# Quiet Disclosure or Streamlined Procedure



## isacluv

Hello - I realize this question has been posted quite a few times and I've read many of those posts. I'm trying to determine what is best for my situation which is described as follows.

*Background*

I moved from India to the US end of 2006 and have been a US resident since then. I was previously working in India and had a couple of bank accounts and equity linked investments there. The total value of these savings would have been around USD 40,000. 

After moving to the US, between 2011 and 2012 I transferred all my US savings at that time (approx USD 400,000) to my India accounts. One was an old resident account and the other was a NRE account opened in 2012 . I had transferred this money to use for buying a property in India. However, the deal could not go through and my money was left lying in India - some of it as CDs, some of it in the checking account and a portion invested in mutual funds till the time I could use it for purchasing the property. 

*Current Situation*

I realized recently that I had made a few mistakes not knowing about the US tax laws. I have been filing my taxes through turbotax and never understood the following three things

1) I was not aware that I was supposed to file US tax on that money in the India account. That is, the interest on the money sitting in the banks. 

2) I did not know about filing FBARs for these India bank accounts

3) I also did not know I was not supposed to keep the resident account at ICICI Bank. In fact, my father has been filing India income tax returns for me on the interest earned on the resident account. On learning this, I have just converted this resident account into an non-resident account. 

So at this point I have liquidated all my mutual fund holdings and left with two non resident accounts with a total value of around $450,000. My total earning on the principal in dollar terms has been minimal because when I transferred the money to INR in 2011/2012 it was at a exchange rate of around 49 INR and now it is 62 INR. However, I will need to go through the exact records to determine what the exact income earned has been. 

*Path Forward*

At this juncture, I want to make sure I'm compliant on my US taxes and the FBAR filings. I also want to transfer all the money back to the US and do not intend to use it in India any more. And then will want to close all those accounts. 

I'm trying to figure out what is the most effective way of going about doing it. I'm wondering if back filing for the past 6 years and filing FBARs for all those years is the right thing to do or doing this through the streamlined procedure is better. I just feel awful having to pay a penalty given 90% of this is post tax money I earned and saved in the US and needlessly transferred to India.


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## BBCWatcher

1. With respect to FBARs (FinCEN Form 114), we have not heard any reports of individuals incurring any penalties for late filing as long as they state a truthful excuse for late filing ("I didn't know" is popular) and that the late filing is unprompted and voluntary, meaning the U.S. Treasury Department hasn't contacted you first about the matter. So that's not a problem. You also presumably have IRS Form 8938 ("FATCA") reports for a couple years to file given the high balance. Bear in mind Form 8938 did not exist before tax year 2011, so you cannot be missing your FATCA reports for 2010 or prior years.

2. Issue #3 is between you, ICICI, and the Indian government, if at all. The U.S. government isn't going to care. (Though see below for how this might benefit you.)

3. With respect to issue #1, interest is straightforward. The most common option is to file amended tax returns (1040X), declare the interest (converted to U.S. dollars using past exchange rates for each of those missing years), take a Foreign Tax Credit (Form 1116) for Indian income tax paid (if any) on that interest, add Form 8938 if applicable (2011 and later, and only if you met the filing threshold), and pay the remaining tax, interest (on the tax), and late payment penalty. The fact ICICI thought you were a resident is helpful, as I understand it, because they might have withheld Indian tax from your interest.

Non-U.S. mutual funds are a bit more complicated. They're probably PFICs (Passive Foreign Investment Companies) from the IRS point of view, and there are some particular rules about how you can get caught up on those on the income tax side. However, here you're going to be very well helped for the reason you point out: falling value of the Indian rupee. Capital gains (QEF elections or otherwise) have to get translated back into U.S. dollar terms when reported to the IRS, so a falling rupee looks terrible in U.S. dollar terms, but that's good on an IRS tax return.

Even though you have considerable savings it does not seem like you're going to have a _huge_ amount of delinquent U.S. tax to settle. Here's what I'd recommend, in summary:

A. File those late FBARs (FinCEN Form 114s). File the 2014 FBAR by June 30, 2015, and keep filing annually if you meet the filing threshold (and are required to file).

B. Try to take a reasonable estimate of what you think the outstanding tax, interest, and penalties (if applicable) will be on that undeclared interest and on those mutual funds. Apportion the interest to each of the missing years. To keep it simple, since you've liquidated the mutual funds, treat them like PFICs (without QEF elections, since you didn't make those) and see what you get (translated into U.S. dollars). If that number is "small" (probably), file and pay what's due (if anything). If that number is "big," ask for mercy (such as the Streamlined Program).


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## Bevdeforges

I'm assuming here that you've been filing US tax returns every year since your arrival. If not, that changes everything. However first of all you should review the terms and procedures for the Streamlined program for US residents: U.S. Taxpayers Residing in the United States

Living in the US, you face a more significant and slightly different risk if the IRS should become aware of your situation before you've had a chance to rectify it. (Although it will still depend on how much they reckon you may owe.)

Frankly, the IRS cares little about the resident vs. non-resident account issue. That's between you and the Indian government. However, the taxes you paid on earning from that account should be eligible to be offset against any US tax liability.

But under the Streamlined procedure, you only backfile tax returns for 3 years (plus the current year). It's the FBARs where you have to go back 6 years. If you qualify, the Streamlined program is probably the way to go. 
Cheers,
Bev


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## isacluv

BBC and Bev - thanks for the detailed responses. This is enormously helpful. I'm in the process of calculating what the numbers (tax if any in each of the years come out to be). 

Bev - Yes absolutely I have been filing my US tax returns each year....just that I had no clue I was to be reporting assets/interest from my home country. From the website yes I am eligible for SDOP (US resident for last 3+ years, have filed taxes but non-willfully not included foreign assets. Two additional questions

1) It looks like BBC you're recommending simply backfiling (QD) if the amount is small and Bev you're recommending streamlined regardless? What would IRS generally consider "small". If I do QD do I have to go back till 2006 to file the amended tax returns (assuming there was a taxable income each of those years). Do CPAs typically understand foreign income calculations...I'm thinking of hiring one since I've never done this type of calculation before.

2) Can I file the past 6 year FBARs right away and then file the amended tax returns over the next two months or should I time them so they are done simultaneously. I ask because if I report the FBAR right now, will the IRS pursue that right away from a tax return standpoint.

Thanks much


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## BBCWatcher

You can backfile FBARs right away, yes. Those go to a different part of the Treasury Department, not the IRS. Whether you end up in Streamlined or not, it's still the same process.

I'm a bit confused about whether you'd qualify for the overseas or domestic version of the Streamlined Program. I was assuming domestic -- a good program though less attractive than overseas. Read the program details to see which program, if any, you qualify for.


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## Bevdeforges

I'm actually not recommending either approach. It's just that if you qualify for the Streamlined program, you only have to file the three prior years, not all the way back to 2006 or whatever.

I would, however, be careful about selecting a CPA or other tax advisor. Be very certain they have experience with international issues, because most don't. The other caveat is that it's getting late in the tax season to find a new tax advisor. March is when things really start to pick up - with April being complete and utter chaos for anyone who's any good. You may actually want to prepare your 2014 return to get it filed on time, and then start interviewing potential advisors for the back filings in May or June as their busy season subsides. 

In any event, the IRS generally doesn't swoop down on those with errors or problems all that quickly. First they need to become aware that there IS a problem. And then they have to decide that the amount of money involved warrants their time and attention.
Cheers,
Bev


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## isacluv

BBC - I would fall under the streamlined domestic program (not the streamlined foreign) since I've been a US resident since 2006. I read the eligibility and it simply says that 1) if the omission was non-willful (negligence, ignorance etc), 2) a civil examination has not already been initiated and 3) a tax identification is available and must have file returns for the past 3 years, one qualifies. Is there something else I'm missing in terms of eligibility criteria?

Bev - thats a good point. My only concern is if I file the 2014 return now and then wait for a few months (till May say) to file the streamlined, is there a small chance an examination could be initiated based on my 2014 return before I get a chance to begin the streamlined.


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## BBCWatcher

Then you have to consider whether the domestic Streamlined Program's low but non-zero penalties are more attractive than "business as usual" (normal late/amended filings), hence try to do the math first.


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## Bevdeforges

On filing the 2014 return now, just remember that the due date isn't until April 15th, and lots of people file for extensions, so practically speaking, the IRS doesn't normally have all the current year returns until much later in the year. Unless you make an obvious mistake (math error or something) on your 2014 return, the fact of filing it late is more likely to draw attention than just filing a timely return.

If necessary, you can always include a copy of what you filed for 2014 with your Streamlined back filing (marking it as a "copy" so as to leave nothing to chance).
Cheers,
Bev


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## nypasser

Can you recommend a good CPA?


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## Bevdeforges

Depending on your needs and where you are located, you may want to try contacting an Enrolled Agent rather than a CPA. Enrolled Agents are certified by the IRS for dealing with tax matters (and they can represent you before a tax court, should things go that far). Some EAs are CPAs while others are just tax specialists.

NAEA | Powering America's Tax Experts is the national society for enrolled agents. If you click on "Find an EA" on the menu bar in the upper right of the screen, you can get a search function for locating an EA in your area, and if you use the "advanced search" function, you can search by specialty. 

Otherwise, you need to ask friends, neighbors and colleagues for a good recommendation based on your own needs.
Cheers,
Bev


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## nypasser

Thx Bev. 

Can anyone recommend a specialist enrolled agent/ CPA and separately a tax attorney for a UK national living in US who wants assistance filing the streamlined domestic offshore program?


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## nitinkhosla79

*how did you handle this?*

Hi. I am curious to know what did you do? I am in same boat as you were. And now deciding what to do - streamlined or quiet disclosure for last year.

Kindly do reply.





isacluv said:


> Hello - I realize this question has been posted quite a few times and I've read many of those posts. I'm trying to determine what is best for my situation which is described as follows.
> 
> *Background*
> 
> I moved from India to the US end of 2006 and have been a US resident since then. I was previously working in India and had a couple of bank accounts and equity linked investments there. The total value of these savings would have been around USD 40,000.
> 
> After moving to the US, between 2011 and 2012 I transferred all my US savings at that time (approx USD 400,000) to my India accounts. One was an old resident account and the other was a NRE account opened in 2012 . I had transferred this money to use for buying a property in India. However, the deal could not go through and my money was left lying in India - some of it as CDs, some of it in the checking account and a portion invested in mutual funds till the time I could use it for purchasing the property.
> 
> *Current Situation*
> 
> I realized recently that I had made a few mistakes not knowing about the US tax laws. I have been filing my taxes through turbotax and never understood the following three things
> 
> 1) I was not aware that I was supposed to file US tax on that money in the India account. That is, the interest on the money sitting in the banks.
> 
> 2) I did not know about filing FBARs for these India bank accounts
> 
> 3) I also did not know I was not supposed to keep the resident account at ICICI Bank. In fact, my father has been filing India income tax returns for me on the interest earned on the resident account. On learning this, I have just converted this resident account into an non-resident account.
> 
> So at this point I have liquidated all my mutual fund holdings and left with two non resident accounts with a total value of around $450,000. My total earning on the principal in dollar terms has been minimal because when I transferred the money to INR in 2011/2012 it was at a exchange rate of around 49 INR and now it is 62 INR. However, I will need to go through the exact records to determine what the exact income earned has been.
> 
> *Path Forward*
> 
> At this juncture, I want to make sure I'm compliant on my US taxes and the FBAR filings. I also want to transfer all the money back to the US and do not intend to use it in India any more. And then will want to close all those accounts.
> 
> I'm trying to figure out what is the most effective way of going about doing it. I'm wondering if back filing for the past 6 years and filing FBARs for all those years is the right thing to do or doing this through the streamlined procedure is better. I just feel awful having to pay a penalty given 90% of this is post tax money I earned and saved in the US and needlessly transferred to India.


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