# FBARs from the past



## sunrise85

Sounds like a terrible movie name. 

Anyway, my wife (US Citizen, UK national/resident) and I (UK Citizen) have discovered that she should have filed an FBAR for tax years 2007 and 2008. In September 2007 she came to the UK to live with me and study, and her loan for the masters course went into her bank account (we had thought it was sent direct to the uni) meaning she was over the $10k threshold in 2007 and 2008. 

She found out about FBAR in 2012 and submitted them for tax years 2011 and 2012. She'll be filing her FBAR for 2013 very soon. She's missing two basically, and we don't know what to do.

In 2007 she had around $14,000 in a foreign account, and in 2008 that would have been around $13,000. There was around $4 interest in that account in each year and I'm not sure how that affects things as she didn't file a tax return (federal or state) until 2010 (for tax year 2009) as she earned only a few thousand dollars when working as a student in the UK.

If this were you, what would you do?


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## BBCWatcher

For taxes, the interest would not affect anything. She'd still be well under the filing threshold from your description, so no worries there.

She can electronically file those back FBARs online, select the reason for filing late (which will be some version of "I didn't know" presumably), and that's that -- she's done and can rest easy.


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## sunrise85

Thanks. So what are the chances of being penalised/fined for this? I'm not sure how solid an excuse "forgot the income was in my account" is  Also, by doing this is there a higher chance of being audited for general returns and other things? 

The 6 year statute of limitations - if this started on the first filed FBAR for tax year 2011, does that mean in 2017 they couldn't go back further? Or is 2007 and 2008 still considered open and fair game since they weren't filed?

Cheers!


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## Bevdeforges

Frankly, I'd just forget about them. She's only very minimally over the threshold amount, and at this point, the chances of them going back to 2007 and 2008 are pretty much nil. Going forward, it may be different, given that the new FATCA rules will have overseas banks reporting on "US persons" with significant balances - but even if you read the bilateral agreements, most of them specifically state that existing accounts as of 1 Janurary 2014 are exempt from reporting by the banks if they are under $50,000 at that date.

There has been little or no invoking of fines and penalties up to now for failure to file FBARs - at least for those of us in the "normal" range of bank account balances that don't indicate that you have the option to engage in serious tax evasion. 
Cheers,
Bev


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## BBCWatcher

It's zero if she files and near zero if not.

I disagree with Bev here. For peace of mind, file. The legal violation occurs when she knows she must file and doesn't. Now she knows, so now she's in legal jeopardy, technically. (The standard for conviction for this particular offense requires intent.)

Anyway, absolutely no problem filing and worth the good nights' sleep at this point. In other words, the price of honesty is zero, and that's a great price. File.


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## sunrise85

Cheers Bev, a sensible outlook.

Either way, to me, it's a risk game and just a case of picking an option and sticking with your choice.

If we file now there's the chance that someone at the Treasury sees it and starts asking questions and imposing penalties, but the plus side that in six years they won't be coming back. 

On the other side if we leave it there could be a small (maybe vanishing, I don't have calculated odds for either situation) that no-one will know due to it being a small amount from over 7 years ago. I suppose that my wife has filed since probably doesn't hurt either. The downside is that the clock isn't ticking and it could be 'discovered' at any point. 

Surely, when this requirement has serious enforcement and resources, the people with accounts in 7 figures will be those who are pursued due to the potential 'jackpot' being higher, as you say, because they could have been doing other dubious things.


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## sunrise85

BBCWatcher said:


> It's zero if she files and near zero if not.
> 
> I disagree with Bev here. For peace of mind, file. The legal violation occurs when she knows she must file and doesn't. Now she knows, so now she's in legal jeopardy, technically. (The standard for conviction for this particular offense requires intent.)
> 
> Anyway, absolutely no problem filing and worth the good nights' sleep at this point. In other words, the price of honesty is zero, and that's a great price. File.


Sorry BBCWatcher, just saw this. 

Are you saying that by filing late and admitting the error there's no chance at all of penalisation? I find it hard to really work out what could happen as there doesn't seem to be any info online about who has been fined before and who hasn't. I don't know whether you have to end up in court to actually be fined - my information is relatively limited in terms of the potential outcome.

We want to do what's right and I always prefer having a clear horizon, but I'm bothered by the severity of the potential fine for such a minor, irrelevant mistake. $50,000 (if it ever happened) is a crazy sum for not realising you had income to declare that isn't even taxable. If it was $1,000 per form unfiled I wouldn't even ask - I'd just do it.


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## Bevdeforges

Depends a bit on where you look - was doing a bit of research on line and have seen $10,000 or half the value of the account in several places.

First of all, full disclosure here: the original question was:


> If this were you, what would you do?


and the answer I gave you was precisely that. 

Now, that said, I treat the whole US tax filing obligation thing as one of those "render unto Caesar" types of things. You report what is required and nothing more. Over the years, I have reported my accounts in various ways - accounts in a single bank lumped together under the "master account" (which seemed logical at the time as I get a single statement with all three accounts summarized), or separately. And as I have opened and closed accounts, they simply appear or disappear from the filing with no indication what happened (because they don't seem to want to know this).

I've also looked into some of the reported cases of people being audited and fined for FBAR problems. Unfortunately the information is very vague - however even in the cases where they claim that "all the accounts were normal, daily type bank accounts" with reasonable balances, I have to believe that something (most likely a problem on the income tax returns) led the IRS to audit the FBAR filings. Which raises the issue of making sure that your income tax filings demonstrate that you're not "hiding" anything or doing anything "suspicious" looking.
Cheers,
Bev


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## BBCWatcher

This is really very simple.

First of all, the chance of anything happening is remote. However, for the record, the legal standard for FBAR prosecutions/convictions is intent. That is, the prosecutor must prove that you intended to deceive or evade your filing responsibility, not that you were merely ignorant of it.

OK, so what if you don't file the back forms? Well, legally you're guilty as sin. You're prosecutable, and the facts (if/once known) would require a conviction. You (she) knows she has to file and didn't. "Case closed."

What happens if you file late? Well, then the prosecutor has to prove you knew you had to file but decided to file late anyway. In other words, the prosecutor has to prove not only intent but intent at a specific time. And that's just not going to happen, and the facts don't support that finding. No way to prove that beyond a reasonable doubt. She volunteered the information, she says it was immediately after she realized those funds passed through her account, obviously she's a conscientious FBAR filer otherwise...where's the criminality?

Again, this is all very unlikely, but it's also very simple, I think. Not even a close call. I'd file, in a heartbeat. Goodness, why do you think the form has a "why did you file late?" box? 

Check with an attorney if you have concerns.


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## sunrise85

I think we're going to file. 

I found this article, which seems to say that if you've paid everything you owe, there won't be a penalty, as BBCWatcher suggests. 

Options Available to Help Taxpayers With Offshore Interests

Now, I don't believe we truly owe anything, but there are a couple of mistakes from the past still outstanding. Like many, there were a few things my wife didn't know about in previous years. Do you think, based on what I believe I know from the below, filing the FBARs from 2007 and 2008 should still be plain sailing and does it fit in with the first situation on that webpage versus the others?

-She didn't realise she had to declare interest so there's the couple of dollars a year since 2007 on one foreign account and then around $700 a year from 2011 onwards on an account I added her to. That account held our house deposit but the majority of the money in it was a gift from my parents, so jointly we didn't contribute a lot ourselves, maybe £2,500 of the £26,000 figure. I asked about the latter account last year on here but the consensus was that it wouldn't have made a difference to the return and zero tax would still be due because of exclusions that could have been applied.

-Wife also has a group personal pension from August 2010 that she contributed to for about 18 months, it has a balance of around $7,000 right now but payments are no longer made to it as she left that company. We forgot to add this to the FBAR in previous years but folk on here said to just mention it going forward. Its never been mentioned at all on regular returns as a CPA told us it wasn't necessary.

-Finally (phew!) there's a gift tax return we probably need to settle. The gift was made in 2007 when my wife signed over the deeds for the house she jointly bought with her mother several years before. She paid the small deposit of $6k but her mother paid each mortgage payment and claimed all rental income. The house was worth around $70k when the deeds were transferred but the two loans against the house came to $66k. From what I can tell its still a gift of 35k (half the house) because her mother didn't "assume" the mortgage on the transfer of the deed and there was nothing in the deed saying she would, just that my wife had "bargained, sold" etc her share for $1. My wife's name remained on the mortgage until several years later when it was paid off. If the gift was then $35k, that's a $24k gift after the personal exclusion for 2011, which was $11k. It's way below the $1m gift tax exemption for that year and no late penalties can be assessed since the payable tax is zero, we just need to probably file the gift tax return so it can be taken off of her lifetime allowance.

The above is what I'm aware of. My wife left the US in 2007 but didn't file a state/federal return then as she believes her part time job would not have made her eligible for filing anyway. 

So, does filing the old FBARs still meet the situation in the first box on the webpage?


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## Bevdeforges

Personally, I'd go with the first box. The little dribs and drabs that didn't get reported in prior year most likely wouldn't make any difference in taxes due - and the statute of limitations on tax returns is only 4 years, IIRC. (Technically, income not reported is open to audit "forever" - but on small sums like what you're talking about, I really suspect you'd just be asking for problems by amending returns at this late date.)

On the pension fund, no, it doesn't need to be reported on the income tax form. 

On the gift tax - you won't owe anything anyhow. Gift tax forms are primarily "information returns" that will come out to be used when (and if) the giver files an inheritance tax return. I had something similar with my Dad - filed the gift return (with no taxes due) and then when he died, he was so far under the threshold for inheritance tax that it now strikes me as a waste of time to have filed the gift tax return.

If you want to file the back FBARs, I'd just do so and indicate that she just recently learned of the requirement to file as her reason why the forums are late.
Cheers,
Bev


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## sunrise85

Thanks Bev. 

It's a strange one I suppose because she knew to file FBARs from 2010 and knew what they were for, but neither of us realised her bank account in 2007 and 2008 went over the limit as she didn't work. It's easy to forget about something that happened 7 years ago when you aren't aware of requirements at that time I guess. 

So is it a case of saying that in the explanation box? I'm wondering what is considered a good explanation, what isn't and what effect either has on filing a late FBAR.

After BBCWatchers comments would you still (personally) be on the side of not filing?


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## sunrise85

Just regarding that webpage - it says to file them to a physical address. 

Is this possible now that e-filing has come in, or should they be done online?


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## BBCWatcher

She'd file online. All FBARs are now filed online including back FBARs.

The intent has to be proved for those specific years. She wasn't aware she was over the limit, ergo no intent, ergo no legal culpability. Now she's aware, ergo she is legally culpable if she fails to file.

With FBARs ignorance is a valid defense. She's no longer ignorant, so that defense is no longer available.

With respect to the interest income, I think we've covered that. If she was under the filing threshold without the interest income, a modest amount of interest income probably doesn't change that.

With respect to gift taxes, isn't filing the gift tax form a responsibility of the _giver_? Check that. If that's correct, there's nothing there.

With respect to the pension.... That might be the most interesting thing, but only might. Does she control it -- is it a personal account -- or is it a traditional company pension? If the latter, there's nothing there. If the former, "it depends."


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## sunrise85

Thanks.

She was the giver of the gift - she signed over her half of the property because she was leaving for the UK and it was always paid for by her mother anyway. I think she was asked to sign it over and I don't know all the details, but she was in her very early twenties and I'm not sure she knew either. Technically she should have filed a 709 as it was over the exclusion amount BUT it was way under the lifetime exemption amount so she would owe nothing as gift tax is only charged once you cross that ($5.25million threshold this year)

Regarding the pension, believe it was set up by an independent broker who created a plan for the company and then employees joined. It's like mine I think where I can access it online so I'd guess it was personal, hence group personal pension. From everything I read about pensions, and from talks with a CPA, it seems no-one truly knows what to do with them. Our CPA advised that unless she starts claiming it there's only a need to put it on the FBAR. I'm sure some believe otherwise but you can only go on what you're told.


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## BBCWatcher

Yes, I agree about the gift report.

It doesn't _hurt_ to report that pension account on FBAR/FATCA forms, so one might as well even if it's later determined not to be reportable. But it probably is from your description.

Actually I was driving at PFIC and/or (less likely) trust complications. Foreign (non-U.S.) investments can be challenging from a U.S. tax point of view, and pensions are usually where "common folk" (like me) can run into this problem most easily. I'm not quite convinced that her ability to access the account online crosses these lines, though.


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## sunrise85

BBCWatcher said:


> Yes, I agree about the gift report.
> 
> It doesn't _hurt_ to report that pension account on FBAR/FATCA forms, so one might as well even if it's later determined not to be reportable. But it probably is from your description.
> 
> Actually I was driving at PFIC and/or (less likely) trust complications. Foreign (non-U.S.) investments can be challenging from a U.S. tax point of view, and pensions are usually where "common folk" (like me) can run into this problem most easily. I'm not quite convinced that her ability to access the account online crosses these lines, though.


I believe the pension is a group personal pension plan, which I believe is a type of defined contribution plan. It isn't run by the company - the company gives you the option to have a pension through, in this case, Scottish Widows and then when she made contributions the employer would make them too. I spoke with an expat tax organisation about this and they said it should be FBAR reportable only.

I believe this is what kind of pension it is: https://www.moneyadviceservice.org.uk/en/articles/group-personal-pensions

Does that make a difference?


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## sunrise85

Just to add, the CPA at the expat tax organisation said that the pension contributions and earnings are exempt under the US-UK tax treaty and that reporting them on FBAR was the only thing to do - no other forms had to be filed in regards to the pension and nothing had to go on the 1040.


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## Bevdeforges

sunrise85 said:


> Just to add, the CPA at the expat tax organisation said that the pension contributions and earnings are exempt under the US-UK tax treaty and that reporting them on FBAR was the only thing to do - no other forms had to be filed in regards to the pension and nothing had to go on the 1040.


I would go with that stance, particularly given the small amount involved. If the issue were ever to come up, you could very easily claim reliance on competent authority. But it's unlikely it will ever come up.
Cheers,
Bev


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## BBCWatcher

Get that advice in writing, and, assuming it's from someone a reasonable person should be able to rely on, I agree with Bev.


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## sunrise85

We already have it in writing as it was an email correspondence, so that's fine. As I said, this person works for one of the big expat tax companies and has worked in tax for a long time from what I can tell.

I'm guessing from the wording of your responses that neither of you think it's correct advice?


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## BBCWatcher

Based only on the limited information here, I'm not as convinced. Though the U.S.-U.K. tax treaty might have something to say about this particular pension.

"Generically" the U.S. doesn't care if a foreign entity calls it "pension." It's not a U.S. tax-qualified savings vehicle unless some treaty says so, it's taxable if it's remuneration received, and it might have PFIC complications on top of all that. Compensation is compensation, and gains are gains, basically. (And if they're passive foreign investments -- which is most of the time for a "pension" -- then usually you have to calculate and add to income the gains as you go along, every year.) But that's how it works generically. In this specific case, with this specific country that does have a tax treaty with the U.S., you've got advice from an accountant otherwise.


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## sunrise85

OK. Well like I said, we can only go off the advice we've been given. I'll ask again when we get my wife's returns ready. 

If a pension wasn't protected by a treaty, would there be actual tax owed on it that couldn't somehow be deducted and would it be a lot? It seems a shame that there potentially wouldn't be a way for a US citizen resident abroad to have a pension their employer contributed to and therefore a lesser amount of money when they retire.


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## sunrise85

I was just browsing the web for information on how group personal pensions are treated by the US and, like everything else, it seems there are a whole range of conflicting responses and views.

Auto-enrollment into workplace pensions has been taking place for a year or two and by 2018 all US expats (unless they actively opt out) will be in pension schemes, the majority of which will be group personal pension plans. 

This is interesting:

Auto-enrolment in workplace pension


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## Bevdeforges

On the pension, all I'm saying is to make sure you have something to show that you have had competent advice that it isn't taxable or reportable or whatever. It's really unlikely that the issue will come up, but by having "proof" that you were relying on the advice you were given, you should be off the hook for willfully doing anything wrong. (OK, basically we're talking CYA here.)

It's fairly rare that they compare FBARs with filed tax returns. And the only cases I can find of people getting hit for FBAR penalties have (so far) been where the FBAR came under question as part of a tax return audit. File everything in good faith and I think you should be able to sleep at nights. 
Cheers,
Bev


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## sunrise85

Thanks Bev. Well we've definitely covered our backsides and it's in writing. 

It's really sad, I'm always so worried that doing something by accident or not knowing point 4074647(a) of a 3,000 word document will land us in trouble. I don't know if it comes across in my posts, but I suffer with anxiety and panic attacks, and being punished for doing something wrong financially (please don't laugh) is the biggest contributor to my misery. I just want to do the right thing so we have a peaceful, easy life. When my wife sends her returns I imagine someone at the other end going over them fully and hoping they'll find a simple error they can turn into big money. Similarly, I worry that, even with advice, reporting something wrong could lead to us being bankrupt even though a mistake would always be honest. 

I always believe that by taking an interest in these things I can help my wife not make mistakes, but a lot of the time it drives my anxiety to ridiculous levels!


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## sunrise85

One more question: Hypothetically, if you followed the advice of a professional and only filed the forms they said were appropriate and then in 30 years time the IRS came knocking and told you that individual was wrong and you should have been paying tax on something, how far back could they collect the taxes you didn't know you owed? Could they calculate taxes for the entire 30 years you were doing it wrong and basically wipe out the account?


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## BBCWatcher

They'd probably try to calculate the tax owed but not paid, charge interest, waive penalties, and then (if necessary) negotiate from there.

Lots of governments have retirement savings programs, but you can't go to, say, Thailand, have someone call that program "pension," and expect it to follow home country rules. It doesn't, and it can't. Singapore, for example, has one program called "Supplementary Retirement Scheme" (SRS). And it provides certain tax advantages in Singapore. But slapping the label "retirement" on that account means nothing to other tax authorities, including those in the United Kingdom and in the U.S. It's just another (foreign) financial account to them, taxable and reportable. If I contribute to a U.S. Roth IRA, for example, assuming I follow all the rules in and out then that account is U.S. tax advantaged. But that wouldn't prevent Singapore, if Singapore wished, from taxing that account if I were a citizen or resident of Singapore. If the U.S. slaps "Roth" on that account the other country doesn't care -- Mr. Roth is a dead U.S. senator, and that's all (if that) to those other countries.


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## Bevdeforges

One note on the retirement savings accounts, however. The basis of taxation may be different in another country.

Simple example: In the foreign (i.e. non-US) country, most savings plans would be taxed on the income generated by the plan while the owner was resident in the country. Whereas, a US traditional IRA is taxable on the total amount of withdrawals from the plan.

Say in a given year, your savings plan had $5000 in interest income. You're retired and so you withdraw $20,000 during the year. For a US deferred tax retirement plan, your country of residence might tax only the $5000 in interest (though not all do). Whereas for US tax purposes, you'd pay taxes on the $20,000 withdrawal (though not on a Roth plan - those work differently).
Cheers,
Bev


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