# Please evaluate. Streamline or QD



## eyeexpat

Hi,

*Background*
i'm a non-immigrant in US and came to US in Nov 2010. Recently only I came to know about FBAR filing requirements and meaning of U.S. Person. Being new to country I followed advice of others where they mentioned foreign accounts & FBAR are for U.S Citizens and Green card holders and honestly didn't know U.S Person includes non-immigrants too and also there is never an intention to evade tax. If you see my data it shows that it is completely lack of awareness and misunderstanding.

now I know the mistake and did lot of research on this and gathered my account data too. I'm unable to decide whether I should go streamline or quiet discolsure.

*Here is my situation:*
I met FBAR requirements Starting 2012 tax year ( even though i'm in US since Nov 2010)
For 2012 yr:
max account bal is 15k, tax owed is ~ $30
2013 yr
max acc bal is 22k, tax owed is ~35
2014 yr
max acc bal is 59k, tax owed is ~280

*Why i'm unable to decide to go with streamlined?*
Streamline incurs 5% penatly, roughly $3k and cost to file using cpa(which I enquired) is $3.5k. Total cost would be $6.5k for a genuine honest mistake.

Even If I file streamline process myself, cost would be $3k, though my taxes owed are less than $400 for all missed years.

*Why i'm unable to decide to go with QD?*
1) all the articles and blogs I read strictly advised against QD. But note all blogs and articles are owned by tax attorneys.
2)None of my friend circle has any experience in these matters and 70% of them also failed to file FBAR due to lack of awareness and complexity.
3)Don't find any data or experience that QD is safer in my situation.

*please help in answering my questions*
1) Why QD is discouraged highly when it's a legal way to amend returns?
2) If I go into QD, will my case become into willful? (one of CPA said i will fall into willful case if I do QD as i'm trying to avoid 5% penalty)
3) Is there anyone in the forum had gone with QD?
4) How IRS will distinguish streamlined amended returns vs QD amended returns to qualify for audit?
5) Is it worth going with QD in my case.
(possible scenarios with QD audit
a.no FBAR penalty
b. non-willful penalty 10k per account per year. capped at 50% max balance as per recent guidelines.
c. non-willful penalty 10k for all years but requires manager/supervisor override.
(reference : unable to post link for recent guidelines due to my post count is less than 5)

Thanks


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## BBCWatcher

So you are missing FBARs (FinCEN Form 114s, or its predecessor form) for 2010 and 2011, and you have some undeclared interest income for both reported and unreported years -- is that correct?

I hate the term "quiet disclosure" (and have said so many times). It's ordinary late, amended filing per the normal processes, that's all. There's nothing quiet or loud about it. It happens all the time. Individuals and even major corporations frequently make inadvertent mistakes. There are standard processes to correct those errors, and there's no problem with that.

The IRS's Streamlined Programs are amnesty offers. If the IRS's amnesty offer is a better deal, there's no harm in asking for that deal. If it's not a better deal than ordinary late, amended filings, then there's no requirement to request the IRS's deal. It sounds like you've run a calculation, figured out that the Domestic Streamlined Program isn't a great deal for you, and the standard, regular path is better. That's fine!

Whichever path you choose, please make sure you're correct, complete, and truthful this time -- try as hard as possible to be that. The IRS and Treasury tend to be understanding if you've made one set of errors and corrected them all, but they can start to get more upset if the truth is perpetually running ahead of you. ("I'll stop drinking this time, honest.")

When you're calculating the tax still due on income that you didn't report to the IRS, be sure to include these factors:

1. Foreign Tax Credit. If you paid income tax on your bank interest, for example, then ordinarily you should be able to take a credit for that (IRS Form 1116). In Japan, for example, a 15.315% tax (current rate) is withheld from interest _before_ it is paid to the account holder. So let's suppose you had 10,000 yen of interest paid, after withholding, on a Japanese bank account in 2014 -- the total amount you see credited to your account for that year. That means the gross interest income was 11,808 yen (10,000 divided by (1 minus 0.15315)), and the foreign tax you paid was 1,808 yen. The IRS's yen exchange rate for 2014 was 110.101, and we can use that to convert to dollars (or any other reasonable, published rate that makes sense in the circumstances and is used in consistent fashion in your tax return). When we do that we get gross interest paid of $107.25 and foreign tax paid of $16.42. So in this example you would report $107.25 on Schedule B as interest income and take a foreign tax credit of $16.42 on IRS Form 1116. All that make sense? A lot of countries have tax on interest that they withhold before you even see the interest credited to the account, and generally the tax withheld can be credited on your U.S. tax return.

2. When you're past due paying tax, penalties and interest can accrue. The penalties and interest aren't actually too bad -- your credit card company would be much, much less kind if you miss a payment -- but you should take those into account in your calculation.


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## iota2014

> So you are missing FBARs (FinCEN Form 114s, or its predecessor form) for 2010 and 2011, and you have some undeclared interest income for both reported and unreported years -- is that correct?
> 
> I hate the term "quiet disclosure" (and have said so many times). It's ordinary late, amended filing per the normal processes, that's all. There's nothing quiet or loud about it. It happens all the time. Individuals and even major corporations frequently make inadvertent mistakes. There are standard processes to correct those errors, and there's no problem with that.


No problem provided you don't owe any tax. The OP has said he does owe a very small amount of tax, which would have to be paid at the same time as the filing. Processing the payment would presumably require scrutiny of the filing, whereas zero-tax quiet filings have a much better chance of never being looked at. Is my guess.

I used quiet disclosure to backfile, but I didn't owe any tax so it was an easy choice. Not sure what I would have done, had I been in the OP's position.


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## iota2014

> 1) Why QD is discouraged highly when it's a legal way to amend returns?


Harder for the IRS to sift through the acres of minor corrections, to pluck out the ones that might result in revenue if pursued. They don't mind QD,if no tax is owed.



> 2) If I go into QD, will my case become into willful? (one of CPA said i will fall into willful case if I do QD as i'm trying to avoid 5% penalty)


Don't know, sorry - but it does sound like the CPA trying to scare you.



> 3) Is there anyone in the forum had gone with QD?


Yes, but I didn't owe any tax, and because I'm located outside the US, I ran no risk of being suspected of trying to dodge the 5% penalty, as that does not apply for non-US-resident Streamliners. So QD was not risky for me.



> 4) How IRS will distinguish streamlined amended returns vs QD amended returns to qualify for audit?


Don't know, sorry.



> 5) Is it worth going with QD in my case.


Don't know, sorry.


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## BBCWatcher

iota2014 said:


> No problem provided you don't owe any tax.


Then why does the IRS have published penalties and interest? Why do the instructions for IRS Form 1040X tell you exactly what happens?

Assuming no IRS notice and that the error was inadvertent (but not negligent), the late payment penalty is 0.5% per month, rounded up, up to a maximum of 25%. The interest charge is currently 3% per year. And that's that. IRS Publication 17 has more information, and (as mentioned) so do the instructions for IRS Form 1040X.


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## iota2014

BBCWatcher said:


> Then why does the IRS have published penalties and interest? Why do the instructions for IRS Form 1040X tell you exactly what happens?
> 
> Assuming no IRS notice and that the error was inadvertent (but not negligent), the late payment penalty is 0.5% per month, rounded up, up to a maximum of 25%. The interest charge is currently 3% per year. And that's that. IRS Publication 17 has more information, and (as mentioned) so do the instructions for IRS Form 1040X.


Yes they publish the penalty structure but that's not guaranteed to be that



> Q10. What if the taxpayer has already filed amended returns reporting the additional unreported income, without making a voluntary disclosure (i.e., quiet disclosure)?
> A10. The IRS is aware that some taxpayers have attempted so-called “quiet” disclosures by filing amended returns and paying any related tax and interest for previously unreported offshore income without otherwise notifying the IRS. Taxpayers who have already made “quiet” disclosures may take advantage of the penalty framework applicable to voluntary disclosure requests regarding unreported offshore accounts and entities. Those taxpayers must send previously submitted documents, including copies of amended returns, to their local CI office by September 23, 2009. (See Q&A 5).
> Taxpayers are strongly encouraged to come forward under the Voluntary Disclosure Practice to make timely, accurate, and complete disclosures. Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.
> The IRS has identified, and will continue to identify, amended tax returns reporting increases in income. The IRS will be closely reviewing these returns to determine whether enforcement action is appropriate.


https://www.irs.gov/uac/Voluntary-Disclosure:-Questions-and-Answers

This refers to the earlier "amnesty" programme, not Streamlined, so may have changed.


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## BBCWatcher

That's correct, but that doesn't apply to the present case. We are assuming the error was accidental, inadvertent. All of that is explained in the instructions for Form 1040X.


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## eyeexpat

BBCWatcher said:


> So you are missing FBARs (FinCEN Form 114s, or its predecessor form) for 2010 and 2011, and you have some undeclared interest income for both reported and unreported years -- is that correct?


I'm not missing FBAR's for 2010 & 2011. The years which I missed are 2012-2014 and I have mentioned the balances. Sorry, my post isn't clear and for late reply.


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## eyeexpat

BBCWatcher,
Can you please tell me what do you think about my case considering the taxes I owe? 
my estimated taxes owed for 2012-14 is below $400 but streamline process penalties costs me an extra $3k. Is it worth taking a risk to go with late-filing?

Thanks for your inputs


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## BBCWatcher

Why did you miss 2012-2014, after you were so careful for 2010-2011? My opinion would depend in part on the answer to that question.


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## eyeexpat

BBCWatcher said:


> Why did you miss 2012-2014, after you were so careful for 2010-2011? My opinion would depend in part on the answer to that question.


i'm in US since 2010 only and my balances were low(< 10k) in 2010-11 and hence not required to file FBAR.

my balances only started growing in 2012(please see amount figures in original post)


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## eyeexpat

> Here is my situation:
> I met FBAR requirements Starting 2012 tax year ( even though i'm in US since Nov 2010)
> For 2012 yr:
> max account bal is 15k, tax owed is ~ $30
> 2013 yr
> max acc bal is 22k, tax owed is ~35
> 2014 yr
> max acc bal is 59k, tax owed is ~280


when I said I met FBAR in 2012, I mean to say i became eligible to file FBAR for 2012 because my balance is above $10k, but I didn't file FBAR till date due to lack of understanding requirements and complexity


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## BBCWatcher

OK, so do you have unreported interest income for 2010 and 2011 also? And is this all Indian bank interest from ordinary bank accounts there?


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## eyeexpat

BBCWatcher said:


> OK, so do you have unreported interest income for 2010 and 2011 also? And is this all Indian bank interest from ordinary bank accounts there?


Not for 2010 and for 2011, tax owed is ~ $5. very negligible amount.

i missed FBARs for 2012-14 and have unreported interest income for those years,
taxes owed on those unreported interest income is
2012 = ~30
2013 = ~35
2014 = ~280

Note: All unreported income is from indian bank saving accounts and time deposits. I'm not required to file tax return in india for 2011-14 because every year my interest income is below the tax exemption limit of $4500. 

Thanks


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## Bevdeforges

In your situation, I would just start filing for the current year (i.e. 2015) with all the foreign interest and continue to do so going forward. They really aren't going to hassle you over those paltry amounts. If you're worried, you could file an amended 2014 return to pay the additional tax and interest. But at this point, I wouldn't bother. 
Cheers,
Bev


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## eyeexpat

Bevdeforges,
Thanks for advice. One of CPA also suggested the same to just start filing from this year(i.e 2015).
But my worry is if I don't do back filing of FBAR and when audit happens, will I be found will-ful or non-willful?


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## BBCWatcher

The FBARs really are a problem, I'd say. I think I disagree with you, Bev. There's a gap there, and gaps are "odd."

So the answer to my question is yes. 

As I understand it, Indian time deposits (at least) are subject to withholding tax. That is, the interest you're paid is _after_ the Indian government deducts tax. If I am correct, then that tax can be reported through the U.S. Foreign Tax Credit. That is, you would calculate the _gross_ interest paid, report that on your U.S. tax return, and take a Foreign Tax Credit (IRS Form 1116) to reflect the foreign tax paid. That will at least drive down the amount of U.S. tax owed and might even zero it out.

Have you looked at the FTC as part of your calculation for U.S. tax still owed for 2010 through 2014 (inclusive)?


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## eyeexpat

BBCWatcher,
My accounts are not subject to withholding tax as my a/cs has Indian tax id attached. Generally time deposits are subject to withholding tax if the time deposit a/cs doesn't have Indian tax id.

and as I said, I didn't had to pay tax because my interest income is so low and below the indian tax exemption limit ~$4500 

what do you suggest?late filing or Streamline?


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## BBCWatcher

If I were in similar circumstances I would opt for ordinary late/amended filing.

I don't agree with Bev on this one. I think it would be very odd (and potentially noticed) to have a FinCEN Form 114 gap, and moreover we haven't heard of anybody getting assessed penalties for voluntary, unprompted late filing of FinCEN Form 114s. That'd be step one (as it is with the Streamlined Program), then you can take a few more days or even a week or two to work on the IRS side (2014 and prior). I would clean up all the tax years since the statute of limitations probably hasn't expired.


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## Bevdeforges

As with all reporting to the IRS or Treasury dept. it comes down to a matter of "materiality." If the amounts involved aren't significant or if you only exceed the threshold by a small amount, chances are it won't matter if you have a gap in your reporting. It's up to you, however, to determine what you can live with. And, if you're resident in the US, it's probably a bit more of an issue than if you are resident overseas.

The IRS doesn't swoop down on little mistakes or omissions, arrive at your door with a full SWAT team and haul you off to debtor's prison. If they find that you've made some sort of mistake they consider "material" they will be in touch and you'll have an opportunity to work it out and pay off the amount (with interest). 

With the FBARs, if your balance is floating just slightly above the threshold, and then the exchange rates suddenly change, it's perfectly understandable that you might not be subject to filing for a year or two. 

When they talk about "willfully" neglecting to file or "willfully" avoiding taxes, they are looking at significant sums of money and specific acts designed to hide money, income or accounts from view.
Cheers,
Bev


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## BBCWatcher

I agree with all that, but there really are substantial published penalties for failure to file FBARs, and all it takes is a letter in the mail from the U.S. Treasury asking whether those missing FBARs are to get started down that particular penalty path. I wouldn't discount that possibility. So I recommend getting those missing FBARs cleaned up. The tax still owed on the interest income is the lower priority compliance step, in my view.


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## eyeexpat

BBCWatcher,
With late filing approach, once I send amended tax returns will they question why I didn't go with streamline path and will they charge higher penalities then 5% streamline penalty?

FYI, there's a new penalty mitigation guidelines which irs examiner needs to follow. please see the Exhibit 4.26.16-1 in the below link
https://www.irs.gov/irm/part4/irm_04-026-016.html


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## BBCWatcher

Not per se. You're not required to take any specific amnesty offer. The IRS simply falls back to standard rules for assessing penalties and interest.


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## freedom1

To make a long story short, I did what is considered a quiet disclosure.

For the year 2012, I didn't file an FBAR.
I had income and interest in Canada that I had taxed in canada *combined* with my US income.

Ultimately I filed an amended return for 2012. I owed 1400 dollars to the IRS and another 1100 or so to New Jersey. I also filed an amended return with Canada and got $8000 back.

I did this in June of 2014. I kept receiving letters acknowledging my 1040X and I lived on alcohol.
One day in Feb 2015, I called the IRS and an agent said - "Oh sorry I do see your amendment and I am adjusting it".
A week later, I was asked to pay send $50.58 in back interest. I did that. My very expensive CPA told me that dozens of his cases haven't heard anything in voluntary disclosure program and he doesn't think that QD is a problem for small amounts.

Almost 1 + 1/4 years have passed since and I've done everything by the book. I haven't heard anything and I assume that I won't.


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