Mary’s Story

I came to Australia over 45 years ago, and have also been an Australian citizen for more than 25 years.  I only found out I should have been filing tax returns to the US three years ago.  Since then my life has become a nightmare of uncertainty, fear, marital stress, financial paralysis, and a mixture of threatening and sloppy treatment from the IRS.  Previously I saw myself as a strong, capable and competent person, but as a result of this experience I have become hypervigilant and fearful.  I ruminate and strategise at night which affects my sleep and mood, and I have been told by a Clinical Psychologist that I have PTSD.  I have developed two auto-immune conditions that are considered to be possibly stress-related.

It all started with some innocent internet searching on an unrelated subject, which threw up the need to be US tax compliant.  When I approached my local accountant, he said he knew nothing about US taxation requirements, and referred me to a big city accountancy firm.  After six months of dealing with them, it became evident that they really had no knowledge of US/Expat tax compliance, and the “overseas affiliate” company they used did not know much either.  Six months later, they were still unable to tell me even basic things like what entities I had to file returns for (e.g., personal, small business, self-managed super fund).  When I asked them whose assets were at risk (eg., just mine or those of my Australia spouse) they helpfully told me that only my assets were at risk, “unless it became a bankruptcy situation”!  Imagine our shock – the thought of being moved from a situation where we owned all our assets and were on the cusp of retirement, to the suggestion that I could be driven bankrupt to become US tax compliant!

In the meantime I investigated how I could come into compliance using one of the amnesty programs available.  At that time entry to the Streamline program was very restrictive and I think I was ineligible.  During the six months I was dealing with the abovementioned firm, the Streamline program was amended to become more inclusive, although the accountancy firm did not advise me of this and I had to find it out myself.  And during that time I also read many horrific stories about how others had fared under the OVDP, and of massive penalties that the IRS could impose for even inadvertent failure to file FBAR.

All of this uncertainty and threat put my marriage under extreme stress and my spouse, fearing a major loss of assets, started coming up with ‘shoot from the hip’ suggestions which, had I followed them, would have changed me from being someone who accidentally failed to lodge US returns into someone who was committing intentional tax fraud.  I did not take up these suggestions, but it put a great deal of pressure on life at home.

Eventually I found a US-based firm dealing with Expat Tax Returns, sacked the Australian big-city accountancy firm, and lodged under Streamline.  And I found that much of the financial advice we had been given over the years by Australian financial planners was exactly the wrong advice for a US/Australian citizen – in particular the ownership of real estate and superannuation which could easily have been arranged differently if I had received the right advice. This has proved very costly, and in the case of self-managed superannuation it is like opening up Pandora’s box.

Then I started to learn what it is like to deal with the IRS.  Initially I tried to get some confirmation that my Streamline submission has been received and accepted.  Nothing doing.  In the end I traced the cheques through our bank and got confirmation they had been cleared.

Shortly thereafter I started getting letters saying I owed a large amount of money, when I believed I had paid everything that was due.  It was difficult to obtain transcripts, but I eventually did, and found that the IRS had allocated one large payment to the wrong year, even though the year had been written on the back of the cheque as instructed.  And while they were very quick to tell me I owed them money and make threatening statements as to what they could do if I did not pay it, they did not bother to tell me that I had a large credit in a different year due to their misallocation of the money.  And every time they sent any correspondence it took about six weeks from the date of their letter until I received it in Australia, and the envelopes showed they had been routed via Royal Mail (UK-???).  If my family sends me a card from the USA it gets here in around ten days.

During the time I was trying to find out whether my submission had been received, I sent the IRS a fax asking that question.  Seven months later I received a response via a Form letter, stating that they’d had no record of my submission, even though I had transcripts showing that my returns had been processed.  The letter included a laundry list of possible reasons why it was not accepted – and many of those letters related to a Form that was not in existence at the time my submission was put in.  I think they were supposed to delete the lines with reasons that were not relevant, but they had left every one in.  I had to chase the IRS on several occasions to get to the bottom of this, and in the end I managed to find the department dealing with it – Large Business & International!  So this is who deals with Expat tax returns – I believe the trigger is if you have five or more overseas bank accounts.  Pretty hard not to with personal banking, a business and a self-managed super fund.  I believe this is now sorted out, although the IRS will not tell you your submission has been ‘Accepted’.

Because the six-week delay in receiving any IRS correspondence was happening every time, meaning that any time they sent something with a response deadline, it arrived already overdue, I had to go to the additional expense of setting up a virtual mailing address in the USA.

Over and above my Australian taxes, in a three-year period I have now spent over $50K to be US compliant, about ⅓ of this being on professional fees.  The tax owing relates to investment property income, super fund earnings, and changes in value in the superannuation fund (you are taxed on the exchange-rate gain from year to year even if not a cent was earned.  But if it makes a loss – like during sharemarket setbacks – you can only claim $1500 of the loss in any one year, even if the loss is much greater).  Although there is a generous non-taxable allowance for earnings such as salary, this does not apply to investment or superannuation income which is treated differently. and taxed from the first dollar.

Now, every time I receive any correspondence from the IRS, or from the people who handle my tax paperwork, my heart starts racing and all the ruminations and sleeplessness start up again, even though I believe I have done everything right.  And I am continually reminded that the US owns me – FBAR deadline, extension requests so that I can get my Australian financial-year end statements and convert everything into US calendar years, then the actual filing, quarterly payment of estimated taxes – I can never flush it from my mind.

In the end I decided the only way to end this nightmare was to renounce my US citizenship – not because of the actual tax I have to pay, but because of the ongoing compliance headaches and the continual stress and uncertainty at a time in my life when I really need to make my affairs more simple.

I liken the decision to renounce US citizenship to that of finding myself in an abusive relationship:

  • I used to love the US and valued our relationship;
  • I was willing to accept some things I did not like – to take the good with the bad;
  • Due to the way I believe I have been mistreated, I came to feel angry, frightened, uncertain, harassed and betrayed.
  • In the end the mental stress, threatening behaviour and just plain incompetence got so bad, that a decision had to be made: do I keep taking it and learn to live with the abuse for the rest of my life, or do I divorce the bastard?  I decided on the divorce.

All I want is to have the security I thought I had before all this started – as an Australian citizen complying with the Australian law, organising my finances and retirement security like any other citizen of this country.

– Mary

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