# Back Filing Taxes!



## raidy (Feb 17, 2015)

Hello All,

(Sorry about the essay! only a few actual questions in here..)

My wife was born in America but raised in the UK so she has passports for both countries. She worked in the USA for a few months in the holiday breaks (so ended up getting a social security no.) at university but has since worked in the UK for over 10 years.

We recently sold a house and had some of the deposit money in an account in her name only, the bank then sent us a letter about FBAR and having a deadline to respond to them about it. As a result we discovered that she should have been filing taxes to the USA all this time! I assumed that if she files an FBAR without having filed taxes then it would raise a few red flags.
(- Apparently the last 7 years is sufficient back-filing?)

She always earned less that the exemption amount on the Form 2555 so I am in the process of filling in the Form 1040 and 2555 for the past 7 years, as I am determined not to have to pay over £5K to an accountant to do it!

I have some stupid questions:

Do I fill in the address we were living at in 2008, or our current address? (I'm assuming the occupation is the occupation in 2008)

For the Bona Fide residence date - should I put her date of birth as she has always qualified with her parents being UK citizens? 
Is there any advantage to revealing that she is also a UK citizen?

She was paying in to a work pension, does this get declared anywhere? 

We sold a house for about 10k more than we paid for it - does this get reported anywhere on a form?

Many Thanks for reading this far! Time for a whiskey. 

Al


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## Bevdeforges (Nov 16, 2007)

> I assumed that if she files an FBAR without having filed taxes then it would raise a few red flags.


No, not really. FBAR and income tax filings are two entirely separate things. You must file an FBAR if you have foreign (i.e. non-US) bank accounts or signature authority over accounts that in the aggregate total $10,000 or more. If she hasn't filed an FBAR before, she's supposed to backfile for 6 years - however, only for those years for which she meets the requirements.

You only have to file income tax returns for those years in which your worldwide income exceeds the filing threshold for your filing status. Unless you have some particular reason to file jointly, your wife's status would normally be "married, filing separately." For that status, she'd need to have between $3500 and $4000 in income in her name. (She does not have to declare anything you make in your own name.) 

If she has indeed had a filing obligation, she can use the Streamlined Compliance Procedure, which requires filing the current year (2014) and only 3 prior years. Streamlined Filing Compliance Procedures and then click on the link on the left side of the page for taxpayers residing outside the US. You may also want to look at IRS Publication 54 Publication 54 (2014), Tax Guide for U.S. Citizens and Resident Aliens Abroad but it really sounds as if she does not have a filing obligation (and in fact, they say NOT to file if you do not meet the filing thresholds and are not due a refund).

However, just to take your questions in order:



> Do I fill in the address we were living at in 2008, or our current address? (I'm assuming the occupation is the occupation in 2008)


If you are back filing now, you fill in the address where you are currently living. Occupation would be for the year you are filing. However, under the Streamlined compliance process, you would only backfile to 2011, not 2008.



> For the Bona Fide residence date - should I put her date of birth as she has always qualified with her parents being UK citizens?


It honestly doesn't matter. I'd put the year she left the US.


> Is there any advantage to revealing that she is also a UK citizen?


I believe there is a question on the 2555 form about citizenship. Put "US/UK" - that should handle it. (Explains why she doesn't have a visa.)


> She was paying in to a work pension, does this get declared anywhere?


No.



> We sold a house for about 10k more than we paid for it - does this get reported anywhere on a form?


Not if it was your personal residence. There is an exemption for the first $250,000 of gain on the sale of a personal residence, so you are well under that figure.

That should get you started. Come back as specific questions develop.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

raidy said:


> She was paying in to a work pension, does this get declared anywhere?


A little elaboration here from Bev's response since I'm not sure if "this" refers to the work pension or the contribution(s) to the work pension. It also sounds like a "defined contribution" retirement account, so I'll provide a full explanation with that assumption.

1. The contributions do not need to be reported any more than, say, buying a cup of coffee does. (Bev's "No.") However, when reporting employment and other income you would report gross income amounts, before your contributions to pensions.

2. The work pension _account_ might need to be reported in two ways:

(a) FinCEN Form 114 ("FBAR") and/or IRS Form 8938 ("FATCA") and/or IRS Form 3520/3520-A ("Foreign Trust") -- these are the financial reports with no inherent tax consequences;

(b) Unless the U.K.-U.S. tax treaty says otherwise (and it very well might, so I'd check), the passive income (if any) received in that account during the year could be reportable as income -- interest, dividends. If the account contains what the IRS considers Passive Foreign Investment Company (PFIC) holdings (most non-U.S. mutual funds, for example) then generally the _unrealized_ gains would have to be reported annually via something called QEF elections, though that also resets the cost basis every year.


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## raidy (Feb 17, 2015)

Thank you very much Bev and BBCwatcher - your replies and information are really, really, helpful. 

We are working through it all now, and it doesn't seem nearly as bad as it did yesterday! 

Thank you!!


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## KRM2015 (Jan 21, 2015)

I'm in a similar situation. My wife is in the process of changing the name on her SSN to her married name this year. When filing back taxes, what name should she put on the returns for years before we were married, her name then or her name now?

Also, do you think this is the right way around to do things? We don't want to flag her up by changing the name on her SSN before she has caught up with her taxes


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## Bevdeforges (Nov 16, 2007)

It's generally safest to file your US tax returns in the name that is currently used for your SS record. However, they don't appear to actually check this until and unless there is a problem (most notably a potential identity theft).

Then again, they do keep track of your given name, even after you change it to a married name. So, if she were to file the back years with her given name, even after changing it on her card, it shouldn't present a problem. I filed in my given name for close to 18 years after my divorce before I got around to making the name change on my SS record. 
Cheers,
Bev


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## KRM2015 (Jan 21, 2015)

If you are using the Streamlined procedure for catching up on back taxes, if you don't meet the requirements for any of the 6 years FBARS do you need to file nil returns for these or do you just simply ignore that part of the requirements?


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## BBCWatcher (Dec 28, 2012)

You don't file "nil" returns. You have two possible choices:

1. Don't file (since you're not required to);
2. If you have non-U.S. accounts, file a truthful report listing those (even if the total never met the filing threshold).

I'm not even sure if the BSA e-filing system will accept reports like #2, but if you want you can try. I recommend option #1.

Either way, follow the IRS's instructions for the Streamlined Program. If, for example, they require you to provide an explanation if you haven't filed FBARs, provide the explanation. (If they don't then don't.)


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## raidy (Feb 17, 2015)

Thanks for the help, we have almost filled in all the forms now!

I have a question on pensions:

The pension is a local government employer defined benefit scheme. Is it exempt from FBAR and IRS due to UK/US tax treaty?

If it's not exempt then:
You said I don't report the contributions - does that include employer contributions? 
(I put total gross income on Form 2555 - does that cover the employee contributions?)

Do I need to report the work pension account? (not sure how I would as I don't get an account number and not sure how much is in the account, it could contain everyone in the schemes money.)

Thank you for the advice,

Alex


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## BBCWatcher (Dec 28, 2012)

raidy said:


> The pension is a local government employer defined benefit scheme. Is it exempt from FBAR and IRS due to UK/US tax treaty?


Defined benefit pensions are generally exempt from FBAR (FinCEN Form 114) reporting, but not because of the tax treaty. FinCEN Form 114 is only a financial report, and the tax treaties never have any bearing on whether you need to make those reports.

A defined _benefit_ pension is a simple promise (hopefully kept) to receive a guaranteed annuity (or guaranteed lump sum payout) in the future (e.g. "$XXXX per month plus inflation adjustments starting at age YY for life"), _no matter what happens in the financial markets, with interest rates, etc._ These are also sometimes called "traditional pensions." Generally that's not a financial account within the meaning of FinCEN Form 114. (You don't have "signature authority" over that type of account.) However, if there's any doubt, err on the side of reporting.

As for the IRS (tax consequences), generally there aren't any unless and until the pension starts getting paid. Then it's income. You have to report the pension income to the IRS, but whether it's taxed or not is a separate question. The tax treaty may or may not bear on that question.



> You said I don't report the contributions - does that include employer contributions?


Now you're beginning to describe a defined _contribution_ pension. Which is it? 

Generally you do not report the employer's contributions. The employer's contributions will be treated as deferred income when you start receiving the pension, unless the tax treaty says otherwise.



> (I put total gross income on Form 2555 - does that cover the employee contributions?)


I assume so, unless you're able to print money in your basement. 

Buying a concert ticket, a cup of coffee, a pair of shoes, $5/month more in a future annuity -- _spending_ money is not income. Income is income.



> Do I need to report the work pension account? (not sure how I would as I don't get an account number and not sure how much is in the account, it could contain everyone in the schemes money.)


Do you have "signature authority" over that account? It doesn't sound like it. So it doesn't sound FinCEN Form 114 reportable.

Are you receiving pension income from that account? Yes, that's reportable to the IRS as income. Whether it's taxed or not is a separate question.


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## Bevdeforges (Nov 16, 2007)

To keep it simple, if your pension is one where you find out what your benefit will be when you put in for your retirement, and you don't get any sort of annual statements giving you "your" balance in the fund plus any earnings on "your" balance for the year, it's pretty safe to assume that you don't have to report it on your tax returns or on any of the FBAR/FATCA forms.
Cheers,
Bev


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