# pros and cons of filing late vs streamlined process?



## elizaryan (Jul 20, 2017)

Hello wise tax people,

I am an American living in the UK since 2013. I filed taxes as a taxpayer abroad for 2013 and 2014, but haven't for 2015, 2016, or 2017.

I was wondering if anyone could explain the pros and cons of filing each year late vs using the streamlined process? I won't owe any taxes for any of the years. 

Also, it seems I did complete an FBAR for 2015 but then didn't file a return (although I sent a 4868 asking for an extension ha ha) and haven't done an FBAR for 2016 or 2017. Is this going to complicate things in any way?


Thanks in advance,
Eliza


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## Bevdeforges (Nov 16, 2007)

OK, there are a number of different angles on the late filing vs. streamlined thing.

First of all, consider your "exposure" - i.e. the risk that the IRS could do much of anything at all. The main thing is what accounts or entitlements you have back in the US, since those are really the only things the IRS could seize if they decide you owe either back taxes or fines of any sort.

But of course, if you owe nothing, then the penalty for late filing is a percentage of what you owe and any % of 0 is still 0.

On the FBARs again, it's a function of just how much you have in foreign accounts that are potentially reportable. So far it's doubtful that anyone with accounts totaling less than $1 million or so probably don't have all that much exposure. Though that could change over time.

And then there is the simple matter of how many and what sort of ties you have back to the US. Do you go back on a regular basis to visit friends or family? It's not a huge thing now, but the way things are going, there's no telling how the situation could evolve in the future.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

The streamlined process is probably useful for someone who's never been compliant, because if they do the three years' worth of returns (or whatever is required) then all past years are closed. But in your case you were compliant through 2014 so there isn't really any advantage, you can just file the late returns, and with zero owing there is zero penalty. Streamlined might be advantageous if it ensures no FBAR penalties for missing years, but there's no sign that FBAR penalties are being assessed against normal ordinary folks. In the end, probably no difference whether you go streamlined or just quietly catch up.

All that assumes that you want to catch up. Depending on your situation - other citizenships, US assets or income, future plans to return - you do have the option of remaining non-compliant. Your biggest issue is likely to be restrictions on banking and investment services if you have a US birthplace, or have identified yourself as a US citizen, rather than the threat of penalties from the US government. Currently the only cure for those restrictions is to renounce US citizenship.


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## elizaryan (Jul 20, 2017)

Thank you Bev and Nononymous. 

For clarification, I have no intention of renouncing my USA citizenship. My husband and I would like to keep open the possibility of moving to the USA someday and we visit frequently. I have a USA bank account (without carrying much balance, just for wiring in money to cover my monthly medical school loan payments and a little extra to make our vacations easier). Our children hold dual citizenship USA and UK. I definitely intend to get compliant and stay compliant in future, I just got behind because of a bad year with personal difficulties occurring at the time taxes were due and then failure to address the issue quickly (you know, life stuff).

I was just wondering which way is easier to catch up, really. It seems like filing my three years late is the way to go based on what you've both said. Does it practically just involve printing the old years' forms and completing them just as I did for the years I filed on time? Do I need to do anything about the FBARs that I didn't submit or just go back to submitting on time as of this tax year? I don't have considerable savings in UK bank accounts but do have some and they are at a maximum currently because we are hoping to build an extension on our home this year (but certainly nowhere near $1 million).

Thank you for your advice, it is so valued.

Liza


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## Nononymous (Jul 12, 2011)

I honestly don't think it matters one way or the other. Streamlined is extra paperwork but may have some sort of guarantee against FBAR penalties (purely hypothetical because they would not be assessed); on the other hand it might require a declaration that you were "unaware" of filing obligations, which clearly isn't the case if you filed a few returns from the UK then stopped. I would probably just file the missing returns and FBARs and nothing more, assume that'll be the end of it. Keep it simple.

One note on children. If they were born in the UK, as they grow older they can consider concealing their US citizenship from UK financial institutions, which means they will not face discrimination in terms of access to banking and investment services, and also escape FATCA reporting so they can more easily avoid US tax compliance. (Some financial institutions will not offer more than basic banking to any US citizen. You may at some point encounter this problem yourself.) Given family travel it probably made sense for you to obtain their US passports, but going forward if they do not wish to use the citizenship they can drop off the radar. It's the US birthplace (or honesty about inherited US citizenship) that gets people into trouble. Sometimes the only cure for financial or professional problems caused by US citizenship is to renounce.

PS on edit: US tax compliance from abroad isn't necessarily a big deal early on in life, when incomes are lower and investments non-existent or simple. But eventually it's a problem. Tax-protected savings schemes (ISAs in the UK I believe) are not recognized by the US, so gains are taxable. Capital gains on the sale of a primary residence are taxed beyond $500k per couple - just ask Boris Johnson. Anyone using their small business to save by deferring income has just been clobbered by the new "transition tax" - this particularly has hit doctors in Canada who were encouraged to incorporate and save for retirement within the business. Main point being, unless you live a relatively simple life, sooner or later compliance is going to be very complicated and possibly very expensive.


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## elizaryan (Jul 20, 2017)

Well, that settles it. I'll just go with filing the previous years late. Is the process for completing an FBAR late the same general principle? Do I use the same website? I haven't looked at it for a few years, so I can't remember if there is clear instruction there.

I appreciate all that knowledge about children born in the UK with USA citizenship. We struggled to know the right thing to do, as we aren't sure we'll ever move back to the USA. I've met more than a few "Americans" born in the UK who curse the day their parents ever got them their USA citizenship and some who have gone through the expensive renunciation process. In the end, we felt the possibility of moving back was such that it made more sense to do it than not. My husband and I do live a simple life, more or less, but appreciate that we are still young and that could change as we get older and are more able to save for retirement, and that our children may have bigger dreams than us! I think our plan would be to help them should they want to renounce citizenship some day, since we have made the decision for them at this point. Perhaps when their career goals are well defined but they aren't there yet, financially. At any rate, we'll make sure the tax issue is on our radar when our children are reaching adulthood. Expat relationships are always going to be difficult, so I guess we just think of it as our cross to bear, so to speak. We're luckier than many.

Do you know if that $500k a moving target over time? Only asking because we do own a house jointly and wondered at what level we would need to pay tax to the IRS on selling. Hopefully, even if we did move to the USA, we could keep the house and rent it out or something. Would that create a taxable income in the USA too?

-Liza


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## Bevdeforges (Nov 16, 2007)

> Do you know if that $500k a moving target over time? Only asking because we do own a house jointly and wondered at what level we would need to pay tax to the IRS on selling. Hopefully, even if we did move to the USA, we could keep the house and rent it out or something. Would that create a taxable income in the USA too?


Technically ALL worldwide income is considered taxable income for the US citizen. Depending on what country you are in, there may be remedies - exclusions, allowances or tax credits against your country of residence's taxes - but basically everything not specifically excluded is taxable in the eyes of the IRS.

This is obviously where the issue of compliance comes in. In general terms, only US income is reported to the IRS (via a W2, 1099 or other document you will also get a copy of). Rental income may well be reported through the local property records. Foreign source income is generally beyond the ken of the IRS, but if they have reason to believe the amount is significant I suppose they could look into it.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

The $500k number (exclusion of capital gains from house sale, per couple) doesn't change from year to year, as far as I know.

FBAR filings are all done electronically now. I imagine it's quite straightforward. No direct experience because I am non-compliant.

Your kids will be fine avoiding the costs, traps and pitfalls of US citizenship if they were born in the UK and keep quiet about the other passport. One thing I would recommend when they get to 16 or so is having them open their own bank accounts at a different institution than the one you use, so there is no "taint" from parents who have identified themselves as US citizens. (Banks shouldn't make that assumption because US citizenship is not automatically passed on to all children born to US parents outside the US, but the less they know the better, basically.)


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## Bevdeforges (Nov 16, 2007)

FBAR filings have to be done online these days. But one saving grace is that you use the current online form and there is a space to indicate the date (year) if you're back filing.

But, it also pays to know that 2014 is the first year that the US got serious about the banks' FATCA reporting and the first year that many of the bi-lateral agreements on what needed to be reported by the banks came into effect.

At the moment, there appears to be no detailed "matching" up of FBARs and the bank filings - plus most of the bi-lateral agreements call for the banks to report year end balances only, while the FBAR asks for the "maximum" balance during the year. I wouldn't waste much time trying for "accuracy" when a good faith estimate may be more than adequate.
Cheers,
Bev


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## elizaryan (Jul 20, 2017)

Bev, thanks so much. Will get around to doing this soon I hope. 

Eliza


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