, you can sue the accountant!
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Old Sep 10th 2009, 3:25 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by bdobke View Post
So I think you're going to be fine. I called through to the IRS a second time and when they asked where should they direct my call I asked for someone who deals with tax treaties. I got through to someone who at least seemed to know what they were talking about and had the relevant documents at hand to refer to (901, 519 - I think). He said that provided that I leave the US and return under a different visa I have fulfilled my tax treaty exemption conditions and will not have to pay backtaxes. He said the return to the UK could be as short as one day (!) provided I come back under a different visa. Again, I'm not entirely sure about this because I believe there is a minimum number of days that I must be away from the US to be deemed non-tax resident, and I would imagine that that value is the minimum time you need to spend away.

I think your case is ok as you have come back under a different visa and under a different capacity i.e different class of job for which the original treaty doesn't apply. To double check try calling the IRS and asking to speak with someone who deals with tax treaties as I did.

I think (having read the treaty documents myself) that it is very vague. It certainly doesn't say in black and white what you need to do, so I'm not sure where the IRS agents get their 'insight' from. Sadly I'll be staying here in the same capacity and under the same visa so I think I'll have to pay up

if I were you, I'd pay for an accountant to fill your 2009 forms for you and let them worry about it. It'll cost ~$400 but if the IRS says it's wrong sometime down the line, you can sue the accountant!
Good idea.

Ironically, I left academia, where I was very happy, to join industry, simply because my two years was nearly up and I thought I would have massive fines to pay, hence the need for a bigger salary.

All the bother for an O1 visa (a LOT of bother) for nothing.

Still, looks like I have found a potential loophole which is a nice surprise (although I'm waiting to be told otherwise). My new life in SoCal is working out pretty well too, which is a bonus!
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Old Sep 10th 2009, 5:08 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Originally Posted by caleyjag View Post

And I have no idea how I fill in 2009's tax return without getting in all kinds of headaches, since the first 3 months were on the J1, with no tax withheld.
What I do in these kinds of cases is attach a worksheet to the tax return showing how you calculated your tax for the year and showing that the period covered by J1 is not subject to tax.
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Old Sep 26th 2009, 8:09 pm
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Default Re: Paying back taxes (J1, UK tax treaty 20A)

Thanks caleyjag and bdobke for posting your experiences!

I would be very interested in hearing how this works out overall. I will hopefully be in a similar situation next year, leaving a post-doc position for a non-J1 position.
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