# expat/repat



## julia1976

Hi, I'm not classic expat, I'm a naturalized US citizen. I moved to the US in 2001 and got my citizenship in 2009. 

But, at the end of 2011 I moved back to my home country and stayed there until June last 2014 (so I'm an expat/repat in that sense). I have been employed in the US since 2001 and I have owned a small online business in my home country since 2009. I've been paying taxes in both countries and I had no idea whatsoever that I have to be doing something more (filed my own taxes and happily checked "no" on that schedule B form every time)

I also have a small apartment in my home country, which I rent out and I have signature authority over my mom's account in yet another country - but I never made any operations on that account.

I don't think I owe a whole lot of tax and my savings are modest (about $50K). But I'm a single mom of two and I'm freaked out about the whole thing.

The fact that I was earning income in the US, checked No on schedule B, claimed a refund on my US tax returns each time, and also failed to report my US income in my home country (because I didn't know I had to) makes me worried whether I'm too high risk for streamlined. But OVDP would take almost everything I own.

So I'm freaking out. Does anyone have any insights on this? How strict is the IRS about the non-willful certifications? What would I need to show to prove my non-wilfulness?

Any input would be hugely appreciated.


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## BBCWatcher

The Streamlined Program sounds perfect, actually.

How much undeclared income are we talking about here? And what was the tax rate you paid on that income (approximately)?


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## Bevdeforges

First of all, don't freak out. You're hardy the only person in this sort of situation. That's why they have the Streamlined plan. Easiest thing to do is to go for the Streamlined program. Means filing returns - or amendments - for 2011 - 2013 plus the current tax year (2014). When you have those filled out, see what the sum total is of what you owe (if anything). At that point, you can make a decision how you want to proceed. (Just be sure to take your full FEIE and/or Foreign Tax Credit.) Chances are, you shouldn't owe more than maybe a couple hundred dollars, in which case you're fine for the Streamlined program.

Reporting your foreign bank accounts is a separate issue - and you'll have to file 6 years of back FBARs. But remember that is just a reporting document. No taxes are calculated based on the data you send them.
Cheers,
Bev


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## julia1976

Thank you so much Bev.
Should I hire a CPA to calculate the tax I owe or does software like Turbotax have all the functions I need to figure out what I owe? Or, should I just use an IRS worksheet?


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## julia1976

BBCWatcher said:


> The Streamlined Program sounds perfect, actually.
> 
> How much undeclared income are we talking about here? And what was the tax rate you paid on that income (approximately)?


My business generates about $100 K / year but after business expenses (inventory, advertising) the actual taxable income from it is about $50,000-80,000. And there's about $5,000 per year from renting out my flat.

The tax rate is tricky -- since at least 2012 I've been paying 3% on the gross proceeds of the business (instead of 19% on the income after expenses) and 8% on the rental. 

These numbers may not quite add up because I'm not that good at reading my tax returns.

I was in my home country for all of 2012 and 2013 so I hope those years would qualify for the FEIE?

Am I correct in believing that I have to amend 2012, 2013, and file original (correct) 2014 return?

Thank you all so much! I'm just worrying how much all of this will cost me. One lawyer I talk ed to yesterday quoted $8500 flat fee for the streamlined (his firm would handle the accounting bit, too). Is that a good deal? Sounds like a lot of money to me :-(


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## BBCWatcher

julia1976 said:


> I was in my home country for all of 2012 and 2013 so I hope those years would qualify for the FEIE?


Probably yes, but only for your foreign earned income (the first three letters of FEIE). Plus perhaps the portions of 2011 and 2014 that "bumped up" against 2012 and 2013 when you were also outside the U.S., if applicable.



> Am I correct in believing that I have to amend 2012, 2013, and file original (correct) 2014 return?


The Streamlined Program requires 3 past years, so 2011, 2012, and 2013. Your 2014 return is due on schedule, per normal. If you don't have anything to correct or amend in tax year 2011, then you can skip that one -- but follow the Streamlined Program's instructions on how to explain that.

As Bev suggested, "run the numbers." See how much your tax bill changes for those years, plus interest. Even if you cannot take the FEIE on particular income, be sure to take the Foreign Tax Credit insofar as you're eligible. Also take a look at whether the self-employment tax applied.


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## Bevdeforges

Run the numbers using TurboTax (or better, perhaps, TaxAct - the back editions are only $15 each). If you get thoroughly bogged down, then go looking for tax assistance. Right now, most decent accountants and tax lawyers are booked up solid through the April 15th filing deadline. Work on the current year (2014) and wait to try and find a tax adviser for the back filings (if you wind up needing one) until the end of April or so.
Cheers,
Bev


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## DavidMcKeegan

If using a software proves to cumbersome, shop around for a more affordable expat accountant. There are several firms out there who can help with your Streamlined filing for no where near $8500!


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## julia1976

Thank you all. I think I'll do this: run the numbers with TaxAct to see what I owe and hire a lawyer for a consultation to examine closely if I indeed qualify for streamlined. If I do, I'll proceed. I might just go with a CPA specializing in expats and only hire the lawyer if IRS starts bugging me.

Has anyone worked with or heard of IJ Zemelman from Taxes for Expats?


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## BBCWatcher

I think you're jumping too far ahead too soon.

Step one, determine what you owe _under normal IRS procedures for late reporting_ of your undisclosed income.

Now, let's suppose, hypothetically, that's $5. You don't need a lawyer for a $5 liability! Start with step one. If the answer is $5 million (it won't be), OK, you might want to consult with a lawyer.

You should also understand what the Streamlined Program is. The Streamlined Program is a standardized program to ask the IRS for relief, to do better than normal late payment of tax due (plus interest). You cannot do worse than normal (unless you overpay), but the Streamlined Program has the potential to be better. If you think you qualify for that program, and you want to try to do better than step one, go ahead. That's what a lawyer would tell you, in so many words. (And maybe you want to pay a professional to tell you that.)

Finally, you can and should file your overdue FinCEN Form 114s, explaining your late filing using the drop-down box that the U.S. Treasury Department helpfully provides on that form. ("I didn't know" is a popular choice, if truthful.) There are no reports of the Treasury Department imposing penalties for late filing FBARs as long as the late filing is voluntary, truthful, and unprompted (meaning, they didn't contact you first). So if you have FBARs to clean up, get them cleaned up. Those need to be cleaned up for the past 6 years (2013, 2012, 2011, 2010, 2009, 2008) plus the current year (2014) when it's due (June 30, 2015). You have to do that whether or not you participate in the Streamlined Program. If any of those 6 years are already correctly filed, then you can skip any such years.


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## julia1976

BBCWatcher said:


> You don't need a lawyer for a $5 liability! Start with step one. If the answer is $5 million (it won't be), OK, you might want to consult with a lawyer.
> 
> You should also understand what the Streamlined Program is. The Streamlined Program is a standardized program to ask the IRS for relief, to do better than normal late payment of tax due (plus interest). You cannot do worse than normal (unless you overpay), but the Streamlined Program has the potential to be better.


I see. But isn't the IRS saying that the "quiet disclosure" as they call it, i.e., paying back taxes and interest, makes me vulnerable to big penalties if they audit me (and even the non-willful FBAR penalties are like, $10K per account per year)? Everywhere I keep reading that they discourage that and they say that "non-wilfullness" is such a murky concept and there's no telling what the IRS deems as non-willful.

I feel like there is a lot of fear mongering on the web about it and I'm pretty confused about all that. Thank you all again for answering my questions.


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## Bevdeforges

How likely are they to audit you? The answer has plenty to do with how much you wind up owing them. (And whether or not they have any practical way of finding out that you do owe them something.)

The IRS has a target amount that must be recovered on average for each audit they conduct. If you owe only "a couple hundred bucks" chances are, no IRS agent is going to want to "ruin his average" just to pursue a technical mistake or oversight that can be easily corrected simply by filing an amendment.

Like the ad says, "just do it." Your chances of audit are actually pretty miniscule (unless you're running for President or reporting huge amounts).
Cheers,
Bev


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## julia1976

Bev, I forgot to mention one more factor (sorry, this was not intentional, my brain isn't working properly due to this stress): my ex husband isn't willing to agree to sign the amended returns - he is frightened even more than I am and I may have a hard time convincing him to do it. I'm worried this is likely to draw attention if the return is just signed by me.


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## Bevdeforges

The returns were all filed jointly? 

There is something called the "innocent spouse" protection. This is the IRS page on the subject: Tax Information for Innocent Spouses

I've never really dealt much with it, but the idea is that under certain circumstances, the innocent spouse is protected from penalties based on a filing of the other spouse. Not sure how it applies to ex-spouses, but there should be something in the FAQ section, if not in the publication itself.

But first do the back year returns and see exactly how much you're talking about. Silly to fret and worry if it's only a few hundred dollars (over 4 years, remember) or even a couple thousand. If it starts to be more substantial, then you want to look into your options a little more carefully. But do the math first and then decide how to proceed.
Cheers,
Bev


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## BBCWatcher

I don't know who invented the term "quiet disclosure." I'm not fond of it since it's often misleading.

It's perfectly routine, ordinary even to file amended tax returns. If there's additional tax owed as a consequence, the IRS publishes its interest and penalties schedule, so you can calculate exactly how much you owe in total. File truthful amended returns, pay the back taxes (plus interest and penalties, as/if applicable), and that's that -- the matter is resolved. Of course it's far better if the IRS doesn't contact you first.

It's just disclosure, and settling up what you owe. There's nothing quiet or loud about it.

The Streamlined Program is a particular, published offer that may offer a better deal. If you think it might, you might as well ask for that deal. The worst that can happen is the IRS says no, then it's just business as usual (tax, interest, and penalties, as published, as applicable).

Regarding the "innocent spouse," I think you mentioned it was your undeclared income. The innocent spouse option doesn't apply to you in that case.


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## julia1976

Thank you all so much!


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