# Prior Year income Tax + FBAR



## cletus

Hi,

I am trying to get some input on the best strategy for finishing off my tax returns. I live abroad and qualify for the foreign income exclusion. I have lived abroad since 2011 and did not file a tax return for 2012 or 2013. I have not requested an extension from the IRS. I just became aware of the FBAR requirement recently and have never filed this form.

For 2012, I may owe roughly $1500 in income taxes and I do not expect to owe any income taxes for 2013. The most money I have held in a foreign bank account is $20,000. I also have an australian retirement super fund of $50,000.

I would like to file my income taxes and FBAR forms in order to get up to date. 

I am trying to understand if it is best to right the ship via a tax accountant with expat experience or if I can file directly with the IRS. Can prior years tax forms be filed via tax software?

Any input would be appreciated.


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## Bevdeforges

It depends a bit on the complexity of your US tax situation, but it isn't necessary to file back taxes through an accountant (or EA or any other sort of tax professional). 

All the forms you need are available for download from the IRS website - just make sure to download the correct year's forms for each filing. I believe (but am not sure) that most of the big tax prep software companies make prior year packages available online (possibly for a fee) but there are only 6 or 8 filing companies that allow you to e-file directly if you have a foreign address.

The official memo on the "new and improved" streamlined program for overseas residents to get caught up may be the best place to start: Streamlined Filing Compliance Procedures
Cheers,
Bev


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## StewartPatton

Sure, you can read the instructions and file some forms yourself. (You could also cut your own hair and remove your own wisdom teeth.) Whether you file the right forms and fill them out correctly is anyone's guess, and there is a $10,000 penalty for not filing certain information returns. If you don't know what all of these are and whether you need to file them, you may be in no better place after taking the time to file everything yourself than you are now. 

Also, of course the actual filing is the easy part--understanding the best course of action based on your particular facts is the hard part. 

Finally, your super may present some issues depending on your specific facts. Try googling around to learn more about the US tax treatment of a super and you will simply find scant and contradictory info. An experienced orofessional can guide you through this morass.

<snip>


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## DavidMcKeegan

If you are only behind on your 2012 and 2013 taxes, then the Streamlined program is hardly necessary. Just file the last two years, the FBAR's and possibly a Form 3520 if your super fund is considered a Foreign Trust.

You will likely not be able to e-file as you are late, however you can still mail them in without any problems.

If you are financially savvy, then try and file on your own. However if you are not comfortable with the forms needed for an expat return (F2555, F1116, etc), then it is best to seek out an expat accountant.

Good luck!


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## StewartPatton

Oof, that's what bad advice looks like, folks. If you are going to file anyway, you may as well do it under the streamlined program so you get explicit penalty protection. 

David is advocating a quiet disclosure. Friends don't let friends make a quiet disclosure.


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## DavidMcKeegan

StewartPatton said:


> Oof, that's what bad advice looks like, folks. If you are going to file anyway, you may as well do it under the streamlined program so you get explicit penalty protection.
> 
> David is advocating a quiet disclosure. Friends don't let friends make a quiet disclosure.


Certainly not bad advice, perhaps different from what you would do, but we like to save our clients time and money- not push programs that would be excessive in their situation. 

If you are not even behind on three years of returns, then there is little need for the Streamlined program. Also, most people living abroad do not owe the US anything in taxes. If you do not owe anything, you do not need to worry about fines and penalties for coming forward! You can file the two years that you are behind, and be done with it.

Now of course if this person owed significant amounts every year and was willfully not filing their US returns, it would be a different story. However with the details that are currently here (few details at that), that is my recommendation.


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## StewartPatton

Wow. This is interesting. I have seen a ton of posts from you David all over the internet, and this is the first time I've seen you get it so wrong. Previously your advice has been pretty good for someone who is not actually a US tax advisor.

You are missing the fact that the OP has failed to file FBARs, which carries a $10,000 penalty even without unpaid tax. The IRS has extended explicit penalty protection with the streamlined program, so OP may as well use it. 

There is no additional time and expense to file under the streamlined program as opposed to just filing the returns and FBARs without the program--streamlined just requires an additional two-page form and some magic words on top of each return. Your statement makes me curious about what kind of wacky pricing you are using at Greenback.


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## DavidMcKeegan

We have _yet to have a single client receive a penalty_ for voluntarily coming forward with their FBAR's. With the facts that are known, I doubt this person would have any trouble coming forward either way.


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## Bevdeforges

OK, gentlemen, let's back off the dueling tax advisers routine, as well as the subtle jabs about overall "professional approach."

I only referenced the streamlined process to demonstrate how "straight forward" the whole process has become. (IIRC, they have even eliminated the idiotic questionnaire you used to have to fill out "to assess risk.") Like the advert says, "just do it."

As to whether or not one "needs" a paid adviser to back file a couple of years, the best thing to do is to take a look at one of the online tax programs and see what you think yourself. If you have filed your own taxes before (either using software or not), you'll quickly find out whether or not you can handle the forms. Oh yes, and "reading the fine manual" (RTFM) helps, too. (Past years' Publication 54 are available on the IRS website, too.)

While the Treasury Dept (and most paid tax advisers) love to flaunt the $10,000 potential fine for failure to file an FBAR, there is very little evidence that such fines have been assessed against folks back filing in sincere good faith - especially those with nominal sums in their overseas accounts. (And $20,000 is a piddling sum in IRS/Treasury terms - even if you add in the $50,000 in super, it's still "mice nuts" to Treasury.) The main thing is to demonstrate that you have nothing to hide. 
Cheers,
Bev


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## ForeignBody

This thread is a perfect example of why some of us are so cynical about "professional" advisers.


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## StewartPatton

ForeignBody said:


> This thread is a perfect example of why some of us are so cynical about "professional" advisers.


Well, only one professional tax advisor has posted in this thread. David is only a business owner.


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## Nononymous

I like the expression "the compliance-industrial complex"


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## StewartPatton

I just read through the thread again and want to make sure something is clear: filing back returns and FBARs under the streamlined program does not cost any more in terms of fees than filing them outside of the streamlined program. So, I am not pushing a program or using scare tactics, just providing solid advice about the best way forward.


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## maz57

Well there you have it folks. No wonder ordinary people are confused and scared when they find out about this mess. If the pros can't even agree as to the best way forward, then there's no hope for us peons.

I will say this: I back filed three years plus a current year FBAR after not filing anything for over forty years. I figured if the FBAR folks wanted more they would ask for more. I never heard diddly from the IRS or FINCEN. This was before the Streamlined but I knew to avoid those OVDI meat grinders like the plague. There is no problem doing it yourself if you can read instructions. There are multiple ways to get to the same place. Some cost money and some are free.


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## StewartPatton

maz57 said:


> There are multiple ways to get to the same place. Some cost money and some are free.


The problem here is how to define "the same place." If you do it yourself, you may do it perfectly, but you would have know way of knowing that. You can be sure of getting it done right by hiring someone who does this every day for a living.


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## maz57

Well this is not in any way intended to offend and you seem like a decent guy who is trying to do right by your customers. The problem is the neophyte who has discovered he has a compliance problem has no way of knowing the competence level of the professional he hires.

I think you will agree that there are different levels of experience and competence in the pro community. I have heard stories about people who were totally satisfied with the professional they engaged and I have personal knowledge of some folks who wound up with a so called "pro" who made such a mess of things they would have been better off if they had done it themselves. Finding a pro who is expert in both US tax rules and the local tax rules is not an easy thing to do.


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## jbr439

StewartPatton said:


> I just read through the thread again and want to make sure something is clear: filing back returns and FBARs under the streamlined program does not cost any more in terms of fees than filing them outside of the streamlined program. So, I am not pushing a program or using scare tactics, just providing solid advice about the best way forward.


Streamlined will eliminate (or lessen the likelihood) of penalties for not filing 3520 and 3520A forms. In Canada it is very easy to unknowingly have a "foreign" trust as Registered Education Savings Plan (RESP) accounts, Registered Disability Savings Plan (RDSP) accounts, and Tax Free Saving (TFSA) accounts are all considered "foreign" trusts. 

RESPs and TFSAs are quite popular in Canada, so running afoul of 3520/3520A filing issues is trivial to do.

FWIW, I believe a RESP is like a US 539, and a TFSA is like a Roth IRA.


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## BBCWatcher

For what it's worth, I agree with Stewart. _Assuming you're filing truthfully_, the streamlined program can only yield a better or equal result compared to standard late filing. It can never be worse.

This isn't actually confusing.


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## cletus

Thanks for everyone's input and the good, yet somewhat conflicting, advice. I think the streamlined option is the way for me to go and I will look for some professional advice especially in regards to my Australian super fund as their is some contradictory information on the web.

Cheers


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## maz57

The IRS recently changed how RRSPs and RRIFs (the equivalent of the Aussy Superannuation) are to be reported in Canada. Previously there was a special (only for Canadians) Form 8891 that had to be filed along with Form 1040. Form 8891 has now been deleted and these accounts are reported on FBAR and presumably Form 8938 according to the applicable threshholds. The income generated inside such accounts is not taxed by the US until there is an actual withdrawal.

The IRS finally conceded after many years that such accounts are not a vehicle used for tax evasion. It is very discouraging that the IRS has not seen fit to recognise other government tax-advantaged retirement plans around the world. The IRS wants compliance yet they refuse to make it reasonably possible to do so. One should not have to hire a professional to report a bog standard Australian Super.

I suspect the IRS took action on the Canadian accounts because of more and more criticism and horror stories in the media on both sides of the border. Unfortunately Australia is halfway around the world, "out of sight, out of mind", and doesn't get the same consideration.


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## StewartPatton

Yep, with any luck this signals more rational rules to come for supers, ISAs, etc.


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## BBCWatcher

The tax treaties are the straightforward vehicles for addressing tax-advantaged retirement accounts, but don't (only) blame the United States here. The U.S. (correctly) insists on its treaty partners protecting the tax advantages of all U.S. retirement accounts in exchange for the U.S. doing the same. In other words, the U.S. insists on reciprocity. Some other governments -- including perhaps Australia's -- aren't willing to do that. Italy, to pick another random example, appears to have agreed to full reciprocity.

That still means you might have to file the appropriate tax form to take a treaty position, but that's more like an essay.


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## Bevdeforges

It's not only a matter of reciprocity. Italy has a somewhat "different" approach to the taxation of US pensions - i.e. they tax their residents on US SS, so Italian citizens resident in Italy are not taxed on their US SS by the US. (Apparently this does not apply to non-citizens merely resident in Italy and drawing US SS.) 

And other tax treaties don't appear to address retirement savings plans at all - at least in the case of France, because there are provisions within the existing tax law that does not consider withdrawals from plans like IRAs to be "income." Tax advantaged or deferred savings in France, however, are not accorded any sort of special treatment in the treaty.
Cheers,
Bev


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## BBCWatcher

Perhaps not only, but reciprocity is a fundamental prerequisite in these treaty negotiations.

The U.S.-Italy tax treaty respects the favorable tax treatment of U.S. Roth IRAs and Roth 401(k), as examples.


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