# Another FBAR Failure Thread



## yido101 (Sep 16, 2016)

Hi all, new on the forum as in my googling seemed to come across some knowledgable people with regards to FBAR. This is going to likely be a long post, so apologies in advance and thanks for taking the time for reading!

I am of course another that wasnt aware of this process, and having recently come across it am somewhat stressed by the scare stories on line about penalties and implications of the various ways of reporting late. 

I am in the US on a non immigrant visa. The latest of a few! starting with H2B's in 2010 and 2011. I initially came over short term coaching soccer - summer camps, etc getting paid very little, staying with families, etc, but it has since become something more stable and long term. 

Having found out at about FBAR, i believe i am probably non compliant for each year i've been over here. I have held a bank account and small ISA with my main UK bank, which has generally been fairly low, a high of about 4-5k (GBP). I've always used turbo tax so when the "do you you have foreign account over $10k?" question comes up was able to say no. 

This year my account has grown, and i was expecting to answer "yes" for 2015, so was curious as to what this would mean, and hence discovered FBAR. It also led me to realize about another account i have held over this period. It is in my name, but has been managed and contributed to by my parents. It honestly never crossed my mind as i've never really considered it my account at this stage. I didnt even know how much was in there until this last week where I've discovered this issue. Turns out there is about 11k (GBP) in there, and I'm in the process of finding out the history of it and how much was there each year and how much interest has been payed to me. 

I have done the research on my own account, and see interest income has been pretty minimal, 20-30 pounds each year. So i would anticipate that between the 2 it would be less than 100 pounds total interest income each year. 

With that in mind i was thinking along the lines of just submitting the FBARS now, given that I feel such small amount should have minimal effect on what is owed. 

However, I've also come to the realization that i have additional unreported income for some of those years. As i was on an H2B and returned home for parts of the year i had some temp work. 

2010 - approx 4.4k (GBP) of income. I was in the UK some of the year, before spending 3 months in the US not working/earning. I then worked on an H2B from mid august to late november before returning to the UK for the Winter. 

2011 - approx 3k (GBP) of income. Before returning to the US early April-December. 

2012 - similar again - but only about 400 (GBP) of income. 

Since Spring of 2012 I've been here full time, and in 2013, 14 and 15 the interest was the online income from the overseas accounts. 

Apologies again for the long post, but thought getting the facts out there might lead to a better answer. I obviously want to get into compliance, but not sure the best way or approach. Obviously i would like to avoid penalties, but don't want to do something else wrong by trying to do so. I would appreciate any advice!


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## Bevdeforges (Nov 16, 2007)

The classic response on all this is to go the "Streamlined Procedure" route. Start here for complete information: https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states
Basically under the streamlined procedures, you backfile 3 years of tax returns (i.e. current year plus 3 prior years) plus 6 back years of FBARs (however only for years in which you actually were subject to FBAR filing - i.e. where your accumulated overseas accounts exceeded the $10,000 threshold.).

However, given the numbers you've given here, I seriously wouldn't bother. Just file your 2015 filings (income tax and FBAR) next year as you now know you're supposed to and get on with it. The IRS really doesn't have the time, nor the manpower to hunt down a couple thousand bucks worth of income from overseas that might result in your owing $100 or so of tax. To a large extent, they have to take your word for whatever you report as foreign source income as it is. And the FATCA reporting of bank balances held by "US persons" didn't start until 2014 anyhow.

Your chances of ever being audited are minuscule in any event - less than 1% of all returns are audited these days, and those are concentrated on the upper income brackets, where there might be something for them to collect. On small amounts of miscellaneous foreign income like you have, the chances are great that you have already paid some tax in the UK and thus would zero out your US tax bill either through credits or exemptions/deductions you're entitled to.

If you're really losing sleep over this, then go the Streamlined route as outlined above. But ultimately, if you owe nothing, there are no penalties.
Cheers,
Bev


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## yido101 (Sep 16, 2016)

thanks for the response, i've seen you post knowledgeably on several threads about these, so was hoping you'd chime in. If you don't mind me asking, whats your source of knowledge on this? Are you a professional?

Given those income figures in addition to the interest, does that not make it worse? 

You suggested the streamline route as if i don't owe taxes there's no pentalies, but with those other incomes on top of the interest then i surely do owe some?

In addition, in the last hour I've managed to get more info about the amounts involved. 

In 2010 the ISA was held somewhere different so i don't yet have the breakdown of that year, but I'm of the believe it was started in 2008 and with the maximum of 3k placed in the account in each of the 3 following years. So in 2010 it would have been at 9K + whatever the interest was at that point. 

In 2011, it was moved over to a different bank for which I have full access to records for. I haven't been through the breakdown yet, but the interest accrued is actually a good bit more than i expected. I guess my parents shopped around for a good rate. Between 2008 and today there has been a total of 2,777.91 (GBP) interest on it, so probably a few hundred each year between 2010 and now. 

Additional point to consider but i don't know enough about. Is it right that the IRS can only use the last 3 years against me as long as its not deliberately fraudulent? (i don't know where my negligence sits in their criteria). In which case, all of the undeclared earned income is from 2010, 11 and 12. In the last 2 years the online income is the Interest. 

Am i right thinking that the FBARs don't include the incomes earned on them, just the peak amounts in each account? So while i would have to file an FBAR for all 6 years, if they wanted to cross ref that against my tax returns, its is only the last 3 years (and thus just the interest income) that they could claim a discrepancy on? 

With that in mind is it worth just late filing the FBARs with it unlikely them calling me out on a few hundred pounds here and there?

I could be totally wrong, I've been reading all sorts of articles, forums and opinions. My brain is a bit frazzled by all this. 

Final question.. you said you would just file the 2015, and comply from here on in.. did you mean 2016? This year i definitely have an income to report on one of my foreign accounts. 

Thanks for your responses so far and thanks in advance for any further thoughts.


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## Bevdeforges (Nov 16, 2007)

> If you don't mind me asking, whats your source of knowledge on this? Are you a professional?


I'm an accountant by trade. Qualified as a CPA back when I still was living in the US, but "certified, not licensed" (sort of like the James Bond thing, "shaken, not stirred" <g>). I will admit to not keeping up formally with continuing ed, but I do keep tabs on the "What's new" part of the various instruction booklets.

If you go streamlined, you file only the last three years - if you file now, then 2015 is the "current" year, plus 2014, 2013 and 2012. And that's it.



> Am i right thinking that the FBARs don't include the incomes earned on them, just the peak amounts in each account? So while i would have to file an FBAR for all 6 years, if they wanted to cross ref that against my tax returns, its is only the last 3 years (and thus just the interest income) that they could claim a discrepancy on?


The FBAR is an information return, and as you say, you only declare the high balance in each foreign account. It's rare that they cross check for income from the various accounts you report - generally only if there is something "odd" about your income tax return for that year, but even then, probably only in the upper income brackets.



> Final question.. you said you would just file the 2015, and comply from here on in.. did you mean 2016? This year i definitely have an income to report on one of my foreign accounts.


Oops, time warp. Yes, I did mean 2016 - which you'd file in 2017 (i.e. "next year"). 

The IRS is understaffed, underfunded and overworked. If you have failed to report Big Time so that you potentially owe lots and lots of back taxes, then yeah, you need to be concerned. But if you filed based on your US earnings and only omitted the foreign source income (which the IRS may or may not know anything about), it's up to you how you want to handle it. Do what lets you sleep at night, but do look into the streamlined procedure if you want to do things by the book.
Cheers,
Bev


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## yido101 (Sep 16, 2016)

Thanks again for the responses. A couple of questions/thoughts in follow up...

There's basically 2 issues here.
1. The unreported income

2. The unreported FBARs

As far as 1 goes, is it correct that after 3 years my tax returns are pretty safe anyway? Any errors from this can't/won't be dug up and used against me? If that is the case, then as far as unreported income goes, then the worst of that is from before 3 years. Since then it has just been the interest income. Totals 1500 pounds since 2010, so must be quite small from 2013 onwards. What would be the process for rectifying that? Refilling? Cost? Penalties? I think it would just be added on income and not necessarily linked to a foreign account correct? 

For the FBARsIf I just file an fbar next year, and not come forward over the previous ones, the thought is that they would likely just receive it, note that I now have money overseas and file it away? No further look into it or its history? Does doing so make me "willful" for not rectifying the previous years though? 

Similarly and just playing devils advocate.. with the logic of they'll never know/go looking at it, why bother filing fbar or declaring small amounts of overseas income at all? 

Is quiet disclosure for previous years a good/bad idea? Just file the fbars for each year now? Is there the opportunity to include explanation if so? Or is it more likely for them to then look fm further as I'm telling them I've done wrong but not used the expected method?

Looked at the streamlined process. Looks like a charge of 5% of the highest aggregate year end amounts I think if I understood correctly. So I think my accounts depending exchange rate and exact amounts are going to be worth about $22,000 so costs would be over $1000. Could do without it!

You're suggestion Bev, with all info included is to just comply next year and forget about the past ones and feel safe that I'd have to be pretty unlucky to have anything come back on me? 

Sorry another million questions for you or anyone else reading this. My parents are also worrying and feeling bad about this having been the ones that set it all up. I've probably worried them/myself more than necessary purely by relying on the top google results and the worst case scary headlines


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## Bevdeforges (Nov 16, 2007)

Given that you're currently in the US, yes, there is a 5% penalty/charge for using the streamlined procedure. From what I understand of what you've said already, you did file in the relevant years. It's just that you didn't include your overseas income (mostly interest). In that case, there's no need to go with the streamlined process, but rather just file amendments for three past years. If that results in taxes due, you'll be expected to pay interest on the balances due - but interest rates have never been this low and it may wind up being a bargain.

The advantage of going with the streamlined procedure is that the prior years' errors and omissions are basically forgiven.

Paid tax preparers generally warn folks off quiet disclosure - though I suspect this is largely because once they are involved, they also share some responsibility for the fact of your having "willfully" avoided the proper procedure.

On the FBARS (which are, remember, separate and distinct from your income tax filings), there is no evidence at the moment that they are being routinely compared (or even associated) with your income tax filing, particularly at lower income or balance levels.

I'm not recommending any particular route for you, only laying out the principal options that are available. You're the only person to know precisely what your financial situation is and where your risks and vulnerabilities lie. The fact that you're currently resident in the US and probably have US bank accounts and other financial assets means that if you do draw IRS attention, they could potential seize assets to compel compliance. But the big question is: would they bother, given the amounts involved?
Cheers,
Bev


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## yido101 (Sep 16, 2016)

Does anything I've said bring up any doubts/red flags so to change your initial thought of "I personally wouldn't bother?

$22k is a relatively low amount? I've no idea what the treat as low and what is worth looking into for them


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## Bevdeforges (Nov 16, 2007)

$22K is pretty tiny for IRS concerns - at least if we're talking either income or asset values. If you owe $22K in unpaid taxes, that might interest them, if only for "easy pickings." You need to be well into six figures before your "audit potential" sets off any bells or whistles. But that's primarily my experience. You do what you have to so that you can sleep at night.
Cheers,
Bev


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## thepaleguy1 (Feb 14, 2017)

I am reading all about FBAR reporting now as I just learned about it this year. I don't owe a lot and I don't really have much assets either (less than 8398 for requires to file). 

But as I want to be ok with taxes I feel that it is best to do the cleanest way possible. So I understand that Streamlined is the one? right?

If you do Streamline are you not automatically sign up for audit? 

I assume most people with FBAR problem that want to fix it before IRS comes to them are all non-willful (at least those that really have small amount of money out of country and not having some hidden Companies that earn hundreds of thousands dollars for them). 

All I am worried about is that I will try to do the right thing, pay some minor tax that I may owe, pay $4k for tax lawyer to present it nicely to IRS and one day I will receive letter that they don't agree with me and will bring nightmare to my home although I wanted to get things done right.


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## Bevdeforges (Nov 16, 2007)

Don't forget that income taxes and FBAR are two separate sets of reporting. It's entirely possible to have an obligation to file FBAR without having enough income to have to file income taxes at all. (And if you aren't required to file income taxes, then you don't have to file an 8398 no matter how much you have in assets.)

Filing streamlined will not "automatically" sign you up for an audit. It really depends on the facts and circumstances of your situation and what you are filing. In fact, there are circumstances where a person may not have had a filing obligation for one or more of the back years that one would ordinarily file under the streamlined program - and in those cases, it might actually be better to just file whatever back filings you should have filed as "late." The main advantage of the streamlined program is that, once accepted, your back filings will "close the books" on any and all years prior to that where you perhaps should have filed.

Only a very small percentage of all returns are ever subject to an audit. And those are selected based on income level and potential return - i.e. indications on the return that there may be undeclared income and/or more taxes due. In most cases, a serious "good faith" effort that accounts for everything of which the IRS has any knowledge should not result in any follow up efforts.
Cheers,
Bev


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## thepaleguy1 (Feb 14, 2017)

Bev, you sound like angel from heaven with all those calming words. 

I called couple lawyers and what they all say is that those are usually cases of pretty simple people that just are still not aware of requirements (and I get it as you would think that when you go to your tax preparer they would ask you about everything and guide you). I also just learned about 8621 for which needs to be filed for mutual funds. The guy quoted to prepare form for $400 and all I have is mutual fund worth less than $200 with already $300 loss on it. 

This is just insane. And worst is that you just want to fix it and be ok, but all those fees and charges to make it nice and clean will be just crazy comparing to what just regular expats have back home comparing to guys hiding some Swiss accounts or some off-shore companies.


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