# Streamline filing



## madeamistake (Jan 16, 2018)

Hello

I am about to enter the streamline filing scheme for years 2014 - 2016. I would welcome advice on whether the IRS will believe I was non-wilful:

2014 - I tried to the do the tax return myself. I honestly tried my best but it was so confusing. I realise I have omitted: £40 of UK bank account interest and about £60 of UK dividends. This was down to pure ignorance. 

2015 - I sent information to a tax adviser to file for me. However I now realised that I ommitted: the same dividends I didn't realise I had to declare in 2014 (value less than £100) and again the bank account interest. I also didn't realise that I had to declare some tax free living allowances that I receive as part of my job working as a British diplomat. These are completely tax free in the UK and do not appear on my P60. It honestly never even crossed my mind that they counted as 'earned income' in the US because my employer certainly does not view them as that, who are at pains to tell staff that they should not be considered as part of the 'pay and benefits' package we receive. My employer also paid me a transfer grant for moving overseas and paid for my accommodation and utilities. Even if I now declare this 'earned income' I am still below the Foreign Earned Income Exclusion. But it looks like I underreported my income by about 60%, which surely looks a bit dodgy? 

2016. As above but I remembered the bank interest this year. Again the living allowances and accommodation were not declared for the same reasons as above. I believe I will be just under the Foreign Earned Income Exclusion once I have fully declared them. 

2017. Not yet filed so I will be completely in compliance for this return. 

FBARs:
2014 + 2015: I forgot to include a Cash ISA in the UK (value £600 in 2014, £11,000 in 2015) and the fact that I was a cardholder on my husband's bank account in South Africa (I didn't consider it a joint account but technically I had a 'financial interest')
2016: Again I didn't realise I had to declare the Cash ISA until my tax adviser brought it to my attention. The South African bank account was closed by this stage. 

So there is quite a catalogue of errors, none of which result in me owing any tax, but I am worried that the IRS will say 'you knew you had to do an FBAR, why did you do it wrong?' or 'why didn't you declare your allowances to your tax adviser?' or 'why didn't you double check the definition of earned income on our website?'. However I was in full compliance with the UK tax authority so I honestly believed it was all fine - and none of these allowances/housing expenses needed to be declared to them. 

I am really very paranoid about this. My tax adviser says it will all be fine but I am absolutely terrified. 

Thanks


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## madeamistake (Jan 16, 2018)

Some more information to add: 

I only realised I should have been filing US tax returns in early 2015 (when I was 9 months pregnant) so on the advice of someone I spoke to on the phone at the IRS I wrote a cover letter and submitted returns for the last few years (I think from 2010) and FBARs. I had never even heard of things like 'offshore disclosure' or 'quiet disclosure' or 'streamline' or anything like that. I honestly tried to get back to compliance on my own but I clearly mucked it up, which is why I am now ending up spending £6000 on tax advice to try and put it right through streamline.


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## Bevdeforges (Nov 16, 2007)

Frankly, the amounts of the errors on the interest strike me as not nearly substantial enough to bother filing amended returns.

And I see no reason to go back and amend those prior years. First of all, it can be argued that, under Article 19 of the US-UK tax treaty that the US has no claim on taxing your diplomatic income (as long as you have dual US-UK citizenship). The "living allowance" can and probably should be included as "other remuneration" that would make it not taxable by the US. Or, if you consider it reimbursement for expenses (of living overseas), your expenses would wipe out the "income" anyhow. In regular US tax rules, you're entitled to an allowance for expenses of spending time "away from home" - and given that you've claimed you were resident in the UK while performing your diplomatic duties, you seem to meet all the requirements to just let it lie as you originally filed.

In any event, if you filed returns for those prior 3 years, you should just be filing amendments - not going into the streamlined program. That's for people who just found out they are supposed to file. The only penalty for amending (or late filing) is a % of the taxes due - which if you owe no taxes, you owe no penalty.
Cheers,
Bev


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## madeamistake (Jan 16, 2018)

Wow, that's quite amazing. 

So remuneration for 'government service' doesn't need to be declared at all? That would include even my basic salary which I have been declaring, right?

To be clear, I am posted overseas as a British diplomat - I couldn't be a diplomat in my home country, if that makes sense.


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## madeamistake (Jan 16, 2018)

My tax adviser is maintaining that the income still needs to be reported on the form. Hmmmm.


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## Bevdeforges (Nov 16, 2007)

madeamistake said:


> My tax adviser is maintaining that the income still needs to be reported on the form. Hmmmm.


A paid tax adviser is obviously going to take the most conservative position - if only to cover his or her own backside. 

The truth of the matter is that the IRS has little or no way to check or validate foreign source income, and they tend to let it slide if it's obvious (for any reason) that it isn't subject to tax anyhow. Whether you use the FEIE to "exclude" it or just don't bother to report it because it's "not taxable" they're just going to register that you did file and not waste any more time on it than that.

Going through a paid tax adviser means that the adviser has to protect his or her standing with the IRS, so if in doubt, they're going to report everything and then find a way to exclude or credit it. As long as the tax due still turns out to be 0 it's kind of a moot point - other than the bill that the tax adviser presents you with. 

If it helps you sleep at night, then by all means amend the returns and get it all behind you before you renounce. But it's not all that critical to do so, particularly if you don't owe any taxes (or just a small amount) on the back filings.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

madeamistake said:


> Wow, that's quite amazing.
> 
> So remuneration for 'government service' doesn't need to be declared at all? That would include even my basic salary which I have been declaring, right?


Not familiar with the US-UK tax treaty, but in general most of these treaties with the US have a savings clause that basically says that the US can tax its citizens as if the treaty was not in effect, save a few specific articles.

In the Australian treaty (which is really really poor) government remuneration (except for pensions) IS taxable.

I have not read the UK one, not relevant to me, but you should be able to validate the treaty position.


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