# Quiet Disclosures on IRS Form 8938



## williek

I am a dual citizen. I was born in the US but later in life became a naturalized citizen of a country where I lived for 10 years. I have spent most of the last 40 years outside the US and most of my assets are also abroad. I have been filing US tax returns and FBARs and paying US taxes so I have no major compliance issues.

Between all the time it takes me to file tax returns in two countries that often do not use the same procedures (for example, I pay US tax annually on my five-year CDs but in the other country, I only pay tax when I redeem them), I hope to renounce my US citizenship in the not-so-distant future.

Over ten years ago I realized that I should have been declaring my foreign brockerage holdings on IRS Form 8938. So I just added them on the next year's US tax return and have continued to do so since. 

I recently realized that I should also be declaring a post-tax pension account I have in a Latin American country where I worked for 10 years. Its value is over $200k. I never have taken any money out of it, so by not declaring it I did not avoid any taxes.

All the banks, brokerage, and pension firms that I deal with outside the US are FATCA compliant but I get the impression that if they report my accounts (I assume they do), the IRS does not do anything with the information because otherwise I should have been asked why I was not declaring my pension plan. 

So as to get my 8938 and FBAR in total compliance I would just like to add it to this year's 8938 and FBAR and then continue to do so in the future. I believe this is known as "quiet disclosure". At the same time, I worry that a $200k jump in the net worth I am declaring on my 8938 and FBAR will flag me for an audit. Any advice?


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## Moulard

Personally, I think quite disclosure is fine... But, if it will help you to sleep at night, you could always file 1040-X with an amended Form 8938 attached for the past three years.
You could also file 3 amended FBAR too if that still leaves you counting sheep.

FinCen aren't actually interested in the accounts of ordinary people, which is why they gave administration of the FBAR to the IRS. The IRS is equally not really going to be interested.

The chance of being audit if you are outside the US is next to zero if your reported AGI is between $1 and $500k USD - fundamentally the ROI for the IRS isn't worth it. They won't pick up your return unless they have another reason to look at it.

According to the 2018 IRS Databook, there were 5938 individual international returns examined during 2018. While this equates to 3.4% of international returns and on first glance, would suggest international returns are examined for frequently than domestic returns, it is worth noting that this figure includes 


1040–PR (self-employment income tax return for Puerto Rico residents) 
1040–SS (self-employment income tax return for U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands residents). 
Although the footnotes do not state it, it will also include US Armed Service Members Overseas.

I would hazard to guess the vast majority of those examined returns are from those US territories and not truly international returns.


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## 255

williek -- I agree with Moulard. I had a friend that had not filed taxes for over 20 years. On the advice of counsel, she filled back taxes for 7 years, continued filing future years and never heard a peep, from the IRS. For some reason she was up to date on her FBARs -- so the IRS had access to "some" of her information, but nothing ever happened. Cheers. 255


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## williek

Thanks, Moulard and 255. I appreciate the feedback. I wanted to give you guys "likes" on your messages but I am a newbie to the message board and could not figure out how to do so. 

It amazes me just how stressed everything dealing with tax reporting makes me. Every year I spend seemingly endless hours trying to figure out how the balance my local country taxes with my US ones and, in those cases where I belatedly discover mistakes, should I correct my returns or just let it ride (due to possibility of absurd IRS penalties).

It takes me just a few minutes to file my local return and then days to figure out what, if anything, I owe the US. And I still have zero confidence in my ability to correctly complete that confusing AMT form.


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## williek

P.S. I Just found the LIKE button.


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## karimQ

The number of returns filed under the category "individual international returns" is about 176k returns per the 2018 data book. This is a small number compared to expats using the FEIE/FHE (form 2555) or using form 1116 (foreign tax credit), given that there are at least 8 Million Americans living abroad. Not all expat Americans file returns but 176k returns filed in a year is too small either. 

It seems that American expats who file foreign income are categorized under individual income tax returns along with the rest of all returns using form 1040, since American expats use 1040 tax form to file their taxes like the rest of filers.


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## Nononymous

Just curious, where did you find that 176k figure?

The overall numbers are indeed quite low.

Form 2555: 482k in 2016, 449k in 2011, worldwide.

Form 1116 numbers are higher (approximately 5 million) but of course that is presumably also used by US residents with foreign income sources.

A good ballpark estimate is 5-10 percent of non-resident US persons filing US returns. Compliance would be highest among expats with ongoing US financial ties, lowest among "Accidental Americans" and dual citizens who've not lived in the US as adults.


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## Moulard

Nononymous said:


> Just curious, where did you find that 176k figure


Without doublechecking the figure cited, I assume from a published IRS SOI Databook.

The IRS publishes a summary of returns, examinations etc each year.

https://www.irs.gov/statistics/soi-tax-stats-all-years-irs-data-books


Its worth noting that it is impossible to correctly analyse overseas information because the definition of overseas or "other" varies from table to table.

As an example, the table of the number of returns overseas is grouped in as "other" which is defined as



> Includes U.S. Territories other than Puerto Rico, U.S. Armed Service members overseas, and international.


Whereas in the examinations section " international returns " includes:



> Includes Forms 1040–PR (self-employment income tax return for Puerto Rico residents) and 1040–SS (self-employment income tax return for U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands residents).


So fundamentally, if you are interested in true non-US (ie non-military, non-US-territory or possession) returns, you cannot glean meaningful information from the databook.

It is possible that the data-cubes are published somewhere or could be made available under a FOIA request, but I truth to tell, I have not really ever cared enough to do so.


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## Moulard

If you are interested... and bearing in mind the definitions above... for 2019

Table 4. Number of Returns and Other Forms Filed Electronically, by Type and State, Fiscal Year 2019 


Other [11] 978,821 (this includes all types of returns)
" Total individual returns [3] " 583,134 


[3] Includes some of the Form 1040 series as follows: 1040 (individual income tax return); 1040–A (individual income tax return, short form); 1040–EZ (individual income tax return for single and joint filers with no dependents); 1040–PR (self-employment income tax return for Puerto Rico residents); and 1040–SS (self-employment income tax return for U.S. Virgin Islands, Guam, American Samoa, and Northern Mariana Islands residents). As a result of the Tax Cuts and Jobs Act of 2017, the Form 1040 was redesigned for Tax Year 2018, making Forms 1040–A and 1040–EZ obsolete. However, as prior year tax returns continue to be filed, the IRS may continue to see these forms. 


Table 17b. Examination Coverage: Recommended and Average Recommended Additional Tax After Examination, by Type and Size of Return, Fiscal Year 2019 

"All returns filed in Calendar Year 2018 [1]"

► International returns [11] 163,652 
Total Returns examined 3,049 


[1] Excludes excise tax returns filed with U.S. Customs and Border Protection and the Alcohol and Tobacco Tax and Trade Bureau. Also excludes returns of tax-exempt organizations, Government entities, employee retirement benefit plans, and tax-exempt bonds; and excludes information returns (e.g., Forms 1098, 1099, 5498, W–2 and W–2G, and Schedule K–1). 
[11] Includes Forms 1040–PR (self-employment income tax return for Puerto Rico residents) and 1040–SS (self-employment income tax return for U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands residents). 


Make of it what you will...


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## Nononymous

True, it's impossible to really tell with any degree of accuracy, but that rough number somewhere between 500,000 and 1 million non-resident US person tax filers does make intuitive sense.


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## karimQ

Moulard said:


> The chance of being audit if you are outside the US is next to zero if your reported AGI is between $1 and $500k USD - fundamentally the ROI for the IRS isn't worth it. They won't pick up your return unless they have another reason to look at it.


Just for me to understand, is there data that you have seen which suggest an expat living overseas reporting below $500k USD, the audit rate is very low to none. Because the IRS data books provide information for filers between 0 to $200K, 200k to $1M, and >$1M, etc. I have not seen data for AGIs below or above $500K.

Another question, for an expat living overseas filing form 2555 (with around 100k exemption), an AGI of 500K USD means that total reporting income would be around a little more than $600k USD. Is that correct?


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## Moulard

It wasn't meant to be a statement of fact, it is a truth in the metaphysical sense aimed to sooth the minds of those with ordinary incomes scared by the potential of an audit. 

The data-books do include breakdown of examinations based on income size. If you exclude returns with a zero AGI its not until you hit $500k that the examination coverage on their gross income groups exceeds 1%. This is indeed a figure from one of the databooks but is one that is across all returns not just international ones.

The reality on the ground is that the IRS no longer has a meaningful international presence for the purposes field examination of returns, and therefore an audit of an international return, must, by definition by a correspondence audit (resolved by mail) rather than a field audit (face to face). Therefore, my best guess is that there were fewer than 157 audits of truly international individual tax returns for physical year 2018.

Let’s face it, the trigger for most audits is a clear error in the return, or a mismatch against their own internal records. They have no records to match against on an international return, and have to take what you provide at face value unless they have some other reason to go digging. 

I would hazard to guess that those 157 audits are things like people claiming an Earned Income Credit or Child Credit while also using the FEIE which is against the rules. That thinking matches the fact that the average recommended additional tax across those returns is only $1000.
Now if you are running a business overseas and filing a business return or some other type of return, that is a different matter. 

AGI.. In essence it is your taxable income which is not necessarily the same as your gross income.

AGI is your gross income less expenses that come out of your pre-tax income (educator expenses, a range of deductions and the FEIE) 

Your example is fundamentally correct.


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## karimQ

Moulard said:


> I
> 
> Therefore, my best guess is that there were fewer than 157 audits of truly international individual tax returns for physical year 2018.


Thanks for the information but don't you think that the 176935 international filers are not referring to US filers living overseas. Because according to some data I have seen in earlier years that people who are using form 2555 are around 500,000 filers or more which is more than what is shown in the international category in the 2018 databook. The definition for international returns here other than those who use 1040 PR and 1040 SS may include those people who are foreigners living in US and using 1040 NR. And then US citizens living overseas using form 2555 for example are included in the 1040 individual returns (150 millions) along with the US residents who use this form since Americans overseas use 1040 form anyway to file. Just a thought.


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## Bevdeforges

karimQ said:


> Thanks for the information but don't you think that the 176935 international filers are not referring to US filers living overseas. Because according to some data I have seen in earlier years that people who are using form 2555 are around 500,000 filers or more which is more than what is shown in the international category in the 2018 databook. The definition for international returns here other than those who use 1040 PR and 1040 SS may include those people who are foreigners living in US and using 1040 NR. And then US citizens living overseas using form 2555 for example are included in the 1040 individual returns (150 millions) along with the US residents who use this form since Americans overseas use 1040 form anyway to file. Just a thought.


People living in the US may be using form 2555 in the year they return from an assignment overseas - or if only one member of a couple worked overseas for some period of time. Plus, some US citizens living overseas use a US address as their filing address - some use the address of a family member, others use their tax filer's address (accountant or attorney). So where are they counted in those statistics?

Foreigners living in the US normally file a regular 1040 except for a "dual status" year (i.e. the year they arrive or the year they depart). And there are plenty of overseas residents who take the FTC (form 1116) rather than the FEIE, so wouldn't show up in the 2555 category.

TBH, the IRS seems not to have much of any idea how many "international" 1040 filers there are. The data books are interesting, but subject to much conjecture and speculation.


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## karimQ

Bevdeforges said:


> TBH, the IRS seems not to have much of any idea how many "international" 1040 filers there are. The data books are interesting, but subject to much conjecture and speculation.


If this is the the case then the audit rate for international returns that is mentioned in the data books would represent only those who have an international address on their return or for those who file 1040-PR / 1040-SS and not necessarily those who live overseas but maintain a US address. Interesting!


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