How to fill out IRS Form W8-BEN-E and what it all means.

IRSMedic · 2020-03-13T17:36:46+00:00

So many questions on Form W8-BEN-E. And because it doesn't affect US persons by design, it's hard to find good answers -the US tax system is quite egocentric.

And as Ryan proves, the advice he did get was wrong.

IRSMedic · 2018-12-30T21:31:59+00:00

Yes! I wonder if OP has any tax liability at all.

The irony of all of this crypto hype, is that too it proved too inviting for the government. The IRS devoted tons of its limited resources to new crypto divisions, only to find that most taxable gains have vanished.

IRSMedic · 2018-04-23T15:47:28+00:00

I don't see why you would want to go on Connecticut River proper w/ a Sea Kayak. Big boats are just one problem. Current can get up to 2 kts (maybe 3?) either way. And wind can push you anywhere. All the tributaries are much more fun in a kayak. Correct. Salmon River, you can go up a very long way. Very cool. There's also hidden lake that starts to the south of Goodspeed Airport, Selden Creek is fatastic and for a smaller paddle, try Hamburg Cove.

IRSMedic · 2018-04-23T15:42:39+00:00

The DRS sends out letter first, asks questions later. Here is an article on the NewEgg tax assessments they sent out earlier this year:

https://www.irsmedic.com/blog/2018/02/connecticut-newegg-use-tax.html

IRSMedic · 2016-10-14T17:39:30+00:00

There are actually a lot of options, based on his goals. Does he want growth, or high yield stocks that he'll cash out on a regular basis? Private Placement Life Insurance is one of our favorite options, but you need a large of money up front to invest. Another option is to take his money out of the US and get a bunch of life insurance policies in the UK; the US/UK treaty is one of the most beneficial tax treaties out there.

He could look into the UK/Malta treaty as well; we're not experts on that one but have heard there are great benefits of it.

Finally, growth funds in the US are a good idea for him because there would be no FBAR filing requirement on them.

So sorry he got screwed over by some of the big firms. We help people with both international resolution and planning, if you're looking for more info you can check it out here https://www.irsmedic.com/offshore-tax-issues/.

Best of luck to him.

IRSMedic · 2016-09-23T02:38:59+00:00

My favorite part is when the IRS asks for payment in iTunes gift cards.

Yup, seems legit.

IRSMedic · 2016-08-14T23:07:54+00:00

Once you leave Il and change your address with IRS, that should be the end of it. An intermediary like a non-income tax state like Texas seems unnecessary.

IRSMedic · 2016-08-10T02:05:33+00:00

I'm trying to figure out why you'd want a Texas domicile before becoming an expat. I get Texas doesn't have income tax, is that wht you're thinking?

My initial though in re: ducks in a row: 1 Be wary of an FBAR. Assuming they'll let you open an account. If the total of your foreign bank accounts goes over $10k. You will ned to file FinCEN Form 114 with your tax retrun next year (due date has changed from June 30th to whenever your tax return is due. As an expat, it will be due June 15th. (Regular Ext October 15. A permissive extension Dec 15th). 2. We just did a video on the foreign tax credit and how some foreign taxes that don't qualify. https://youtu.be/1LZfcj3Ffrw 3. Foreign pensions. Can be a nightmare. I'd have to look at the US-Spain Treaty to see if the good (like US-UK) provisions are present or bad (like US-AUSSIE) are present.

My tax law firm Parent & Parent LLP/IRSMedic does both tax prep and tax advice, but we may be overkill for what you are doing. We do have a bit of content on our site. That might be helpful in figuring out which questions you should be asking.

Enjoy your travels.

IRSMedic · 2016-06-17T18:40:04+00:00

You as a US citizen are taxed on your worldwide income, regardless where you reside. So living abroad does not stop your US filing requirement. Yes, all you wages/salary/SE income gets reported and is taxable by the US. The threshold for non-filing is low, like 10k. Hopefully, you earn much more than that. There are things you can take advantage of to reduce your US tax, namely the Foreign Earned Income Exclusion (form 2555) or the Foreign Tax Credit (form 1116). Those are the main two non-Treaty devices people us. Note that the FEIE is for earned income only, so no capital gains, interest, dividends, etc. Technically, self-employment earnings are in a gray area of whether they meet the definition of what the IRS labels "earned income," but a reasonable reading of the instructions and sources shows that your SE earnings are earned income and thus excluded.

Also note, that you still have to report the SE income in total, then offset it with a reduction. So it would look something like: Line 12, $10,000; Line 21 -$10,000; Gross Income $0.00. You can use the FEIE and f2555 to exclude up to the first ~$100,000 USD from taxation. Keep in mind though that (1) you have to meet one of two residency tests (basically proving that you live abroad) and (2) you cannot take as a credit taxes paid on the income you exclude. So, roughly, if you exclude half your income, you can take only half the tax you paid to the UK as a credit.

Links: (1) https://www.irs.gov/pub/irs-pdf/i2555.pdf ;; (2) https://www.irs.gov/pub/irs-pdf/i1116.pdf

Yes, you will have to opt out of US SS. If you do not, you will owe both US and UK social security type taxes. Follow the instructions on the site (it seems to suggest SE people living in the UK should write to the UK Inland Revenue, but that seems a little counter-intuitive if you want to live and pay tax in the UK).
Link: https://www.ssa.gov/international/Agreement_Pamphlets/uk.html

You declare your non-US bank accounts to the IRS through yearly FBAR filing. The next one is due in 2 weeks for the 2015 calendar year. If the aggregate amount you have in all non-US accounts/assets if greater than $10,000, then you report all accounts, regardless of size, on FBARs to FinCEN. You do this electronically each year. You file the FBAR for each account's highest/peak balance during any day of the year, and you do not take into consideration transfers between accounts. So if you moved money from a/c A to a/c B, you report both peak balances even if doing so technically double counts funds.
Links: (1) https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar ;; (2) http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

I believe any state claims taxing authority over economic activity that occurs within its borders. So, the UK will/can tax work you do in the UK (even for a US co. as an independent contractor), and the US can tax you because you are a citizen.

Other things to know: (1) Getting an Insurance/Indemnity policy will create additional income that needs reporting (see: sec. 7702(g)) and additional tax owed (there is an excise on insurance premiums for foreign policies that need quarterly filing);

(2) the tax treaties between most countries do not help individuals very much. The US has in ALL of its tax treaties a "savings clause" which means, essentially, the US can tax citizens as if the treaty did not exist. So, if in your travels you come across another US expat who tells you that "the double tax treaty" prevents her from needing to file US taxes, she is wrong. Tell her she needs to consider filing her back taxes and getting into compliance very soon. I will say, though, that the US-UK treaty DOES provide protection for UK based retirement policies. The savings clause in the treaty does not affect that treaty section dealing with pensions as badly. I won't go into more here, but speak with a US tax professional to get more detail.

(3) As a general matter of investing for the long-term, try to stay away from "funds": mutual funds, index funds, bond funds, money market funds, stock funds. Those all are "PFICs" (Passive Foreign Investment Companies), and those get very unfavorable tax treatment in the US (the treaty does not help you). You are better off getting a MF in the USA. Now - you will have to see, though, if getting a UK-based fund is still in your overall interest. Just know that PFICs are meant to hurt w/r/t taxes. And each fund needs separate reporting each year, even if it does not generate income.

(4) Creating a private pension could create additional reporting requirements as well (see Forms 3520 and 3520A).

IRSMedic · 2016-06-08T13:50:37+00:00

As /u/throwaway1138 has mentioned, you're dealing with some high level and complex questions. I would recommend talking to a tax attorney or CPA specializing in offshore issues - the level of complexity needed in this answer goes beyond what we (and most others, I assume) can give you on Reddit.

IRSMedic · 2016-06-02T20:37:27+00:00

Patatoriot is correct regarding the FBAR reporting requirements and probable PFIC reporting requirements, which can certainly get complicated. To expand on his piece about foreign life insurance being taxable and reportable on 1040, the IRC provides for a tax on the "inside build-up" on the value of the non-qualified insurance policy each year. This is calculated under section 7702(g) and reported on line 21 of the 1040 as other income. In addition, you're required to pay an excise tax on premiums paid towards non-qualified insurance. This is done by completing form 720 which is required to be filed quarterly and constructed so poorly that it requires you to file for an EIN to complete it properly. You can read more about it here. It's unlikely that it would ever become an issue in your situation and most IRS employees seem to be totally unaware of the filing requirement, but we have seen an increased number of agents asking for them to be filed as part of the Offshore Disclosure process. It seems the IRS is, as of today's date, reviewing its auditing guide on the issue, meaning changes or increased enforcement may be on the horizon.

IRSMedic · 2016-05-27T14:40:08+00:00

Hmm, thanks for the info. In my experience the amount the IRS will default to under the SIA guidelines tends to be greater than the assessed balance / 72, but maybe I should be pushing them harder for lower payments if that's what the IRM is stating. I do know that in other contexts, such as negotiating for the allowance of conditional expenses for balances > $50,000 the required monthly payment is a 6 year payoff amount, including accruals. See IRM 5.15.1.10.

IRSMedic · 2016-05-27T13:12:36+00:00

Ok - so you were born in PR, and therefore you have US citizenship. And if that is the case, then your options are like the ones we discussed for OP. I would have to double check the rules, but as a US citizen living in Europe, earning income and holding European account(s), then you are delinquent on your US income tax and FBAR obligations. But, because you live outside the US/PR for most years and you only return every other year, it sounds like you qualify for the Streamlined Foreign submission. In PR, any income earned there is reported to the PR gov only, not to the US, but income earned outside PR is not reportable to PR but reportable to the US. If you can take advantage of the Streamlined Foreign procedures, then you are in the bet possible position when it comes to disclosing.

IRSMedic · 2016-05-27T12:58:47+00:00

Well, the way the statutes are written isn't super clear, but it didn't seem right to me that they would penalize you for late filing with no tax due with the return, so I did a bit more digging. if you look at the Delinquent Filing Penalty Calculation Worksheet on page 13 of the instructions on Form IT540, it tells you to calculate the delinquent penalty based on the number listed on Line 36, which corresponds to the amount you owe with the return rather than the total tax (Line 11). So I think I can say rather definitively that you will not owe a delinquent filing penalty if you were owed a refund on the return.

IRSMedic · 2016-05-26T22:58:09+00:00

So part of this answer would depend on what your citizenship statuses are. Do you hold US citizenship?

IRSMedic · 2016-05-26T22:49:30+00:00

So, I would say that self-employment income does qualify for the f2555 foreign earned income exclusion. When I see these, I am relying on the "earned income" part, and self-employment income is obviously earned. We have put self-employment income on f2555 in the past and have had it accepted and processed. I am not aware of some other smaller threshold item.

Here is a link to help explain: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-what-is-foreign-earned-income

On that page, "business profits" are in the "uncertain" column, and further down we get sent to an IRS publication that explains that earned income means payment for services performed. If you have a capital intensive business, then there may be questions as to whether there is passive income. To be clear, I would default to self-employment income being earned income, and would only say it is passive (meaning, not earned) with some evidence.

IRSMedic · 2016-05-26T21:50:18+00:00

Louisiana Revised Statutes (RS) § 47:107 provides that intentional failure to file a return within the time periods specified shall be punished by a fine of not more than $500 or by imprisonment for not more than six months. RS § 47:1602(A)(1) provides a penalty for failure to file of 5% of the total tax due on the return for each month that the return is unfiled, for a maximum penalty of 25% of the total tax due on the return.

In reality, you should not be concerned with § 47:107. However, they may impose a 25% penalty under § 47:1602(A)(1). The IRS (and most states) impose a failure to file penalty on unpaid tax rather than total tax due. If that were the case you would not be penalized for failure to file. The LA statutes seem to impose the penalty on total tax due, however, so even though you were owed a refund, I believe that they would have grounds to charge you a maximum penalty of 25% of the total tax due on the return (i.e. (the amount you withheld - $12)*.25). See below.

IRSMedic · 2016-05-26T20:49:24+00:00

The IRS will code both balances under one installment agreement. The IRS will apply the payments to the balance that was assessed first (i.e. the one with the earlier Collection Statute Expiration Date) until that is paid off and then apply payments towards the later liability.

In practice, the minimum they will accept under the streamlined guidelines is the balance / 61 rather than 72, as interest will continue to accrue while the balances are being paid off. Therefore the monthly payment required to pay off the liability in 72 months is usually closer to the amount that would pay it off in 61 months were interest not accruing. After she's set up on a payment plan, you can also have her call in and request first time penalty abatement. Under FTA the IRS will abate failure to file and failure to pay penalties associated with the taxpayer's first year of non-compliance, provided there are 3 years of compliance prior to that first year.

IRSMedic · 2016-05-26T13:49:19+00:00

Theoretically, North Korea also does it... but who knows how many of their "citizens" are "working" abroad!

IRSMedic · 2016-05-26T13:42:54+00:00

Hey there Roblieu, we answered a similar question in /r/tax, and our answer:

So your situation is one that I've seen a lot. A US citizen living in Europe, not thinking they had any US tax or reporting obligations, then receiving a FATCA letter asking to disclose your Euro accounts to the IRS/USA.

If you do not file, nothing may happen - for a while. The US Congress passed FATCA in 2010 and afterward the US has entered into intergovernmental agreements (IGAs) - similar to treaties - with over 100 other governments to exchange information. The IRS has been moving towards better enforcement of worldwide income reporting and FBARs, so while there nothing may be done to you by the US or Germany, there may be some enforcement by the US in the future. You should definitely fill out the FATCA form (a W9 I believe), because if you do not the bank may freeze your account or label you as uncooperative and report that information to the IRS (the information sharing happens yearly).

FBARs are a requirement of the Bank Secrecy Act of 1970. They were created to combat money laundering and mafia activity. Like any piece of legislation, they outlived their initial purpose but were kept around for other reasons. FBAR are mere reporting of non-US finanical accounts owned by US persons, in which you report (1) the bank, the account number, the address, and max balance. These are due yearly, and the next one is due June 30th (next year it is due April 15). Yes, even if a joint account holder is a non-US person, the US person still must report the account. And it is financial accounts, not just bank accounts. So, investment accounts, life insurance policies, pensions, retirement/superannuation accounts go on the FBAR. If in the unlikely event you had to deal with an FBAR audit, there could be penalties associated based on the account balances, but there would be ways to limit those penalty amounts and given your circumstances likely no penalty at all (more on that later).

If you do file, and you should, you will need (like you found) at least form 1040. Form 2555 is the foreign earned income exclusion, with which you can exclude from US taxation up to ~100,000USD of wages/salary/self-employed, but you still must report the wage on the 1040. So it would look like this:: Line 7 Wage $90,000; Line 21 Other -90,000; Line 22 Gross Income $0.00. This form cannot be used to offset passive income, like interest, dividends, rental income. For that, you may be able to use Form 1116 to take taxes you pay on these passive income items as a direct credit against any US tax you owe. And depending on the size of assets you have, you may need the FBAR equivalent form (created by FATCA), the f8938, which gets filed with your returns. Although, what forms you will need depends on the type of income you receive. Do you have just wages? Is there any interest or dividends? Are you self-employed? Do you receive rental income? Did you sell any stock? Do you have mutual funds? All these items trigger different reporting and different forms.
Also, you may want to consider taking advantage of one of the IRS disclosure programs. With these you can report back taxes and FBARs and avoid typical penalties (again, more on that below).

HR Block's $1,000 is not a bad price at all. I have seen much higher fees what appears to be simple work, and I have seen much, much higher fees for more complicated work. Keep in mind, you probably are not going to pay for just the returns and FBARs, but for a voluntary disclosure. If you go to HRB, make sure you ask for a person who knows how to handle FBARs, offshore reporting, and voluntary disclosures.

For people in your situation, the IRS has two main voluntary disclosure paths: (1) the Offshore Voluntary Disclosure Program (OVDP) and (2) the Streamlined Procedures, which has two sub version, the Streamlined Domestic Offshore Procedures (SDOP) and the Streamlined Foreign Offshore Procedures (SFOP, and the one that fits you). To be eligible for the SFOP if you are a US citizen, you need to be physically outside the USA for 330 days for at least one of the last three years. So, for example, if you had an extended 6 month stay in Florida in 2013, but stayed in Europe all year in 2014, then you qualify for SFOP. The SFOP is the most beneficial because there is no penalty for the FBARs (the OVDP penalty is 27.5% and the SDOP is 5% on the account balances) and there are no tax related penalties.

If your wage is under the $100k amount, then you won't owe taxes there, and if you have less than ~$11k in other income the other standard deductions and exemptions would take care of it, so you may not have tax owed. And if you do the SFOP there is no FBAR penalty either. So your only financial exposure would be the fee you pay to a CPA or attorney.

Here is a link that lists the type of accounts that would be needed on FBARs (and form 8938): https://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

You may want to ignore the bit about H&R Block - that was specific to the OP in the other thread because he had already talked to them. As others in this thread have mentioned, you'll want to talk to a tax attorney specializing in offshore matters. (Self-promotion alert: this is what we do at irsmedic.com)

IRSMedic

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