Escaping: Japan vs China

[Taro Toporific]

BACKGROUND: For lowly Americans (engrish teachers and others earning under 3mil yen/year) trying to leave Japan to go back to the States after more than five years with their new Japanese wife often run into nasty problem of their non-filing of US Income Taxes. Getting right with the IRS generally involves filing "late" 1040 tax returns for at least the past six years and minor fines of under $2000. The IRS is normally not interested in such lower income folks---they just want to clear them off their books.

ISSUE: I have an odd problem with my baka American buddy who started in Japan 15 years ago, has lived in China for the past 13 years, and never filed any US income taxes for the "Foreign Earned Income Exclusion."

QUESTION: My baka buddy "claims" he went to the district IRS office in Iowa (his tax home) and they supposedly/bizarrely told him he had, "no tax liability" and didn't ask him to file late returns or anything on his past 15 years of crappy, under 3~4 mil yen/year income.
Is there a special China loophole, that Japan-based Americans do not get?

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ALSO: He has a new Chinese wife that he's trying to take back to the States. Will his 15-year, non-filing, tax status with the IRS effect her getting a spouse visa?

[Iraira]

I file every year, which basically means filling out the 2555^EZ and the whatever the main tax form is called. The Foreign Income Exclusion is about $94,000/year and I just do my very best to stay under it. Before I fired my accountant back in the US, she said, "As long as you have an established residency and address in Japan, the US won't care unless you are over the limit, just make sure you file, or they might crawl up your ass should you move back, but then, you'll just have to show all your W-2 stubs. ...oh, you're firing me...fuck you tax-cheat!"
Haven't filed my California taxes since 1999....not as worried as Jerry Brown is the gov, now.

[matsuki]

I file every year, which basically means filling out the 2555^EZ and the whatever the main tax form is called. The Foreign Income Exclusion is about $94,000/year and I just do my very best to stay under it. Before I fired my accountant back in the US, she said, "As long as you have an established residency and address in Japan, the US won't care unless you are over the limit, just make sure you file, or they might crawl up your ass should you move back, but then, you'll just have to show all your W-2 stubs. ...oh, you're firing me...fuck you tax-cheat!"
Haven't filed my California taxes since 1999....not as worried as Jerry Brown is the gov, now.

Why would you need to file CA taxes if you're no longer a resident there?

[Samurai_Jerk]

I file every year, which basically means filling out the 2555^EZ and the whatever the main tax form is called. The Foreign Income Exclusion is about $94,000/year and I just do my very best to stay under it. Before I fired my accountant back in the US, she said, "As long as you have an established residency and address in Japan, the US won't care unless you are over the limit, just make sure you file, or they might crawl up your ass should you move back, but then, you'll just have to show all your W-2 stubs. ...oh, you're firing me...fuck you tax-cheat!"
Haven't filed my California taxes since 1999....not as worried as Jerry Brown is the gov, now.

Why would you need to file CA taxes if you're no longer a resident there?

You're so naive: http://www.us-taxpayers.com/TALA.htm

Do not assume just because you moved out of the U.S. that your previous state of residence has no claim on taxing your income. Many states such as California, Virginia, New Mexico, and South Carolina make it very difficult to give up your “tax domicile” and require that you file state income tax returns (and pay the tax) even if you do not move back until years later.

Some of the criteria that a state looks at to determine if you are a resident for income tax purposes includes your driver license, if you register to vote there, if you maintain an address there, the location of your bank accounts, if you own or rent real property there, the license plates on your cars, and if you still receive utility bills in that jurisdiction.

You must be careful to reduce or eliminate all indicators of residency or your previous residency site in the U.S. It is important to carefully plan your departure from your previous home state by taking the actual steps necessary to prove that you no longer have a “Tax Domicile” there after you move abroad. If you do not, income taxes, penalties and interest later assessed can be huge.

You may be required to pay income taxes in any state if you receive rental income from there, even if you are no longer a physical resident. However, investment income such as from stock sales, dividends, and interest are normally not subject to state income taxes unless you live there. Moreover, pensions are no longer taxable in the state in which you earned the pension if you permanently leave that jurisdiction.

[matsuki]

SJ, maybe I should have said, "Why would you need to file CA taxes if you've given it up as your tax domicile?"

None of my shit is in CA except my driver's license.

[Samurai_Jerk]

SJ, maybe I should have said, "Why would you need to file CA taxes if you've given it up as your tax domicile?"

None of my shit is in CA except my driver's license.

Which some states will use as an excuse to make you pay taxes. One reason I've kept my WA licence and voter registration despite not having ties to the state anymore is they don't have a state income tax.

Anyway, I'm always surprised how many of "my fellow Americans" I know in Japan that are either completely ignorant of or don't give a fuck about these rules. Maybe I'm just lucky that I was a JET and they made sure we were aware of our obligations to the IRS. I know some guys who will be absolutely destroyed financially if they ever get audited and it's not like they stand to lose much other than a few hours of their time and a few hundred bucks paid to a CPA once a year if they file. They're not evading taxes or anything. They're just too lazy to keep up with it.

[Iraira]

The thing that creeps me out is that when I go back to LA (once a year or two), I always get a notice of summons for jury duty within 5 days of being back in LALALand.

[J.A.F.O]

Couldn't you just claim deadbeat status and say you had no income? Seriously just a question. I have no idea if japan has a good enough relationship with the U.S. IRS or not. Which leads me to believe that china/US tax relations are probably non existent.

[wuchan]

it all depends on your status before you left. If you graduated college and bounced the IRS automatically assumes that you left for greener pastures. On the other hand, if you were earning below 15k for five years before you left they will leave you alone because they probably owe you bush era rebate checks. It is truly case by case.

Most people that are granted visas in Japan will never, and never have, fallen below the "poverty line". Unless you married a J-national IN THE U.S. BEFORE APPLYING FOR A VISA AND THAT SPOUSE HAD A GREEN CARD, you are automatically fucked by the conditions for obtaining a visa here.

We all know the spouse visa is nothing more than a pet license but the U.S. government will always look into what happened before you became a pet.

If you graduated without debt, you are an automatic target. If you paid off your student loans from out side the U.S., you are a huge target.

[wuchan]

The site SJ posted wants to make money. The IRS has seven years to file against you. They CAN NOT file against you without notice. Many gaijin ignore the notices and get fucked but the law clearly states that they must notify you of any actions taken. If you are registered with the embassy and immediately notify them of any change of address in japan you are safe provided you keep records of everything.

They do not want you dropping by every year to get tax forms. Shit, they don't want you to ever go there.

[Taro Toporific]

Couldn't you just claim deadbeat status and say you had no income? Seriously just a question. I have no idea if japan has a good enough relationship with the U.S. IRS or not. Which leads me to believe that china/US tax relations are probably non existent.

That's what my friend living in China did:

At the IRS district office in Iowa, he went to turn himself in for not filing a return for the past 15 years of living in China (and Japan 2yrs).

He claimed "deadbeat status"---he's a freelance talento/actor/gigolo--- no foreign wages or paying any Chinese income taxes.

He also claimed he did not have any Chinese bank accounts* (not true, but his savings were less than $20,000 USD).

The IRS office wanked around on their computers for 30 minutes, and came back to he saying to him, "You do not have any tax liability on our records."

WTF! If he had done the same thing in Japan for 10 years, just not filing FBARs (report of Foreign Bank and Financial Accounts) and not have reported foreign income would have resulted in a lot of painful paperwork (possible fines). Japan and the US trade tax info all the time---one MIA member of our forum was nailed for $500,000+ tax evasion on his unreported Japanese "income."

*Note: In the good old days, having a Hong Kong bank account
was almost as good as an account in the Cayman Islands. That
loophole changed more than 10 years ago, saaa.

Recently, I received all sorts of paperwork grief for sending a trivial $8,000 USD check from the US to a CitiBank Japan, which does know what a "check" is and does accept them (unlike regular Japanese banks). When the check cleared at CitiBank Japan, I tried to electronic transfer the money to Maybe-the-Biggest(tm) Japanese bank, and Maybe-the-Biggest-Bank(tm) made me fill out more foreign fund transfer forms (anti-money-laundering measures)----The Japanese bank already "knew" my CitiBank Japan money was evil "foreign" money because the Japan bank systems are connected to the US ones.

[Samurai_Jerk]

The site SJ posted wants to make money. The IRS has seven years to file against you. They CAN NOT file against you without notice. Many gaijin ignore the notices and get fucked but the law clearly states that they must notify you of any actions taken. If you are registered with the embassy and immediately notify them of any change of address in japan you are safe provided you keep records of everything.

They do not want you dropping by every year to get tax forms. Shit, they don't want you to ever go there.

I'm not endorsing that site. I was just using it to show that some states also want to tax you when you live abroad.

The IRS has 7 years to file a claim on what? Each violation? If you're permanently based abroad and never file taxes, you're guilty of at least one new violation a year (I'm sure they can always come up with multiple claims though). As Taro pointed out, Japan and The US share all kinds of info on taxes, savings, and investments and the relationship is getting deeper and deeper. I don't give a fuck whether you file or not because it's got nothing to do with me. However, people who are just doing it out of laziness or purposeful ignorance are playing a dangerous game.