# first time 1040/FBAR filler - do I have to?



## Project2015

Dear Forum, I moved to the UK from the US in 1969 aged 6 with my US family and have lived, been educated and worked here ever since. I am married to a British citizen, and I have British citizenship too. Through urging by my American mother, this year (being an amnesty year?) I finally went to see a US Tax advisor who obviously wants my business, though I'm not convinced that I need to fill in a tax form because my actual income is very low. I did send in my first FBAR in June however (I have non-income securities, and I could manage it). Since my actual income is below $3000 (I am self employed with a v small baking business since 2011) and I have no money or income in/from the US I thought I wouldn't need to fill in the 1040....would someone be able to tell me if I need to get involved in becoming compliant? I am wondering if by sending in the FBAR this year (my first ever), I am now on the radar! A number of other UK based American citizens I know who have lived her all their lives, or were born here of US parents, tell me not to worry about it. Should I carry on with the FBAR every year? Thanks for any information and advice. This is all new to me.


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## nyclon

I have moved your question to the tax forum.


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## Bevdeforges

You only need to file the FBAR if you have foreign (to the US) accounts that total at least $10,000 - or have a signature interest in such accounts (this includes any joint accounts with your husband, no matter what his nationality).

The FBAR is basically independent of your tax filing obligation. Assuming that you would normally file as "married, filing separately" (since your husband is a non-US person with no tax filing obligation of his own), then assuming you have gross revenue of less than about $3700 (the exact figure rises a little bit each year - for 2015 it's up to $3950), then you have no filing obligation and can comfortably forget about filing returns with the IRS.

Given the fuss with the banks now having to submit information on US persons holding accounts, it's probably best to continue filing the FBARS - but they are well aware that people have short-term high balances (say, on receiving the proceeds from the sale of a house) and that balances may overlap if you transfer a big balance from one account to another over the course of a given year.

Sounds to me like you're as compliant as any of us overseas, and just carry on as you have been doing.
Cheers,
Bev


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## Project2015

Thank you Bev! It feels miraculous to have your reply so soon when I've been (like so many others) struggling with anxiety and feeling isolated. I guess when my husband retires and I need to 'get a job', or my cake business takes off and I earn more than the threshold, I will be back....or I may just renounce instead. In the mean time, I'll continue filing an FBAR (do I need to fill in these for previous years? 
Many thanks again


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## Bevdeforges

Unless you've got hundreds of thousands in savings, I'd just keep filing the FBARs as is and not try to back file.

OK, when your husband retires and you get a real job or something, just remember that your "earned income" is subject to the Foreign Earned Income Exclusion, so anything under $100,000 a year won't wind up costing you any tax. There are also some forms of government benefits that do not need to be reported to the IRS as "income." So, you can keep the $2350 or whatever the fee currently is to renounce.
Cheers,
Bev


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## Project2015

You are a treasure! National or otherwise!
Thank you


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## Project2015

....I just got off the phone to my mother who reminded me that prior to starting up as self employed in 2011 I was earning over the income threshold...should I be thinking of filling in the 1040 form with related pages prior to 2011? It's a question I am now dreading the answer to!


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## Nononymous

Two separate issues: your relationship with the IRS, and your relationship with your mother. 

The streamlined program lets you file three years tax returns and six years FBARs and if it's accepted, there's an amnesty on any outstanding returns from prior years. Otherwise those prior years are always considered overdue - however, the penalty is a percentage of what's owing, so if there was never anything owed, the penalty is always going to be zero. 

In those pre-2011 years when you had a higher income, was it ever over the FEIE threshold (approximately $90k) or is there any evidence to suggest that you would have owed the US any taxes?

So your choices are:

(a) Do to the streamlined program, though I imagine (without reading the fine print) that it might still be necessary to file returns for the last three years even though your income is very small and stays below the basic filing threshold. (This is the better option if you think you might have owed anything pre-2011 because it will close off the possibility of collecting.)

(b) Don't worry about the pre-2011 returns, there's no penalty for ignoring them if you owed zero, and don't worry about the current ones because you're not required to file.

In both cases, continue filing FBARs going forward, as you've already begun doing so and with a US birthplace your UK bank might soon give you the FATCA treatment anyway.

Either way, I'd tell your mother thanks, you've looked into the pre-2011 situation and it's all under control. Don't spend money on her tax advisor.


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## Bevdeforges

Can't really add anything to what Nononymous has already said.

The IRS is not going to go back to your old returns unless they think they can find something that will yield back taxes and penalties. If you owed nothing, then you're not on their list. 

Just for general information, IRS budgets have been cut way back over recent years and the agents aren't supposed to open audits unless they are reasonably sure they can recover a minimum amount of back taxes. Messing with you on a technicality is hazardous to their recovery averages.
Cheers,
Bev


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## StewartPatton

Bevdeforges said:


> The FBAR is basically independent of your tax filing obligation. Assuming that you would normally file as "married, filing separately" (since your husband is a non-US person with no tax filing obligation of his own), then assuming you have gross revenue of less than about $3700 (the exact figure rises a little bit each year - for 2015 it's up to $3950), then you have no filing obligation and can comfortably forget about filing returns with the IRS.


This is incomplete. A person with income from self-employment is required to file a U.S. tax return if that income in any year is more than $400. 

So, given the facts in the OP, the OP does have a requirement to file a U.S. tax return.


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## Project2015

Ha! Fantastic news thanks for putting me in the picture. My highest income during my working life has only ever been under $70,000. I couldn't understand why they'd go after a small fry like me when there are big fish to spend their time and resources on so sounds like a very realistic appraisal. I will stick with going forward with the FBAR as you advise, and leave the 1040 Tax Return until I have an income over the $90k. What got me confused in the first place wasn't so much the $3,950 threshold (which I was under) but the 'other situations you must file under' in Chart C 3. 'You had net earnings from self employment of at least $400'. I'd be grateful if you be kind enough to address that last point because last year I made a small profit (hurray!) of £1904 ($2925.04) which might then put me in the 'other situations you must file under' bracket. I won't take up anymore of your time after this!


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## Project2015

Ah! That's what I was afraid of, so because last year I made a profit of $2,925.04...and none on the previous years, I'd need to fill in a 1040 for that year, and any future years where I go over $400 as a self employed person....?


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## Project2015

I just don't understand why someone earning less than $90k wouldn't have to fill in previous years returns, whereas a self-employed person earning $400 would have to? For the amount of profit I made last year, it just doesn't seem worth the aggro.....if the penalty is in line with the amount of US tax owing, I know I won't be owing anything, nor ever would have. Still, something tells me I'm not 'off the hook' until I understand it fully.


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## Nononymous

Whether it's stupid or not - it is, but that's not really the point we're arguing - there is a filing obligation if you exceed various minimal income thresholds (including $400 for self-employed, which is of course absurd). 

However, just because there's a filing obligation, doesn't mean there's any risk to not filing. The penalty for not filing is a percentage of the tax owed; if you owe zero, that's your penalty. You can merrily ignore those years of tax returns, if you so choose. (That's what I'd do, but I'm not a professional so take my advice for what it's worth.) The IRS probably has better things to do with their time than track you down to deliver a scolding letter in exchange for precisely no money.


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## Project2015

Thank you Nononymous, it seems the sensible, rational thing to do i.e. not filing in my case. I have the Tax advisor's (who gave me my first consultation hour free) warning ringing in my ear that for every form not returned is a penalty of $6k per form/year. I understand from previous answers in this thread that it's a percentage of tax owed...a far cry from what I remembered from my conversation with him...and I could have misunderstood or misheard. When researching questions on the internet, I came across people who had stiff penalties for making mistakes in their returns too. So, many thanks for your reassuring responses.


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## Project2015

Really! THANK YOU, you have all been extremely helpful. You offer such a VALUABLE resource sharing your time and knowledge in this and many other ways.


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## jbr439

Well, if you have a "foreign trust", then you also have to be filing 3520 and 3520A forms, under threat of severe penalty I might add. In Canada, it is *very* easy to inadvertently have a "foreign trust" as the Canadian equivalent of US Roth IRAs (TFSA in Canada) and 529 plans (RESP in Canada) are considered "foreign trusts". These are very common accounts in Canada. As well, the penalty for not filing 3520 and 3520A is the greater of $10,000 or some percentage of the account balance (not earnings).

So, the question then is what common accounts in the UK would be considered "foreign trusts". I know virtually nothing about UK accounts, so I can't venture an answer, but it's something that an expat in the UK may want to determine.


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## Project2015

Thank you for the 'heads up' about Foreign Trusts. I will google this. I doubt I have one....though you never know as there are so many terms which are foreign to me. Mention of the related forms needed if I do is useful too. Thanks


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## Nononymous

Remember also that assessing a penalty and collecting a penalty are two very different things. I can't speak to the UK situation, but in Canada our otherwise overly America-friendly Conservative government said very clearly that it would not facilitate the collection of any type of US tax penalty against Canadian (i.e. dual) citizens. If you don't have US income or assets, there's not much the IRS can do to you.

Not that I'd recommend getting into a situation where the IRS was sending you bills, of course. But just some assurance that they are more toothless than popular opinion (or tax advisors who want your business) would lead you to believe


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## BBCWatcher

Contrary to Stewart's advice, as far as I can tell there is no filing obligation for self-employed individuals who are (a) fully contributing to a foreign social insurance program (such as U.K. National Insurance), and (b) participating in a social insurance program in a country that has a social security treaty with the United States (the United Kingdom is one example).

So I don't think the original poster has a U.S. tax filing obligation, even as a self-employed person in the U.K.

Stewart, please let me know if you think otherwise, but this is a social security treaty country (the United Kingdom), and special rules apply. Let's also point out the fact that even if I'm wrong and Stewart is correct, a U.S. filing _obligation_ is not the same thing as a U.S. non-filing _penalty_. The U.S. penalty for failing to file a U.S. tax return (Form 1040 and related attachments) is zero if the tax genuinely owed is zero. Thus it's very, very hard to imagine the original poster would have any U.S. liability here.

Now, if the original poster is receiving self-employment income "under the table," and not declaring that income in the United Kingdom (including for U.K. National Insurance purposes), then that's a legal problem both in the United Kingdom and in the United States. That is, the offense (offence?) cascades/compounds: failure to declare the income in the U.K. would trigger a second order failure on the U.S. side. Isn't that fun?  But we obviously have no reason whatsoever to assume or suspect that that's even a problem here. I just mention it for completeness.

There is a school of thought that suggests this would be a very, very good time to participate in the U.S. IRS Streamlined Program. The tax owed will be zero, and the tax returns will be comparatively simple. So this'd be a great time to "wipe the slate clean" and start from a fresh, fully compliant status, to make sure that all the past tax years that weren't filed are well and truly in the past, done and buried. Yes, agreed, it's very unlikely the original poster will have any liability for those past tax years either, but there is a school of thought that suggests not taking any chances, and to get those past tax years closed out via the Streamlined Program.


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## Project2015

Thank you BBC Watcher. I'm as confident as I can be that I will always be, and always have been a zero US tax ower, and am fully compliant with UK tax filing and accounting requirements- though I am zero re owing tax here at the moment. I like to do things properly. It gives me confidence and I look professional as a small business developing purely word of mouth. I might just look at the streamlining process to see if it is something I can do, as a dotting the i and crossing the t exercise because if I decide to let go of my US citizenship they will probably want this along with the fee. Many thanks again for your thoughtful comments.


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## BBCWatcher

For what it's worth, in my view the priority would be to get your FinCEN Form 114s filed for 2014 (if you haven't already) and for the 5 years prior to that (2013, 2012, 2011, 2010, and 2009). Skip any year(s) when you didn't meet the filing threshold.

The reason for getting your Form 114s in order is that there is a published penalty for failure to file that particular report, but there are currently no reports of penalties being assessed for voluntary, unprompted, late and truthful filing with a reasonable, truthful excuse. ("I didn't know" is popular.) There is a 6 year statute of limitations for that particular report, so that's as far back as you have to go. (Income tax reports are different. There is no statute of limitations if you don't file. The Streamlined Program is one good way to solve that _potential_ problem.) The U.S. Treasury Department is starting to receive reports from financial institutions and governments around the world to match up with individual reports, so now is a very good time to get that issue cleaned up if you have it -- before they match you up and send you a "polite" letter, if they do. You can then decide later whether or not you want to participate in the IRS's Streamlined Program. I think it'd be a good idea to take advantage of that program, but it's a lower priority than the Form 114s.

Another poster mentioned IRS Forms 3520 and 3520-A. Yes, it's worth taking a quick look at those forms to see if you are/were required to file either/both of them.

Note that occasionally U.S. citizens qualify for free money from the IRS. Had you filed tax returns in 2009 and 2010, for example, assuming you had at least a little bit of earned income (income from work) it's possible you would have received a total of US$800 in free money. Too late now, unfortunately, but it's an important point to understand about the U.S. tax system, that zero is not the lowest rate of tax you can pay. Negative rates of tax are possible, even for U.S. citizens living overseas -- meaning, free money from the IRS.


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## StewartPatton

BBCWatcher said:


> Contrary to Stewart's advice, as far as I can tell there is no filing obligation for self-employed individuals who are (a) fully contributing to a foreign social insurance program (such as U.K. National Insurance), and (b) participating in a social insurance program in a country that has a social security treaty with the United States (the United Kingdom is one example).


Well, here's what IRS Publication 54 says on the matter: "Self-employed individuals. If your net earnings from self-employment are $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier. Net earnings from self-employment are defined in Publication 334, Tax Guide for Small Business."


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## Project2015

Thank you BBC Watcher. I will definitely look at the 114 form ...when you say 'skip any year(s) when you didn't meet the filing threshold', don't you mean to say to skip the ones where I DO meet the filing threshold? Surely I'd need to fill in the forms for the years I went over $3,950 prior to becoming self employed (2009 - 2010), and where going over the $400 (2013 - 2014) of the self employment threshold, but don't fill them in otherwise? I'm not sure if I've misunderstood or it was a typo.

I'll also look at 3520 and 3520-A to see if they are relevant. I read earlier posters talking about a free $800 but I'm not very astute even if I was 'in time'. This whole US Tax business is the prompt for me to dig through a box of papers and make sense of what's under my nose...which is more than enough to get my head around....and rather more valuable! I've had a bit of a numbers phobia for years, and having to do my own simple business accounts and self-assessment for tax purposes has enabled me to overcome it to some extent....but that's taken 3 years in itself. Goodness knows what all the other numerically challenged US citizens do! What do they do?


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## Project2015

...Ok I've just realised that the FinCEN Form is the same as the FBAR which I did do in June.


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## BBCWatcher

Project2015 said:


> TI will definitely look at the 114 form ...when you say 'skip any year(s) when you didn't meet the filing threshold', don't you mean to say to skip the ones where I DO meet the filing threshold?


I think you realized it, but, just in case, no, I wrote that correctly. You file FinCEN Form 114 if you meet its filing threshold.



> Goodness knows what all the other numerically challenged US citizens do! What do they do?


Is this a variation of (guessing) "girls don't do math"?  I don't believe that!

U.S. tax and financial reporting has very little to do with math and "numbers," as it happens -- at least not anything past math most elementary school students study before age 10. It has _much_ more to do with record keeping, reading instructions (generally pitched at about a high school English level), and following those instructions. It's much more similar to following recipes and the culinary arts, and it's much less similar to calculating the orbits of objects in space, as examples.

FinCEN Form 114, for example, has no mathematics at all. It does have numbers -- account numbers and account balances -- but so do your credit and debit cards. 

Anyway, take it slowly. This is really about the English, not the (very little) math.


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## BBCWatcher

StewartPatton said:


> Well, here's what IRS Publication 54 says on the matter....


Agreed, but as I pointed out the penalty for non-filing a U.S. tax return when the filer genuinely owes zero U.S. tax (or is due a refund, such as a refundable tax credit) is exactly zero.

Let's dial down the panic level a bit here because there really is no cause for panic.


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## jbr439

Project2015 said:


> ...
> I'll also look at 3520 and 3520-A to see if they are relevant.
> ...


I'm not sure how helpful just looking at 3520 and 3520A will be. For example, I don't think one could infer that a Canadian TFSA (equivalent of Roth IRA) would be a 'foreign trust' from just looking at those forms, even though the majority opinion of Canadian cross-border tax practitioners is that it is a 'foreign trust'.

An example of a Brit account that may or may not be a 'foreign trust' is an ISA (similar to a Canadian TFSA, from what I can gather). Seems to depend on who you talk to and possibly what kind of ISA it is. The first link is interesting in that tax practitioners disagree with each other and even the one that doesn't believe an ISA is a 'foreign trust' merely says "I think an ISA is not a foreign trust".
See:
Is an ISA a foreign trust?
What is an ISA to the IRS?
Emerging info; HMRC and ISA'a for USC's in UK - British Expats


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## StewartPatton

BBCWatcher said:


> Agreed, but as I pointed out the penalty for non-filing a U.S. tax return when the filer genuinely owes zero U.S. tax (or is due a refund, such as a refundable tax credit) is exactly zero.
> 
> Let's dial down the panic level a bit here because there really is no cause for panic.


? I'm not "dialing up the panic level" or anything like that. The OP asked a question, and I (alone in the crowd . . .) provided the correct answer. That's the end of it.


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## jbr439

BBCWatcher said:


> Agreed, but as I pointed out the penalty for non-filing a U.S. tax return when the filer genuinely owes zero U.S. tax (or is due a refund, such as a refundable tax credit) is exactly zero.
> 
> Let's dial down the panic level a bit here because there really is no cause for panic.


Don't forget the reporting requirements that can result in penalties that are independent of the fact that no tax is owed. E.g. minimum $10,000 penalty for 3520 and 3520A.


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## Project2015

Coincidentally I was just reading up that same first link on ISAs Is an ISA a foreign trust?. There is definitely a variety of opinions out there on whether or not an ISA is a Foreign Trust...but that on the distinction between cash, and stocks & shares ISAs there is more of a consensus i.e. Cash = good / Stocks & Shares = bad (needing reporting to IRS). After reading all of the links, I am thinking that I will need to go beyond reporting my ISA on the FBAR only, and declare it on the 3520 and 3520-A forms just to be on the safe side.....AND go for the Streamlined Program 'just in case'!...therefore my earlier sense of reassurance was a false one, though I can leave the 1040 out of it in this scenario.


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## jbr439

Project2015 said:


> Coincidentally I was just reading up that same first link on ISAs Is an ISA a foreign trust?. There is definitely a variety of opinions out there on whether or not an ISA is a Foreign Trust...but that on the distinction between cash, and stocks & shares ISAs there is more of a consensus i.e. Cash = good / Stocks & Shares = bad (needing reporting to IRS). After reading all of the links, I am thinking that I will need to go beyond reporting my ISA on the FBAR only, and declare it on the 3520 and 3520-A forms just to be on the safe side.....AND go for the Streamlined Program 'just in case'!...therefore my earlier sense of reassurance was a false one, though I can leave the 1040 out of it in this scenario.


Yes, it's all a massive PITA. Now, just for good measure I'll ask if you have any non-US domiciled mutual funds or ETFs in your ISA or any other accounts. If so, they *may* be PFICs, and PFICs come with their own pain points.


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## Project2015

I think the answer is yes.....hang on I'll just pour myself a large glass of wine.....maybe the full capital transaction histories I ordered..arriving in the next week...will help me understand the nature of these. Will these fall outside the Streamlining Program, the FBAR, and forms 350 & 350-A? Are there really more forms to add to the list? Surely not?...I'm definitely heading for renunciation....and the hills!


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## Project2015

When I talked to the tax advisor (first hour free), he was definitely not modifying his answers according to 'context', and yes I definitely went away with the eebie jeebies. Wanting answers that took context into account, I searched for and found the forum to get an 'on the ground' sense of my position and options...and did. After all the ensuing discourse, I'm not surprised to find a mix of responses which is why my position keeps vacillating between 'no need to worry', just carry on with the FBAR; and 'do the other stuff' to be on the safe side. This is a fast-track education in understanding my finances in the round, accounting practices, and legal obligations...and I am still growing up even at my age.


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## Project2015

I forgot to add that I did indeed start with a simple question (innocently), and it's so amazing to discover all the layers that naturally fell out from key words like 'penalty' and others, which in themselves acted as hooks to various expertise. I am totally grateful to explore all of this and value all the comments. Thank you all for your integrity and genuinely helpful intentions.


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## jbr439

Project2015 said:


> I think the answer is yes.....hang on I'll just pour myself a large glass of wine.....maybe the full capital transaction histories I ordered..arriving in the next week...will help me understand the nature of these. Will these fall outside the Streamlining Program, the FBAR, and forms 350 & 350-A? Are there really more forms to add to the list? Surely not?...I'm definitely heading for renunciation....and the hills!


If you have PFICs, then, yes, there are more forms (and probably calculations), although they don't preclude you from filing inside the Streamlined program.

FWIW, even though something is a PFIC, it may not be reportable as such if held in the "right" account. For example, PFICs in a Canadian RRSP (similar to a US traditional IRA), are not reportable as such, IIRC.


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## Bevdeforges

Don't let the worry warts get inside your head. Most of US law is based on "context" and on "precedents" - and taxes are no exception to this.

The key thing is to make sure you disclose whatever you need to disclose (i.e. the existence of those ISA accounts). You've done so with the FBAR filing. If there is an issue, the IRS does not generally swoop down on you levying penalties and fines and brandishing handcuffs (as seems to be the popular image). Either they will send a bill based on whatever information they have on your case or they will send a letter requesting further information.

For "small potatoes" like most of us are dealing with, chances are you'll never hear anything. Paid tax preparers are scrutinized much more closely than the average Joe Citizen and yes, they have to stick much more closely to the letter of the law - because if a "pattern" is found to their work that causes the IRS some concern, then all their filings will be subject to more intense scrutiny.

Folks have been out there disseminating fear and anguish since the FATCA stuff kicked in a couple years ago. Others of us have been filing our returns from overseas for 20 or 30 years or more - making a good faith effort to report sincerely but within our own interpretation of what can be complex and confusing rules and regulations. Honestly, in all this time, I certainly know of no one in the "normal" income ranges who has ever been audited overseas, and with the IRS foreign offices being closed down, I suspect it is going to become even rarer. Make a good faith effort to file according to the rules and respond sincerely to any queries or follow up questions you get and you'll be fine. There is always the taxpayer advocate to appeal to if something should get out of control in the process.
Cheers,
Bev


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## Project2015

jbr439 said:


> If you have PFICs, then, yes, there are more forms (and probably calculations), although they don't preclude you from filing inside the Streamlined program.
> 
> FWIW, even though something is a PFIC, it may not be reportable as such if held in the "right" account. For example, PFICs in a Canadian RRSP (similar to a US traditional IRA), are not reportable as such, IIRC.


Ok thank you, I'll research PFICs now and read the instructions for form 8621 to see what's what. There is a lot to learn and these bite sized 'beads' on the thread enable me to follow and wear it at a manageable pace. When you start off it feels like an alien country, and something is being done to you which you have no control over and little understanding about, and you can't speak the language. A previous responder mentioned that it's just a question of following the instructions. When I read them for the 1040 form I quickly realised that I wasn't very clear on a lot of what it was saying...I'm not an unintelligent person and studied to Masters level in the UK, so this forum has been invaluable to me to help unravel the mystery. Otherwise I'd have to go the route of my very modest earner sister and pay the advisor the £5K.....no doubt they do a complete job of it but is it a fair exchange?


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## Project2015

Bevdeforges said:


> Don't let the worry warts get inside your head. Most of US law is based on "context" and on "precedents" - and taxes are no exception to this.
> 
> The key thing is to make sure you disclose whatever you need to disclose (i.e. the existence of those ISA accounts). You've done so with the FBAR filing. ...........Make a good faith effort to file according to the rules and respond sincerely to any queries or follow up questions you get and you'll be fine.
> Cheers,
> Bev


'Make a good faith effort to file according to the rules' is the clincher for me. According to the rules is the sticking point. There are two sets vying in my head for dominance, the pro rational, sensible, reasonable carry on as I am and respond sincerely to the letter which may or may not come; the play it safe 6 yrs of FBARs and the Streamlined Programme plus possible 3520/3520-A/8621 forms (and as yet unknown others). I'll know which will be the one I can live with when I've exhausted all the avenues of inquiry. Thanks again


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