# Help! Need advice on tax



## jandrews (Oct 16, 2014)

Hi all, I just received a document from my bank back in Australia. It's a Foreign Account Tax Compliance form they want me to fill out and mail back. Anyone had any experience with this.

My situation is I've been living in the State for several years and always filed my Australian tax return as a non resident for tax purposes and payed the 10% withholding tax on my accounts there. I do my tax here in the States too but I've always kept them separate. Now I get this form from my bank and it's freaking me out. I have dual citizenship and so worried I haven't done this right.

I plan to move back to Australia by the end of the year or early next year. Not sure what to do. I don't want to get in trouble with the irs or anyone.

Thanks could really do with some advice.


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## StewartPatton (Aug 5, 2014)

The form they sent you is required by a newish law called FATCA. The bank suspects you may be an American and they want official forms to either prove or disprove that.

What will happen now is that the bank may send a report ro the IRS letting them know that you have an account at the bank. This is no big deal as long as you have filed your Foreign Bank Account Reports each year and reported any income on this account. If either of those isn't the case, then there are amnesty programs you can use to get caught up.


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## jandrews (Oct 16, 2014)

I have never know I was supposed to file anything. Until now I've just filed my taxes there as a non resident for tax purposes, and paid the 10% tax on interest earned there. I didn't declare the interest here or fill in any forms.

I just read if I go ahead and do what's called a streamlined filing that's the best option? I have to re-do only last 3 years tax and pay 5% penalty. Is the 5% penalty on what I have had there for each of only 3 years or only on the current balance there now?

I have not filed a FBAR never heard of this before now. I read they want last 6 years. Will I be penalized or in trouble for not doing this before? I'm so worried, having so much anxiety as these are life long savings I had before I moved here to marry. To make matters worse, I'm in the middle of a divorce and moving back there to care for parent.

Really appreciating any advice right now, thank you.


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## Bevdeforges (Nov 16, 2007)

This is the "official" word on the latest version of the Streamline Program. IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance

On the FBARs - just file them. You're far from the only person who was unaware of the need to file and no doubt they are receiving back filing by the zillions all the time. As long as your overseas accounts are not in the millions, there should be no penalty for filing the overdue ones with the honest claim that you didn't realize you had to file. (It's even an option on the pull down menu for "why are you filing this late?" section, so it's obviously popular.)
Cheers,
Bev


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## StewartPatton (Aug 5, 2014)

Bevdeforges said:


> On the FBARs - just file them. You're far from the only person who was unaware of the need to file and no doubt they are receiving back filing by the zillions all the time. As long as your overseas accounts are not in the millions, there should be no penalty for filing the overdue ones with the honest claim that you didn't realize you had to file. (It's even an option on the pull down menu for "why are you filing this late?" section, so it's obviously popular.)
> Cheers,
> Bev


jandrews, please speak with an experienced and qualified U.S. tax advisor about your specific situaiton. DO NOT SIMPLY FILE FBARs. Talk to a professional first. 

If you have not reported your income from your Australian bank accounts on your U.S. income tax return (which sounds like is the case here), then just filing FBARs would be serving yourself up on a silver platter. If you use the Streamlined program, you would get explicit protection against the $10,000 per year penalty (at a cost of 5% of your offshore assets with respect to which there has been noncompliance). 

This is a difficult area that you need an expert to guide you through based on your specific facts.


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## maz57 (Apr 17, 2012)

SP beat me to it here. Extreme caution is indeed indicated. A few random thoughts:

The Streamlined Domestic Offshore Procedure carries an automatic 5% penalty of the highest year-end balance of the total unreported foreign assets over the three year period. Depending on the amounts involved this may be no big deal or it could be a very big deal. That would be the first thing to do. Read the fine print and calculate what the penalty would be. If its a small amount that you can live with just do it and breath easy.

If you lived in Australia you would be eligible for the Streamlined Foreign Offshore Procedure and there would be no penalty. In view of the fact you intend to soon move back to Australia an expert may be able to steer you through this mess so you do qualify for the Foreign Procedure. 

It's scandalous the IRS wants to help itself to 5% of savings you had in Australia before you ever set foot in the US, but that's the deal when you take on US personhood. I should mention (not necessarily any sort of recommendation!) if you do nothing and leave behind no US assets when you go, the IRS doesn't have much leverage once you have moved back to Australia. 

Its also unclear when the Aussy banks will actually start sending account info to the IRS and when the IRS will get around to acting upon that info when they do get it. Everything is in a state of flux and you may be able to take advantage of the confusion to get clear of this mess. If you can delay until you have re-established Australian residency and then "find out" about the offshore account reporting that might be your best option.

If you do decide to do it "by the book" make sure you don't assume signing authority on your parent's accounts and compound your problems by adding that to the penalty base.

Aside from the immediacy of your current problems, consideration of your lifelong US filing obligations has to be part of the equation. Effectively it amounts to a tax on your right of return to the US; only you can decide if it is worth it.


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## jandrews (Oct 16, 2014)

Thank you. You have helped me more than you'll ever know. I have been thinking about this scenario and that scenario in my head since doing research hence all the question I had. Now I read those same thought here I feel I'm getting somewhere. 

Thanks you all so very much for your help here.


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## StewartPatton (Aug 5, 2014)

jandrews said:


> Thank you. You have helped me more than you'll ever know. I have been thinking about this scenario and that scenario in my head since doing research hence all the question I had. Now I read those same thought here I feel I'm getting somewhere.
> 
> Thanks you all so very much for your help here.


Well, we actually haven't helped you at all. But a tax professional who you tell all of your specific facts to can actually help you.

There is a vast difference between sitting down one-on-one with a professional advisor and getting some advice on a messageboard. There's just no comparison between the two. Use messageboards to get equipped to talk to a professional advisor, not in lieu of doing so.


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## maz57 (Apr 17, 2012)

StewartPatton said:


> Well, we actually haven't helped you at all. But a tax professional who you tell all of your specific facts to can actually help you.
> 
> There is a vast difference between sitting down one-on-one with a professional advisor and getting some advice on a messageboard. There's just no comparison between the two. Use messageboards to get equipped to talk to a professional advisor, not in lieu of doing so.


Right on, SP. There is world of difference between a US expat who has lived overseas for many years and has never filed anything because they didn't know they were supposed to file vs. someone who has lived in the US, filed returns, but has neglected to report offshore accounts. In the first instance it is totally plausible they simply didn't know and now want to catch up. The SFOP (or even QD) will fix things, no problem.

In the second instance the default IRS assumption will be that they should have known. This can only be fixed by filing amended returns which will attract more attention. The actual amounts of money involved will have some bearing on how much to spend for a professional and how much attention the IRS might devote to this situation. The fact that the IRS wants 5% of assets that predate the OP's US residence is shameful but that's the deal on offer. If the facts are as stated there is no willfulness and thus no penalty is deserved. The OP should be forgiven for assuming that if Australian tax was paid all was good. (Not sure if that Aussy tax paid can be claimed as a FTC on amended returns. Going back and claiming a FTC on amended returns within FDOP might be off the table. More work for the professional.)

I find it odd that that the IRS offers expats a penalty free deal but hits US residents with the same unreported accounts with a 5% penalty. I suppose if they tried to hit those who don't live in the US and have no US based assets, those folks would just tell the US to f-off. 

The root cause of all this trouble is the US and it's CBT. In view of the fact the OP intends to move back to Australia, the timing of attempts to fix this problem may be critical.


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## Bevdeforges (Nov 16, 2007)

The question of compliance or non-compliance is one that the OP/individual has to decide for themselves. But I would like to challenge the "need" for paying out big bucks to a professional tax adviser if the taxpayer (or "potential taxpayer") is of modest means. 

It's rare to have a tax adviser charge less than "a few" hundred dollars - and if your total tax liability is only $1000 or so, that seems a bit outrageous. Furthermore, despite popular opinion, making an honest "mistake" in preparing your own tax returns does not generally mean huge fines and serious jail time, at least not for those with a simple financial situation. 

The one thing you do want to avoid is having the IRS discover on their own that you have not been paying taxes and/or not declaring - especially when you are resident in the US - because that can get nasty and as maz indicates, they do have access to your financial resources located in the US.
Cheers,
Bev


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## StewartPatton (Aug 5, 2014)

Bev, many tax advisors (including me) do initial consultations for $0. No one in this thread has advocated that everyone pay big bucks to a tax advisor, just that they talk to one, which can be done for $0.

Also, regarding people of modest means, I have worked for many people for a total fee of $0.


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## BBCWatcher (Dec 28, 2012)

Regarding the 5% statutory/regulatory maximum penalty applied to U.S. residents in these circumstances, if that rate is unusual it's unusually low. Fail to file Form RW (foreign financial disclosure form) as a resident of Italy and you could get hit very hard, for example. Penalties range from 1% minimum to 15% maximum depending on the circumstances. As recently as 2013 they were up to 50%.


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## maz57 (Apr 17, 2012)

It's also low in comparison to the confiscatory FBAR penalties which could possible apply in this situation. But that doesn't make it fair. The appropriate penalty would be zero and just pay the tax owing plus interest because this person's only fault was having Australian accounts prior to moving to the US and believing that paying Aussy tax on them was all that was required. In fact if these accounts and income had been properly reported on a US tax return the Australian tax may well have offset any US tax owing and then some.

I imagine this is a pretty common mistake for those who move the US. Unless the person is destitute chances are pretty good some accounts will be left behind in the old country. But 5% is the deal on offer and depending on the actual amounts involved paying the penalty and moving on may well be the best solution.


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