Not too long ago this American abroad, with the help of her accountant, finally filed her U.S. taxes for 2011. It was quite an impressive package that I printed out and sent off to the IRS. In it were forms I'd never heard of and one that I'd heard way too much about, the 8938 which is basically a duplicate of treasury Form TDF 90-22.1 (FBAR) which I filed earlier this year. Ah, the U.S. government is such a marvel of efficiency.
I am so thrilled to be done with it. After many hours of work poring over bank statements, my 2011 French income tax declaration and other stuff from my archives, my accountant sent me the final version and I sent it off registered mail with a deep sigh of relief. For 2011 I am in that exalted state of full compliance (knock on wood) with the U.S. reporting requirements. Oh joy.
Especially since my final tax return yielded a rather distressing outcome: I owed a lot more money than I had thought. How did that happen?
Phantom gains: Because we had sold our last piece of investment property that year, I was aware that I would be paying capital gains on the sale and was prepared to the cough up a couple thousand U.S. dollars. What I did not know was that I would "make" more money on paper because of the different exchange rates: from Francs/Euros to U.S. Dollars. That was something of a shock but even so I'd heard that this is a frequent problem for other Americans abroad - this issue of "phantom gains" on property or mutual funds that come about simply because we (Americans abroad) are doing business in local currency but the U.S. government insists that everything be converted to U.S. dollars using the IRS-approved exchange rate for that filing year.
Unemployment is not Earned Income: I was unemployed and collecting French unemployment insurance for the year 2011. To my utter disbelief this income is not excludable under the Foreign Earned Income Exclusion. So basically it appears that I had to pay American taxes on my French unemployment benefits. Amazing.
So what was the final damage? 9,000 U.S. Dollars (late filing fees and interest included).
Now that, mesdames et messieurs, is not at all a trivial amount. All the more because I already paid taxes in France so the money sent to the US is on top of all I paid that year to the French "fisc."
And frankly it is an amount I can ill afford since I am being treated for cancer here in my host country and it will be a few months before I can look for work again.
Now at this point I am sure there is a "donneur de leçon" (know it all) in the audience who is conducting an inner dialogue with him or herself using one of the following rationalizations:
"Surely some of this money came from the U.S. originally or she has assets in the U.S."
No, not one dime of my money came from the U.S. I left America right after university (like 20 years ago) and built my career in Europe. The investment property that we bought a few years ago was purchased with money earned entirely in France and with a loan from a French bank. And I don't own anything in the U.S. - no property or stock or stuff like that. My life is here in France. End of story.
"I'm a U.S. expat and I've never ever owed anything so I don't understand what is going on with this lady but it sounds fishy to me."
For those Americans abroad who have very simple situations (studying, teaching English or working for a company that manages their U.S. taxes for them) chances are that they will spend their time abroad either never having made enough money to file or doing anything to complicate matters like getting married, purchasing property or investing locally. That's fine and I make no judgments about how people live their lives. However, we all need to be very careful here and understand that situations are different and that one should not take one's personal experience as being globally true. To someone who tells me, "I don't have to file or pay U.S. taxes," my reply is simply, "Not yet anyway" and "Are you really so sure about that?" Why? Because here's the thing we know about migrants (even American ones): The road from "temporary" to "permanent" residency happens to the best (and the worst) of us. Live abroad long enough and you will do something that will trigger a reporting requirement. I guarantee it.
"She must have had an incompetent accountant because with the foreign tax credits she shouldn't owe anything to the U.S. government."
I'm very fond of my accountant and the service I use to file every year. God knows I couldn't figure it out all by myself - the tax forms and instructions as applied to someone who lives 100% outside the U.S. are damn near incomprehensible to me. So I rely on an expert to get me through this and I check what she does to the best of my ability. But at some point I have to sign and pay up. It did occur to me when I saw the bill that I might want to get a second opinion but let's think for two seconds what that would entail;. I would have to 1. find another expert and provide all that information again and 2. pay that expert his or her fee while racking up even more penalties and interest. In the end this could cost me much much more than the 9,000 USD I ended up owing. So I paid.
If anyone out there is still thinking that I did a dumb thing by sending that payment off to the IRS then I challenge you to help me out. If you are an accountant then I would be very happy to send everything to you and you can (having waived your usual fee of course) go over it and tell me what my accountant or I did wrong. If you are not an accountant, then please write me a check for at least 5000 USD which is about what I would need to pay to get an expert second opinion from an international tax lawyer. In either case I would happy to post the results on this blog. Perhaps my experience could help someone else out.
So how do I feel about the good old U.S. of A (my home country) after having done what I have been told is my patriotic duty?
Honestly? I feel like I'm paying tribute to a warlord. I don't live in the U.S., I don't use any services there and am unlikely to do so anytime soon. So what is my 9000 USD buying me? Well, according to some homelanders I've talked it's so the U.S. Marines will come and get me if I get into trouble in my host country. Interesting hypothesis but somehow I don't think the local government here (the French) would go for that. No to mention that by offering it up as a reason for me to cough up money every year the homelanders are basically saying that this is "protection money." Alas, this feels a lot more like "If you don't pay up we'll burn down your house, seize all your assets and put you in jail," as opposed to the more positive "You may live abroad but you're still an American citizen and we are here to help you if you get into trouble or you need us and that's why we need something from you." Why they insist on the former instead of the latter is beyond me - do these people have any clue what that message sounds like to those of us who live outside the U.S.?
My U.S. citizenship is looking to be more and more of a bad bargain - a little like having sex with a gorilla. As a citizen of a very powerful and very intrusive state, I'm definitely at a disadvantage when the government decides to throw its weight around. Essentially whatever the gorilla decides is what's going to happen and I just get to sit there and take it as long as that rather aggressive primate decides that I belong to the troop.
For the record I am not OK with paying nearly 10,000 USD a year to the U.S. on top of the substantial taxes I already pay to the French government just to have a pretty blue passport, no services to speak of, lots of stress and anxiety and the very very strong sense that I am being royally screwed over.
If anyone has another take on it, I'd be more than happy to hear it.