# FBAR - amend or wait?



## sunrise85

Hello,

I have a few questions about the FBAR and I'd be grateful if anyone can provide some insight.

I'm British and live in the UK with my American fiancee (hence my 'born in the UK, moved to the UK' flag above!). She began filing tax forms and FBARs a few years ago when she reached the income level/$10,000 amount and was required to do so.

After filing this year's FBAR she realised she had put two of the figures for the accounts in GBP and one in USD. She also didn't realise her pension here (value of £2,900 / $4,500) had to be reported until after she posted the FBAR. She has held the pension since mid-2010 but stopped paying into it a couple of months ago. She wouldn't have needed to file an FBAR in 2011 for 2010, but did reach the threshold the next year so this should have been the second FBAR she reported it on.

We spoke to a CPA and explained this. They said it would be best to file an amendment after the 120 days to change the account amounts to US Dollars and add the pension while we were doing that. He said that it wouldn't land us in trouble as the pension amount is quite small. Does this seem like the right thing to do? I've seen a few people on here advising to wait rather than amend. I'm an anxious person by nature and I'm terrified we'll get in trouble and be fined/penalised. Am I being daft? Do people in our situation genuinely have fines imposed on them?

Finally, my fiancee and I share a savings account which she reports on the FBAR. It has a balance of £24,000 / $36,000. We get around £450 / $675 interest from this a year but she has never reported it on any tax forms as she believed that interest had to be more than $1,500 to be reported. Is this correct? She claims the foreign income exclusion each year and doesn't earn enough to pay taxes, so if for some reason she's wrong do we just include this next year? Would she be exempt from penalties since she wouldn't owe anything anyway?

Any advice would be greatly appreciated. I just want to make sure we're being honest and upfront about everything so we don't get in trouble.


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## Bevdeforges

If it really makes you feel better, she can "amend" her FBAR - though there isn't really a process for doing that. What most folks do (and I would do in her situation) is to just file correctly next year. The FBAR is primarily a disclosure document - not a tax generating document. As long as she has reported all the necessary accounts, I wouldn't worry about them coming back at her on errors in reporting the "high balance" for the year. At least not unless it's a huge account.

If the "error" in reporting is noticed at all, they will first come back and ask her about it. And it's perfectly logical to explain that she mistakenly reported the amounts in GBP instead of converting to US$. But the chances of them noticing the discrepancy is very slim to none. Just don't make the same mistake going forward.

On the other matter, no, all interest income is supposed to be reported - the $1500 figure is only the point at which your interest income must be detailed on Schedule B. Now, how to report the interest income from an account held jointly with a NRA (non-resident alien) not subject to US taxes is an interesting question. Honestly, it's nothing that can't wait until next year's filing to fix. Even if she had reported the full amount of interest in her own name, it's doubtful she would have owed any taxes on it anyhow.

But, on a joint account, she may very legitimately claim/declare only half the interest in her own name, especially because you are still just fiancés and not yet married. (There is also justification for declaring only the portion of the interest that corresponds to the portion of the funds she has contributed to the account.) Officially, when married, it depends on the financial defaults for a married couple in the place where you are resident - though on an international basis, I've never heard of the IRS challenging whatever assumptions a US taxpayer married to an NRA cares to make. As with all "assertive tax positions" I would have some basis for whatever I do tucked away just in case they ever ask. 
Cheers,
Bev


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## sunrise85

Bev, I was really hoping you'd reply - in the last couple of days I've read a lot of your stuff on this forum and your information is so helpful. I can't tell you how reassuring it is to read the posts of someone who very clearly knows their stuff. 

Am I correct in thinking, from what you're saying, that there is no real benefit in amending the FBAR to change the currency and to add the pension? 

Regardless of whether we wait for next year and do it all properly or amend it this year, would we be relatively safe from penalties etc? Unfortunately my anxiety disorder means I only ever really think about worst case scenarios without taking into account the chance of them actually happening! How often have you heard about someone declaring a small pension account and then being fined or investigated? Has it ever happened at all? I know this FATCA thing comes in next year, but is there much chance of my fiancees pension provider declaring that her pension account was set up 3 years ago and them then penalising us for not amending previous FBARs?

Yes, you're correct in thinking she'd still owe no taxes if we had included the $675 interest - she earns the equivalent of $45,000 so we have plenty of room. 

I'm grateful for your advice and also feel sad that things have to be this way. I can't believe I've been losing sleep because we want to be honest and do things properly. We're getting married in the US in October and will carry on living in the UK, but next year we are considering filing jointly.


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## sunrise85

Sorry Bev, I just wanted to add as well - when you say there's no process for amending an FBAR, isn't it just a case of waiting the 120 days, as the form states, and then sending a new one with the correct currency and additional account?

Thank you again.


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## Bevdeforges

When you amend a tax return (i.e. a form 1040) there is a specific form you need to use - namely a 1040X - in order to process the amendment. And, you have to start from the 1040 you filed and list the changes. They don't even allow you to file a 1040X if the change is a minor or a technical one that doesn't affect the tax calculation.

There is no actual amendment form for the FBAR form, which is simply a declarative form. Here in France, we have to declare all our foreign accounts, too (without the high balances), but what they really want to know is the name of the institution and the account numbers. The actual balance you report for the year is really only informational, since it doesn't directly affect any tax calculation. 

The fact that she hasn't listed the pension account shouldn't be a problem. Just list it next time around (if it really needs to be declared - not all pensions do). Until you're getting up into the millions of $ they really just register the fact that you've filed. Were any questions ever to come up, her "excuse" is that she didn't realize the pension had to be declared (though, if it's a defined benefit type of pension, it doesn't - only a defined contribution type of pension where she has access to the funds on demand would have to be included). But the fact that she declared in in subsequent years just proves the point.
Cheers,
Bev


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## sunrise85

Thanks Bev, I see what you're saying. 

We'll leave it and add the pension next year and start reporting that interest as well. 

The pension is, I think, what's classed as defined contribution - her employer set it up through a pension provider and every month she'd make a payment and her employer would make a payment into it. Is that a defined contribution plan? 

Either way, I guess it could be argued - she can switch the money between pension plans but she can't actually receive any distributions from it until she's a lot older.


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## BBCWatcher

That sounds like a reportable pension account, yes.


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## Bevdeforges

From what you say, it sounds like the pension would fall under the category of defined contribution - sort of similar to the US IRA or 401K plans. If it's a tax-deferred or tax-free plan in the UK, be careful, because once she crosses the threshold for reporting from overseas (currently $200,000 in foreign assets for someone filing single), there may be other forms of reporting under the FATCA rules. But for the time being, just add it to the FBAR.

The rule of thumb is to disclose anything you are in doubt about. The worse penalties and fines are for willful failure to disclose, rather than for minor innocent errors in how or how much you report.
Cheers,
Bev


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## sunrise85

Bev, can you explain what FATCA is? I've heard it mentioned but I haven't seen a description that a simple person like me with little knowledge of taxes could understand.

I think it'll be a long time before she crosses the $200,000 threshold, if ever to be honest!

When you say "worst fines" are you saying that people in our situation (i.e. ordinary folk who don't earn a huge amount) have been fined because of FBAR? I just want to find peace in knowing it's those who owe taxes and try to hide them that get fined, not someone who, as you say, makes a minor error.


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## sunrise85

Also, are you referring to form 8938?

If it is tax-free or tax-deferred (I'll try to find out at some point in the future) do you still just go off the balance of the account to determine whether the threshold has been crossed?

Oh, and as we'll be married this year our foreign financial assets goes up to $400k. If we ever have that many foreign assets I'll be popping the champagne as we fill in the forms!


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## Bevdeforges

Foreign Account Tax Compliance Act for more than you probably want to know about FATCA. 



> When you say "worst fines" are you saying that people in our situation (i.e. ordinary folk who don't earn a huge amount) have been fined because of FBAR?


Not that I have heard anything about. FBAR is about disclosure, not how much you earn. But frankly, I have yet to hear anything about "ordinary folks" resident outside the US being hit up for FBAR violations. 



> Also, are you referring to form 8938?


Yeah, most likely.



> If it is tax-free or tax-deferred (I'll try to find out at some point in the future) do you still just go off the balance of the account to determine whether the threshold has been crossed?


For the FATCA threshold you still go by the balance in the account. Until it hits $200,000 you don't need to do the FATCA forms. But you are supposed to be reporting the income earned on the plan on your regular income tax filings (i.e. 1040). 



> Oh, and as we'll be married this year our foreign financial assets goes up to $400k. If we ever have that many foreign assets I'll be popping the champagne as we fill in the forms!


Only if your US spouse decides to file "married, filing jointly" and that decision means that YOU have to report all your worldwide income to the IRS. You'll get other opinions (notably from BBCWatcher), but my approach would be for her to file as "married, filing separately" so as to keep your finances out of the equation altogether. (If she wants to file jointly, she'll need to get you an ITIN - a tax reporting number.)
Cheers,
Bev


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## BBCWatcher

My only opinion is to check both options. Married filing jointly makes sense for our household, but I don't presume the same for every other household.


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## sunrise85

Hi guys,

I was browsing my previous posts and I realised there was something else I wanted to ask regarding this. 

We're going to put the pension on the FBAR next year, but my fiancee has never reported it on any other forms. I've read some stuff on here and other forums about pension contributions from employer and employee being recorded on, what feels like, about 500 forms with about 500 ways of then deducting those amounts. 

So, so you don't need to go back to the first page, she has what we think is a defined contribution plan or a group personal pension plan. Her previous employer used a financial advisor to create a plan for the employees with Scottish Life to which the employer and employee contributed to. She paid into it from August 2010-April 2013. It has a balance of around $4,500. So, because I still can't get my head around this after hours of research:

1. As far as I know, she reported her gross income each year on her taxes (not deducting the amount she put into that pension). Should the money she paid into her pension have been reported in a separate line or a different way?

2. She has never listed her employers contributions on any forms. Should she have? If so, which forms and why? 

3. If she should have been doing this differently and/or reporting employer contributions, does she need to amend the previous returns? What happens if she doesn't? Will there be issues when she eventually draws down the pension?

As always, any opinions and advice are much appreciated


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## sunrise85

Actually, I think there's a small chance it may have been a salary sacrifice scheme where her wage was reduced to provide the contribution, unless that's unusual or uncommon. 

It may not have been but if that was the case, would the gross income on her P60 be less (i.e. because the amount that goes towards the pension isn't included at all on it?) In that case I suppose she would not be declaring the contributions she made, whereas she would be if it was a standard pension set-up.

Either way, I believe the employer contributed around £40-£50 per month to the pension.


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## Zendo

Bevdeforges said:


> From what you say, it sounds like the pension would fall under the category of defined contribution - sort of similar to the US IRA or 401K plans. If it's a tax-deferred or tax-free plan in the UK, be careful, because once she crosses the threshold for reporting from overseas (currently $200,000 in foreign assets for someone filing single), there may be other forms of reporting under the FATCA rules. But for the time being, just add it to the FBAR.
> 
> The rule of thumb is to disclose anything you are in doubt about. The worse penalties and fines are for willful failure to disclose, rather than for minor innocent errors in how or how much you report.
> Cheers,
> Bev


I was under the impression that the type of pension described in this thread does not need to be reported on FBAR because the recipient has no control over the "assets" until actual retirement. Moreover, the statement of gross income on the 1040 should already include the employer/employee contributions.


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## sunrise85

We didn't know either until a couple of months ago. We're adding it to next year's FBAR, but the issue we have now is how to report the employer contributions. We've never mentioned them on anything because we didn't think to. I think that if we did we'd still owe nothing because they could be covered by foreign tax credits, but we'll either have to put them on the 2013 return and hope no one wonders why they weren't on past returns or just leave them off again. The pension account is no longer being paid into but I just don't know. 

A couple of months ago I spoke to a CPA who told me to add it to the FBAR but that employee/employer contributions didn't have to be mentioned anywhere as they'd be covered under the treaty. I asked if we needed to submit 8833 for the treaty and he said we did not. To me that doesn't seem quite right, but he's a qualified professional so there must be a reason he's saying it. I have it in writing on an email so I presume if we ever got asked about it by thd powers that be I could show them that. Once again, we're left frustrated and unsure what to do...


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## Bevdeforges

No one really knows the extent to which they are likely to crack down on this FBAR reporting stuff in the future. But if the IRS history is any guideline, you want to have a logical and consistent approach to what you report. It won't solve your problem to say that your tax advisor told you to do something, but if you can show in good faith that you had reasons for reporting as you did, other than trying to hide income or avoid paying taxes, chances are most penalties can be waived.

On a defined contribution pension fund, I wouldn't worry too much about reporting the employer's contribution as income - if for no other reason, because in the US, the employer's contribution to a 401K is not reportable as income. If they decide to get picky about this one, they are going to have to go after a whole lot of people and they really don't have the resources for something like this. Make a good faith stab at reporting what they say they want and just be ready to explain your point of view if they should ever come back to ask questions.
Cheers,
Bev


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## sunrise85

Sounds sensible Bev. To be honest I think so many people have different approaches to this and no-one truly knows the right answer. If they did every CPA would say exactly the same.


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## sunrise85

Bev, does it matter that the defined contribution scheme is a Group Personal Pension Plan? Is that still comparable to a 401K? 

We need to ask the CPA about this when we're sorting out next year's stuff and make a decision. If consistency is a good idea we'll stick with not mentioning the contributions I think, and if she joins another work pension scheme in the future we can treat that differently as the statute of limitations will probably have run out anyway.


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