# 3 years delinquent: filing questions + FBSA



## seanexpat72 (Oct 9, 2016)

Hi all, I am 3 years behind on filing my taxes (ignorance), want to take care of this.
I am US citizen working for US firm in UK, salaried employee 100+K in pounds annual. I have no other income and assume I do not owe taxes.

1. Please confirm I only need to file 1040 and 2555, both forms.
2. Is there any benefit in Streamline Offshore since I don't owe taxes?
3. Because I am required to file and did not file is it possible that I no longer qualify for 'Foreign tax credit'/Double Taxation rules and will now be required to pay taxes?
4. I don't have over 10K in my account, do I need to file FBAR to be compliant?
5. I would like to do this myself but please let me know if in my situation I should hire a tax consultant.
6. Is it possible US IRS will freeze my current account because I did not file?

Many thanks in advance


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## Bevdeforges (Nov 16, 2007)

> 1. Please confirm I only need to file 1040 and 2555, both forms.


Don't forget a Schedule B - if only to respond no to the financial accounts question.


> 2. Is there any benefit in Streamline Offshore since I don't owe taxes?


Yes, because it officially closes off all prior periods. Otherwise income not reported is theoretically always open to investigation.


> 3. Because I am required to file and did not file is it possible that I no longer qualify for 'Foreign tax credit'/Double Taxation rules and will now be required to pay taxes?


That's not how it works. You should be entitled to the FTC and/or all treaty provisions, even if filing late.


> 4. I don't have over 10K in my account, do I need to file FBAR to be compliant?


The threshold applies to the combined total of all accounts you may have. But if you indicate on Schedule B that you do not have $10K in foreign accounts then no, you don't need to file FBARs.


> 5. I would like to do this myself but please let me know if in my situation I should hire a tax consultant.


It sounds like you should be able to do it yourself, though the first time through is the worst. IRS Publications 54 and 17 give you all the instructions you should need. You may want to try tax preparation software which, while not free, costs far less than a tax preparer.


> 6. Is it possible US IRS will freeze my current account because I did not file?


They won't do unless they somehow discover that you owe a significant sum in taxes. And even at this point, they really only have access to accounts in the US. Your "foreign" accounts should be pretty much out of their grasp.
Cheers,
Bev


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## seanexpat72 (Oct 9, 2016)

Thanks a lot Bev.

I knew I had to file but I've read people overseas filing every 3 years so I thought I could file in bulk three years worth of returns at once. I'm not sure whether this covers the Streamline qualification? What type of investigation does this open up to otherwise?

Sean


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## Bevdeforges (Nov 16, 2007)

Once you've filed the Streamlined thing, that closes out the prior years. If people are filing "in bulk" every 3 years or so, they're simply filing late returns - which is no big deal if they don't owe any tax.
Cheers,
Bev


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## CutPasteAssemble (Oct 7, 2016)

Bevdeforges said:


> Don't forget a Schedule B - if only to respond no to the financial accounts question.


Hey Bev, 

I've seen this a couple times and want to clarify that you mean 'no' to question 7A Question 2. 7A Question 1 should still be marked yes if there is an account located in a foreign country.

From the instructions:

"
Line 7a–Question 1. Check the “Yes” box if at any time during 2015 you had a financial interest in or signature authority over a financial account located in a foreign country. See the definitions that follow. Check the “Yes” box even if you are not required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
"

irs.gov/pub/irs-pdf/f1040sb.pdf

At least that's the way we've been preparing them and it seems more conservative then marking no to everything. 

Also, GBP is a tricky currency to look at for the 10k threshold for FBAR purposes because it has traditionally been fairly strong vs the USD. Again, there is no tax with this form and it's relatively simple compared to the penalties it carries, my default is to file.

Treasury Rates for the last few years with the GBP equivalent of 10k USD:

2015: 0.6750 | GBP 6,750
2014: 0.6420 | GBP 6,420
2013: 0.6050 | GBP 6,050
irs.gov/businesses/small-businesses-self-employed/treasury-department-end-of-year-exchange-rates

You mention a salary of "100+K in pounds annual" this is going to exceed the Foreign Earned Income Exclusion. However, the UK typically has higher tax rates than the US so I would expect you to still owe no taxes but you'll want to look at Form 1116 - Foreign Tax Credit which, as Bev said, you can still file with no issue.

With your salary, I would really want to ask more questions to make 100% sure you don't meet the threshold on retirement accounts, investment accounts, or anything else combined.

If you are just starting to save, I want to strongly caution you of any non-US mutual funds / pooled investments / unit trusts or anything else that could be labeled a PFIC. They have such high penalties and interest I've seen them destroy any gains they've made. Many times you could just put the funds in a US brokerage account and buy a US fund that has the same goal. (I would still want to discuss implications of this with a UK preparer)


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## ForeignBody (Oct 20, 2011)

seanexpat72 said:


> Thanks a lot Bev.
> 
> I knew I had to file but I've read people overseas filing every 3 years so I thought I could file in bulk three years worth of returns at once. I'm not sure whether this covers the Streamline qualification? What type of investigation does this open up to otherwise?
> 
> Sean


Use of the streamlined procedure requires that your failure to file is due to non-willful conduct. You may have some challenges on that point given that you say you knew you had to file.


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## seanexpat72 (Oct 9, 2016)

ForeignBody said:


> Use of the streamlined procedure requires that your failure to file is due to non-willful conduct. You may have some challenges on that point given that you say you knew you had to file.


What are you suggesting? To me it sounds like everyone is in the same boat more or less


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## ForeignBody (Oct 20, 2011)

seanexpat72 said:


> What are you suggesting? To me it sounds like everyone is in the same boat more or less


You said you knew you had to file, so it is difficult to argue that your failure to do so is non-willful. I was just drawing your attention to the terms of the offshore streamlined procedure.

That is very different to someone (eg an "accidental American") who has just discovered that s/he should have been filing.


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## Bevdeforges (Nov 16, 2007)

If you owe nothing, then the penalty for late filing is $0 (i.e. it's a percentage of the taxes owed). I have not heard of the IRS pushing the issue of willful vs. non-willful failure to file in the case of an overseas taxpayer. But it depends on what your tax returns look like.
Cheers,
Bev


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## Nononymous (Jul 12, 2011)

ForeignBody said:


> You said you knew you had to file, so it is difficult to argue that your failure to do so is non-willful. I was just drawing your attention to the terms of the offshore streamlined procedure.
> 
> That is very different to someone (eg an "accidental American") who has just discovered that s/he should have been filing.


Unless the IRS can look deep into your soul, or read your mind, or you've been posting "I know I have to file but I won't file and here's my SSN" all over your Facebook page for a decade, I really don't think the question of willfulness is going to be an issue here.

It might be an issue if you firmly believe that lying is a sin, but that's between you and the almighty.


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## CutPasteAssemble (Oct 7, 2016)

I don't believe knowing there are filing requirements and misunderstanding them automatically disqualifies you from streamline. I'm not a lawyer though...

If the streamlined non-willfulness requirement does make you uncomfortable, I think it's worth mentioning that the full OVDP is an option. If you were only non compliant for 3 years and you have very low foreign balances I think the penalties, interest, and even reporting requirements would be fairly comparable. Plus you get the added protections of the OVDP. The biggest difference is that you would probably want council and they would probably want a CPA firm to prepare the returns. The lawyer/cpa fees add up quick and would probably dwarf your actual taxes and penalties.

Just make sure you don't have anything in a 50% bank and that you are dead on certain on your account balances. If your accounts aren't producing any income you may even be able to get them kicked out of the penalty base under OVDP FAQ 45.

OVDP FAQ:
irs.gov/individuals/international-taxpayers/offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers-2012-revised

Current list of bad banks (note, there are supposedly about 40 more banks being added to this list in November):
irs.gov/businesses/international-businesses/foreign-financial-institutions-or-facilitators

Just some food for thought.


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