# "quiet" v. streamlined v. OVDP?



## Pinay Sunshine

Let me preface this post by thanking my lucky stars I found this forum! There is such a dearth of reliable information about US tax issues for expats, so I thank you in advance for your help.

I am deciding which course is best: "quiet" disclosure, streamlined, or the full-blown OVDP.

About me:


lived abroad since 2001
last filed taxes 2006
make no more than $40K in a calendar year working abroad during that time. 
have never filed an FBAR
maximum combined overseas bank account balance in any given year during this period $40k usd
have us stocks and bank accounts totaling $150k
have interest income from my us bank accounts, but a nominal amount, and also have made sales of stocks during this period.


First, does my interest income from my US bank and my sale of stocks disqualify me from participation in Streamlined? According to the IRS site:



> The risk level may rise if any of the following are present:
> 
> If there is material economic activity in the United States;
> 
> If there is U.S. source income


What is the definition of "material economic activity" and "source income"? 

If I have US bank account and have sold stock, does this disqualify me from the program?

Thanks in advance.


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## BBCWatcher

You're the textbook case for streamlined, so I'd vote for that. Yes, you have a small amount of U.S. source income, but read carefully ("the risk level may rise"). They wrote it that way for a reason.

I think the basic idea here is that people with (a lot of) U.S. source income at least shouldn't be unfamiliar with the concept of U.S. taxation of U.S. source income. After all, if you have income from, to pick a random example, Bulgaria, one would think Bulgaria might tax that income and you ought to pay any Bulgarian tax owed. That's a common sense mode of thought.

However, presumably you have a small amount of incidental income from savings in the U.S. That's textbook/classic streamlined. If you were pulling down, say, $500K per year in commissions from U.S. sources and weren't paying tax on that, the IRS would probably be correct in (probably) not believing that you could be ignorant of U.S. tax obligations on such income.


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## Bevdeforges

Not atypically <g> I'll take the other side from what BBCWatcher has proposed. I'd say that, with your limited income and savings/investment, you would be perfectly safe to go quiet disclosure.

The OVDP is aimed at those with significant assets and income that would result in taxes due were they to "come clean" with the IRS. By back filing for three years (and filing back FBARs for six) without any elaboration, it should be clear that you don't owe anything and haven't been hiding any income or income sources during that time.

Your "earned" income (i.e. salary) is fully excludable on form 2555, and chances are your interest income and even stock transactions will fall under your personal exemption and standard deduction, so no taxes due. The penalty for "late filing" is normally a percentage of the taxes due - and any percentage of 0 is still 0. 
Cheers,
Bev


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## Pinay Sunshine

I thought that it would go this way lol. I've read all of the related threads in the archives and BBCWatcher seems to be the Streamlined proponent, while Bevdeforges is the quiet advocate.

Does anyone have any anecdotal experience either way with this situation?


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## maz57

I suspect the fact that you lived abroad since 2001 and filed (presumably from abroad) for a few years may be more of a problem than having a bit of US source income. 

Based on your facts it seems to me you would have a tough time convincing the IRS that you didn't know about your filing obligations. Perhaps there is more to your situation than you have described above.


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## Pinay Sunshine

maz57 said:


> Based on your facts it seems to me you would have a tough time convincing the IRS that you didn't know about your filing obligations. Perhaps there is more to your situation than you have described above.



No, that's actually the whole story. I filed from 2001 to 2006, lost money in stocks that year and thought "I'm way under the earned income exclusion, I lost money in the US, no need to file." Then I just let my US stocks ride for the next couple of years, had no transactions, still way under the FEIE, no need to file. 

Now it's seven years down the road and it's time to come clean. 

But the verbiage on the Steamlined site is unclear and worrisome, as it says 



> These procedures are being implemented in recognition that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1, but *have recently become aware of their filing obligations* and now seek to come into compliance with the law.


Would the fact that I once filed but stopped disqualify me? 

Furthermore:



> This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S.* since *January 1, 2009, and who have not filed a U.S. tax return during the same period.


What abou*t before* January 1, 2009?


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## maz57

I think perhaps you are confusing the filing threshold with the amount you are allowed to exclude under the FEIE. A taxpayer's total world income BEFORE exclusions is what determines whether one has to file. 

The fact that your taxable income could be reduced with the FEIE to the point that no tax would be due has no bearing on the question of whether you need to file a return. Additionally, stock losses don't enter into the "do I need to file?" question.

Re: Streamlined Procedure. I expect that you would probably be OK on the living abroad question. I suppose one could argue that you were unaware of your filing obligations in the sense that you were confused about the actual details of the filing threshold rules. Many have made this very same mistake. 

If I were in your shoes, I think I would skip the streamlined and just do a "quiet disclosure" for the missing years showing no tax due and cross my fingers. But remember, I'm just a guy on the internet. BBCWatcher seems to know quite a lot about the streamlined option; perhaps he can provide more insight. Bottom line is this: if you can produce zero due returns for the missing years the chances are pretty good the IRS will give you a pass. Really, they should be happy you voluntarily brought yourself back into the system and they have the prospect of some revenue in the future.

One thing for sure, though. You do not want to go the OVDP route. That is for criminal evaders seeking to minimize penalties and avoid criminal prosecution. That is most definitely not you.


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## Pinay Sunshine

Okay, last question. In 2009, I moved to the Philippines from Korea. I left my Korean bank account open and opened a Philippine account. I left about $10k usd in the Korean account. This means that I had two accounts open in two different countries at the same time. In 2010 I returned to Korea and collected the rest of the funds. 

According to the streamlined site:



> The risk level may rise if any of the following are present:
> 
> If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence


This appears to describe me. Will this raise red flags?


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## maz57

Within streamlined it might. I think you submit the last three years tax returns plus the last six years FBARs so the Korean account would definitely show up.

When I did a qd a few years back I submitted only the current year FBAR figuring that if they wanted previous years they would ask for them. They never did. I proceeded on the assumption that telling the IRS where money used to be was useless information.

I should add, last I checked, moving was not a criminal offense. So moving money from the old residence to the new one seems pretty benign to me.


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## BBCWatcher

Folks, Read. The. English. "...Risk level may rise..." That's _double_ qualified plain English. Risk here means risk of audit and/or risk of being assessed penalties. Risk describes a probability, not certainty, e.g. "your risk of cancer increases if you drink coffee with ketchup." "May" means might -- again, a possibility, not a certainty.

Look, I'm a proponent of taking good deals on offer, and this one is a good deal for the original poster (and many others). I'm guessing that the original poster would owe zero (or nearly zero) in taxes. So why on earth in that case would you try to slink through the back door when there's a perfectly fine front door available? As noted upthread, the penalty owed on zero tax liability is zero.

Also, you lived in Korea. That was your place of residence. You opened an account there, and you still have the account. The IRS _didn't_ say "located outside his/her present (or current) country of residence." And it's a whopping $10K! Just like Mitt Romney's offshore accounts. 

Take. The. Deal. Please, you're a textbook case for streamlined from your description. Walk through the front door and sleep a whole lot better.


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## Pinay Sunshine

maz57 said:


> When I did a qd a few years back I submitted only the current year FBAR figuring that if they wanted previous years they would ask for them.


How many years of taxes did you submit?


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## maz57

I submitted three years of zero balance owing returns. Never a peep out of the IRS. 

BBC has commented that your Korean account will probably not be an issue within streamlined. I suspect your income level is considerable higher than mine. I was a "minnow" and therefore of little interest to the IRS; you sound like you might be a "fingerling" and of somewhat more interest. I don't disagree with BBC's advice to go streamlined.

The streamlined procedure will provide certainty when you are done. A qd never provides complete certainty. You will have to make the call as to what level of peace of mind you are comfortable with.


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## Pinay Sunshine

Okay, I've decided to go streamlined and submit all of the returns for 2007-2013.

My last problem relates to proof of income. I was never issued any W-2 type income statement from my Korean employers for 2007-2009. Given the fact that I live in the Philippines now (plus the language barrier), I doubt if I could get one, if it exists. 

Should I just ballpark the figure and submit it without additional documentation?

Thanks for all the help!


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## Bevdeforges

Pinay Sunshine said:


> Okay, I've decided to go streamlined and submit all of the returns for 2007-2013.
> 
> My last problem relates to proof of income. I was never issued any W-2 type income statement from my Korean employers for 2007-2009. Given the fact that I live in the Philippines now (plus the language barrier), I doubt if I could get one, if it exists.
> 
> Should I just ballpark the figure and submit it without additional documentation?
> 
> Thanks for all the help!


Yup, that's all anyone can do from overseas. Best if you base it on something - payslips, bank records - that you could get back to if asked. 
Cheers,
Bev


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## maz57

Just to add to Bev's reply, even if you had some information slips equivalent to what you might receive stateside, they would be in a foreign (to the IRS) currency and language. IRS computers would choke on the numbers and no one at the IRS would be able to make heads or tails out of them. They're just going to have to take your word for it!


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## Pinay Sunshine

Roth IRA problems:

Yesterday I worked on my 2007 (yes, you read that right) taxes. I made $3414 in Roth IRA contributions that year. 

Unfortunately, I didn't know that you can only make Roth contributions if you have income. If I take the FEIE for the full amount of my overseas salary (approximately $40k usd a year), my income is zero. 

Here's the fun part: You pay a 6% penalty for every year the over-contribution is uncorrected. That's $200 a year, times 7. $1400. Ouch. 

Is there a workaround to this? I certainly don't want to "ignore" the problem and get hit with a $6k fine 30 years from now. 

Theoretically, I only have to file 3 years of taxes and 6 years of FBARs to come into compliance via Streamlined; therefore, I could just "not" file the 2007. Too big of a gamble, yes?

Do I have to take the entirety of the FEIE? Can I elect to have part of my income (e.g. $10k) taxed, thereby giving me $10k in taxable income and allowing me to make a contribution? Is this tax fraud?

Thanks again.


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## Pinay Sunshine

The IRS has a blurb about this situation on their site, but for the life of me I can't figure out what it means. Anyone?

Individual Retirement Accounts


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## Bevdeforges

OK, in order to make a contribution to your IRA (traditional or Roth) you must have taxable earned income. If you take the FEIE, you can't make a contribution - unless (as in the example on the page you cited) you were only eligible for the FEIE for part of the year and thus had to apportion your FEIE. This usually only happens in the year you move overseas or the year you move back to the US and lose the FEIE eligibility.

But no, you can't voluntarily take only a partial FEIE if you were resident outside the US for the full year.

Frankly, if you only have to file 3 years back, that's exactly what I'd do. Once you have that done, you can look into correcting the Roth IRA situation.
Cheers,
Bev


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## BBCWatcher

Don't take the FEIE. Take the Foreign Tax Credit (FTC) only. Korean income tax rates look reasonably high, so that should work pretty well. See what the numbers show. If the FTC-only path continues working well for you, then you have until April 15, 2014, to make your 2013 Roth IRA contribution.

By the way, take a spin through tax year 2010 with the FTC only. You may be able to grab the $400 Making Work Pay Tax Credit, but you have to file by April 15, 2014, to get it if it's refundable. (Possibly June 15, 2014, but April 15 is much safer.)


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## Pinay Sunshine

BBCWatcher said:


> Don't take the FEIE. Take the Foreign Tax Credit (FTC) only. Korean income tax rates look reasonably high, so that should work pretty well.



What kind of documentation is required for the FTC? I have no payslips etc from my Korea days.


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## BBCWatcher

Do you have a copy of your Korean tax return? That'd work. How about bank statements indicating payments of your Korean tax?

If you have absolutely on records, presumably the Korean tax authorities can assist since presumably they know what you paid.


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## Bevdeforges

Pinay Sunshine said:


> What kind of documentation is required for the FTC? I have no payslips etc from my Korea days.


Technically speaking, you don't need any particular documentation at all - they pretty much take your word for whatever you put on the forms. In the event of an audit, however, you would have to produce "proof" of your numbers. (Much the same as reporting your salary income - without a W-2 you just put down a number.)

But, however you calculate or estimate your salary and/or taxes, be sure you note down somewhere how you got the figure you used and hang onto whatever documents you derived it from (i.e. note the exchange rate you used, or keep a copy of the source for the exchange rate). You may never need the info, but if you do, you'll want it available and easy to find.
Cheers,
Bev


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## Pinay Sunshine

OK, last questions and I'm done:

BACKGROUND

Streamlined requires 3 years of tax returns (so, 2011, 2012, 2013?) and 6 years of FBARS (2008-2013?).

I last filed taxes in 2006. I filed from 2002 to 2006 from overseas using the FEIE.

I made IRA contributions in 2006 and 2007 that were not allowed (FEIE making my taxable income $0). For this, I will have to pay a 6% penalty each year until the error is rectified. The fines will amount to roughly $400 a year for 2006-2013. I will pay these fines. 

If I file 2007-2013 taxes with the penalties for the ineligible IRA contributions, that may raise red flags. An alternate scenario would be to just file the past 3 years now, wait and get cleared in streamlined, then go back and file returns for 2007-2010 and file 1040x for 2011-2013 that reflect the IRA contribution penalties

OK, ON TO MY QUESTIONS:

SHOULD I FILE 2007-2013 TAXES NOW, OR JUST THE PAST THREE YEARS AND THEN FILE THE REST LATER?

1) Streamlined only requires 3 years of taxes, but the caveat is that it's for people who were unaware of their obligations. Obviously, I filed for 5 years, so does that exclude me? Should I go ahead and file for all years?

2) Which is riskier, filing for all years with the penalties for the IRA contributions, or just filing for the past three years and hoping they don't notice the gap?

Thanks as always.


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## BBCWatcher

Pinay Sunshine said:


> Streamlined requires 3 years of tax returns (so, 2011, 2012, 2013?) and 6 years of FBARS (2008-2013?).


It's current plus prior years, as I understand it. So that'd be tax returns for 2010 to 2012 plus 2013, and FBARs for 2007 to 2012 plus 2013.



> I made IRA contributions in 2006 and 2007 that were not allowed (FEIE making my taxable income $0). For this, I will have to pay a 6% penalty each year until the error is rectified. The fines will amount to roughly $400 a year for 2006-2013. I will pay these fines.


Well, another option to consider if you were living in a comparatively high tax jurisdiction (or even perhaps if not given those penalties) is to file amended returns for tax years 2006 and 2007 that take the Foreign Tax Credit (FTC) and do not take the FEIE/FHE. I think you can still do that, though any tax refund resulting from the amended return is forfeited. This assumes that you don't owe _additional_ tax for 2006 and 2007 via that path since that'd incur interest and penalties, though as part of an "enhanced" Streamlined Program filing maybe some of those would be avoidable.

Current tax brackets in the Philippines look to be _roughly_ comparable to the U.S. tax brackets as they existed in 2006 and 2007. Thus it looks like it's worth running the calculation to see what happens.



> 1) Streamlined only requires 3 years of taxes, but the caveat is that it's for people who were unaware of their obligations. Obviously, I filed for 5 years, so does that exclude me? Should I go ahead and file for all years?


Good question. I suppose it doesn't hurt to try to use the Streamlined Program assuming you want to get compliant.

Check first to see if my idea of amended returns for 2006 and 2007 could work for you. That'd help a lot if the math works. Assuming that works, I think what I'd do is try the Streamlined Program, include the amended returns for 2006 and 2007 (to clean up the IRA contributions), and attach a cover letter explaining that's what you're doing. I'm assuming 2010-2012 tax returns show $0 tax owed and thus you'd assume you didn't have to file (and thus qualify for Streamlined), but then you discovered that IRA problem.

I think that'd fly, but who knows, really. I suppose the IRS could then ask for 2008 and 2009 returns, but that should be fine, one would think.


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## Pinay Sunshine

BBCWatcher;3033522\
Well said:


> I was in Korea during those years, and the Korean income tax rate is a shockingly low 3.3%, so without any documentation of my Korean income during those years coupled with the low tax rate, I think I gotta bite the bullet and pay the fines. Suggestions?


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## BBCWatcher

Pinay Sunshine said:


> I was in Korea during those years, and the Korean income tax rate is a shockingly low 3.3%....


Are you sure about that? I don't see any marginal rate that low. If you were in the bottom South Korean tax bracket maybe your effective tax rate got that low, but then you also would have been in the bottom U.S. bracket, probably. (And the EITC might even swing into play in that case.) The maximum effective Korean income tax rate is 17.5% according to what I see given Korea's somewhat unusual tax rate schedule for foreigners. That probably equates to around $50K-$60K of gross income before the U.S. income tax would pull ahead in all cases.

Don't have your South Korean figures? Take educated guesses, and run a simulation.

Multiple years of 6% penalties -- and back years' penalties with interest, I'd assume -- is really, really ugly. Especially since you're looking at penalties from dollar zero on two years' worth of IRA contributions. So I'd like to see you avoid those penalties if possible.


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## BBCWatcher

As a follow up, it appears that 6% excess IRA contribution penalty goes straight onto Form 1040 as tax owed. So, for example, if you made a pair of $4000 IRA contributions (the maximums for 2006 and 2007, assuming you were under age 50) then the penalty is $480 per year....

....Well, not exactly. The penalty is actually calculated based on the closing value of the IRA for the year from what I can tell. So if the IRA appreciates the penalty goes up, too.

Oh, but it gets a bit worse, unfortunately. Since the penalty goes straight to the tax part of Form 1040 the IRS can charge interest and penalties for late payment and late filing. But let's assume for sake of argument that you can get all the late filing penalties waived via the Streamlined Program. (That's a key benefit of that program.)

Of course you've got to correct the excess contributions so you stop these 6% penalties.

Anyway, it's enough money to worry about, at least among mere mortal income earners. So I'd take a spin through the FTC-only approach in 2006 and 2007 and see what you get, even if you have to take a guess (for now) about your Korean income in those years.

I just realized another potential complication, though. The IRS doesn't like you flipping back and forth between FEIE/FHE and FTC-only. I think they have some rules about that. So I should temper this advice a bit. You have to check those rules, too.

Good luck! This is a little bit sticky, but I think you'll get it sorted.


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## Bevdeforges

OK, an alternative point of view here (FWIW)...

If the IRA contribution is the worst of your offenses, and depending on your overall income level and complexity/simplicity of your situation, I would go the simplified route, file current year plus 3 prior years (the way I've always understood the requirement). This means 2013 on a timely basis, and then 2012, 2011 and 2010. Do your 6 years of back FBARs. And see what happens.

Despite all the pages and pages of regulations and threatened penalties and other payments, you may find that they accept your back filings and allow you to get on with life. If they want further back filings, they'll come back and ask for them and that's when you get to negotiate. It really depends on how those back filings look - if it looks like you were deliberately trying to get out of paying taxes, then you may be stuffed. But if you owe little or no taxes for those years, they are equally likely to simply tick off all the boxes and mark you as "caught up" - to go forward and sin no more.
Cheers,
Bev


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## RustyJames

*Streamlined experience*

Does anyone have any actual experience of going through the Streamlined program? For example:

How long did it take to get a response?
Were penalties levied (if you owed no tax but did have bank balances over $10k)?

Thanks!


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## SuzieF

I doubt that many people who have lived, worked and saved in Canada for years don't have over 10k in accounts.


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## diharv

RustyJames said:


> Does anyone have any actual experience of going through the Streamlined program? For example:
> 
> How long did it take to get a response?
> Were penalties levied (if you owed no tax but did have bank balances over $10k)?
> 
> Thanks!


I began my tax filing "obligation" with the streamlined program. I started the process in the fall of 2012 and by last August had 2009-2011 done and filed and by October ,2012 was done. Sure I was scared to expose myself ( you can read my story in the renunciation sticky thread) so I found a very competent accountant to take care of my rather complex situation. So far has cost about $15000.oo to complete four years but I can sleep at night and not worry and get on with my plan. So far no response and as Bev says hearing nothing is good news as they don't send out assessments like the CRA apparently.I told my accountant before I started that I am taking a leap of faith in starting all this in the hopes that all will be good. I will go as far as filing my returns and paying any tax owed ( I owed almost $1200 one year due to my complex situation so it was paid ) but there is no way I am going to pay if any penalties are levied against me.I think that the whole point of the streamlined program is that if you enter it properly there is no worry of penalties being levied and if they are so what.I did the FBARs on my own to the best of my ability and will do them online this year for 2013.
Hope this helps


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## Pinay Sunshine

Hi guys, I've been working on entering the Streamlined Program, but have come across a troubling piece of verbiage. First, a recap of my situation:

About me:

lived abroad since 2001
filed taxes 2001-2006, never owed tax due to limited interest income in US offset by the FEIE
last filed taxes 2006
make no more than $40K in a calendar year working abroad during that time.
have never filed an FBAR
maximum combined overseas bank account balance in any given year during this period $40k usd
had bank accounts open in two countries at the same time on two occasions: in 2006 and 2010. Both times I was moving from one country to another and had to leave an account open until I could set up an account in the new country, at which time I closed the old account. 
have us stocks and bank accounts totaling $150k
have interest income from my us bank accounts, but a nominal amount, and also have made sales of stocks during this period.

Okay, here is my concern: I lived abroad for 5 years (2001-2006), filed every year, then stopped filing because I never owed tax (due to FEIE). I last filed in 2006.

According to the wording on the IRS website:



> This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. *since January 1, 2009, and who have not filed a U.S. tax return during the same period*.


What's the definition of "same period"? Is it "since January 1, 2009" or the period of time I've lived abroad, i.e. "since 2001?"

I'm concerned that I will be rejected from Streamlined since I filed while living abroad for 6 years then stopped and now I suddenly want to restart again. 

I'm afraid the IRS will classify this as "willful neglect", which means my goose is cooked. 

As you know, there's always OVDI. With OVDI, there's always an opportunity to opt out, but there's no opportunity to opt in once you elect Streamlined and get rejected. 

Having said that, I found a site that is full of OVDI horror stories, such as this one:

http://*****************.ca/2013/06...t-out-success-story-as-told-by-not-that-lisa/

This person's story seems to be pretty typical of the regular posters there. Their OVDI cases drag on for *YEARS* before they finally opt out and pay little or no fines. To a person, they regret joining OVDI and suggest that one steer clear of it. 

Having said that, the difference between me and them is that (this is the scary part) all filed their taxes on time but just made some minor omission. I, on the other hand, used to file but then stopped; ergo, concern about willful neglect. 

Suggestions?


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## maz57

I won't presume to give you advice, but I will venture a few comments:

1. Your fear of OVDI is well justified. OVDI is for criminals who have been evading tax; that is not you. Don't touch it with a ten foot pole.

2. My take on the so called "streamlined procedure" is that it is for folks who didn't know they were supposed to file and only owe small amounts of tax. That is also not you.

3. If, as you say, you would not have owed tax for those years you did not file, you are not guilty of not paying, late paying, or failure to pay. You are only guilty of not filing.

4. If you now file those missing returns showing no tax was owed, that changes it to a mere late filing. To the best of my knowledge there is no penalty for a late filing if no tax is owed. (And of course no interest because that is based on tax owing.)

5. In spite of all the fear-mongering about quiet disclosures, people do it all the time. In your case you would really only be telling them that you didn't (and don't) owe them any money. (A QD attempting to sneak in a payment you previously failed to pay would be a totally different kettle of fish. Not recommended.) I'm not sure why after several years you have suddenly decided to try to come back into compliance but I'd be inclined to file the last 3 years (2011, 2012, 2013) all showing no tax was owing, and be good going forward. As for FBAR, current year (2013); if they want more they'll ask for it.

6. None of this is advice. Let's call it an example of what someone in your situation might do. My guess is that there would be zero response from the IRS. Really, they don't have the time or the manpower for stuff like this.


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## jbr439

maz57 said:


> I won't presume to give you advice, but I will venture a few comments:
> ...
> 2. My take on the so called "streamlined procedure" is that it is for folks who didn't know they were supposed to file and only owe small amounts of tax. That is also not you.
> ...


It can be argued that he incorrectly believed he did not have to file because he knew he would not owe anything due to the FEIE. I understand this to be a not uncommon misconception.


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## Pinay Sunshine

Thank you for your reply.

I have one big concern:

In 2006, the last year I filed taxes, I made a contribution to a Roth IRA.

In 2012, I did the same thing. Unfortunately, since I took the FEIE in 2006, the contributions are excess contributions. These are subject to a 6% tax every year they remain uncorrected. 

In order to correct this error, I would have to file a 1040x for 2006, then file 1040s for 2007-2013; each of these would have to include the excess contribution tax, plus interest. 

So, here are my options:

1) Do a QD as described above (file a 1040x for 2006, then file 1040s for 2007-2013; each of these would have to include the excess contribution tax, plus interest.)

2) Try to enter Streamlined, then once accepted into Streamlined, go back next year and file amended returns for 2006-2013 and pay the taxes on the excess contribution from 2006. However, if I do this, I would have to enter the excess contribution for 2012, which might cause them to look back at the last tax return I filed (2006), where they would notice that I made an excess contribution that year. 

3) Enter OVDI, then pray I can opt out. 


I really don't know what to do. I want to pay taxes and get current. I don't think I qualify for Streamlined. If I do a QD, I might get caught and they'll bring the hammer down. OVDI will undoubtedly result in a 2+ year ordeal. 

The IRS is worthless. The OVDI hotline goes to voice mail and you have to leave a number for them to call you back. I'm 12 time zones away, so that doesn't work. 

There isn't even a number for me to call about Streamlined. 

I tried calling the Taxpayer Advocate Service, but they can only help you once you're already in trouble. 

I don't know what to do.


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## Nononymous

jbr439 said:


> It can be argued that he incorrectly believed he did not have to file because he knew he would not owe anything due to the FEIE. I understand this to be a not uncommon misconception.


That's the excuse I would use, if I were ever asked.


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## BBCWatcher

No, this is incorrect advice in my view.

The default is normal, late disclosure. There is tax owed (the excess Roth contributions), and that'll be collected, with interest and penalties. (Or some advice to the original poster: re-run those same tax year calculations, but use the Foreign Tax Credit instead of the Foreign Earned Income Exclusion. See what you get. Taking the FTC instead of the FEIE turns those Roth contributions into eligible contributions, and that calculation path could work out for you much better.) The U.S. Treasury could levy fines for failure to file timely FBARs, though I don't expect they will in this case as long as the original poster starts filing FBARs now. (I suspect Treasury will start issuing some sternly worded letters when the FATCA agreements start to produce financial data, probably starting in 2015.)

The Streamlined Program can only improve on the status quo of late filing. You folks have got it all wrong here. The Streamlined Program can never be worse than that status quo. I think a lot of you folks are assuming continued noncompliance as the status quo. That may be _your_ status quo, but that is not the original poster's.

Anyway, yes, absolutely, if you're going to get compliant -- and that's a very good idea, in my view -- then take the IRS's deal. It's so freaking obvious that the potential for a better deal from the IRS is better than no deal at all.

Now, as to that language you cited, I don't see any other way you could interpret that language to indicate something other than non-filing from January 1, 2009, onward, not 2001. So you meet that qualification for the Streamlined Program.

Also, I don't know why you're at all focused on two countries, accounts, etc., etc. None of that is important or relevant. Just file the FBARs truthfully. I don't know why people worry about this report. If they're laundering money, financing terrorist organizations, evading taxes, or doing something else egregiously criminal with your funds, OK, worry. But otherwise, please, relax. Almost nobody closes Account #1 in Country #1 the day before they open Account #2 in Country #2. It's _perfectly normal_ to have financial accounts in any number of countries. They're reportable, but truthful reports are boring.


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## Pinay Sunshine

As always, thank you for your helpful reply. Regarding this suggestion:



BBCWatcher said:


> No, this is incorrect advice in my view.
> 
> re-run those same tax year calculations, but use the Foreign Tax Credit instead of the Foreign Earned Income Exclusion. See what you get. Taking the FTC instead of the FEIE turns those Roth contributions into eligible contributions, and that calculation path could work out for you much better.



If I took the FEIE in 2006, could I switch to the FTC in 2010-2013?


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## BBCWatcher

Here's what the IRS says: "Revoking the (Foreign Earned Income/Foreign Housing) exclusion: A qualifying individual can revoke an election to claim the foreign earned income exclusion for any year. This is done by attaching a statement to the tax return revoking one or more previously made choices. The statement must specify which choice(s) are being revoked, as the election to exclude foreign earned income and the election to exclude foreign housing amounts must be revoked separately. If an election is revoked, and within 5 years the qualifying individual wishes to again choose the same exclusion, the individual must apply for approval by requesting a ruling from the IRS."

So yes, you can switch to the FTC in 2010-2013 even though you took the FEIE in 2006, but once you choose the FTC it's hard to switch immediately back to the FEIE in subsequent tax years.

But isn't 2006 one of your Roth excess contribution problems? I don't see any problem filing an amended return for 2006 if you wish. Or are you thinking you'll see if the IRS will let bygones be bygones and ignore some of those 6% Roth penalties? (And just pay the penalties from the Streamlined Program years, or maybe even less than that.)

Well, maybe. But before you decide that, see what happens when you re-run your 2006 tax return using the FTC instead of the FEIE. If that works, and it works for subsequent years, you're all set. (Note that the FTC also might make you eligible for more tax credits. While you aren't going to be able to collect refunds from the IRS for those old tax years, be sure to run the calculations carefully to include any tax credits you qualified for. That'll help make the FTC stronger and give it the best chance of a favorable calculation. No guarantees, but it's worth checking since that Roth excess contribution penalty can be painful even if partially waived.)


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## Bevdeforges

Personally, I'd file under the streamlined procedure in good faith - you haven't filed since 2009, and it's completely understandable that after filing a couple of times not owing anything, you would believe that you didn't have to file anymore. (Can't tell you how many folks back in the US are amazed to hear that overseas residents still have to file. Some of these are even accountants by trade!)

Definitely file the back FBARs - there's no "penalty" as such since that's merely an information report, not a tax filing as such.

On the improper IRA contribution - I'd be tempted to let it go for right now. Unless the 6% amounts to a huge whopping amount, let the IRS decide how they want to handle that (if they even are aware of it). If they figure it out, they'll be in touch and you'll have a chance to settle the issue before they send the SWAT teams out to hunt you down.
Cheers,
Bev


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## BBCWatcher

The 6% penalties must be reported in Streamlined Program filings for all tax years (2010, 2011, 2012, and current 2013) unless and until the excess is corrected. We agree on that point, Bev, correct?

OK, assuming we agree, my point -- and I think I made this point clear, but let me try again -- is that before you have to report 6% Roth excess withholding penalties, figure out whether those penalties must exist. That is, go back to the original sins (such as tax year 2006), re-run the tax calculation to see if you can turn an excess Roth IRA contribution into a non-excess contribution, and then consider filing an amended return if that re-calculation works. Then there is no 6% penalty. If you don't actually have a penalty to pay, that's much, much better than the alternative, which is a requirement to report the penalty and beg partial forgiveness via the Streamlined program.

OK, is that clear now? I thought it was the first time, but hopefully this time it's more understandable.


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## Bevdeforges

BBCWatcher said:


> The 6% penalties must be reported in Streamlined Program filings for all tax years (2010, 2011, 2012, and current 2013) unless and until the excess is corrected. We agree on that point, Bev, correct?


That's not exactly what I was suggesting, but nevermind.
Cheers,
Bev


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## BBCWatcher

Ah, I see.

Well, I think we should be able to agree that there's merit in first checking whether those excess Roth IRA contributions are curable via an FTC-based re-calculation and amended filing(s). If so, fantastic. Based on cursory inspection the FTC path looks like it might work for the Philippines over modest to medium income ranges, but it's always hard to tell for sure.

Let's hope there are no self-employment tax complications in the original poster's case, by the way.


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## jbr439

Bevdeforges said:


> ...
> (Can't tell you how many folks back in the US are amazed to hear that overseas residents still have to file. Some of these are even accountants by trade!)
> ...
> Bev


I know someone (an USC) who recently moved to Canada from the US who had been told by his US accountant of several decades that they would not have to file. It's amazing that these people can't be bothered to do a quick online search before dispensing blatantly incorrect information.


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## maz57

I got sidetracked for a while, but I'll just add my $.02 that in view of the IRA over-contribution complication, I'd vote that the "streamlined" seems the logical option for this situation. Bev and BBC have got some pretty good ideas here. And if the FTC can make the over-contribution problem go away mostly or even completely, so much the better. No harm in running the numbers.


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## nitinkhosla79

diharv said:


> I began my tax filing "obligation" with the streamlined program. I started the process in the fall of 2012 and by last August had 2009-2011 done and filed and by October ,2012 was done. Sure I was scared to expose myself ( you can read my story in the renunciation sticky thread) so I found a very competent accountant to take care of my rather complex situation. So far has cost about $15000.oo to complete four years but I can sleep at night and not worry and get on with my plan. So far no response and as Bev says hearing nothing is good news as they don't send out assessments like the CRA apparently.I told my accountant before I started that I am taking a leap of faith in starting all this in the hopes that all will be good. I will go as far as filing my returns and paying any tax owed ( I owed almost $1200 one year due to my complex situation so it was paid ) but there is no way I am going to pay if any penalties are levied against me.I think that the whole point of the streamlined program is that if you enter it properly there is no worry of penalties being levied and if they are so what.I did the FBARs on my own to the best of my ability and will do them online this year for 2013.
> Hope this helps


I have around 150,000$ in overseas account and i want to bring in compliance. With exchange loss, i think it will be around $0 - 800 tax due(max) in last 3 years. My CPA is suggest to do quiet disclosure for 2014(amended return) and it should be fine. He says IRS does not have resources to digg in (post recession time was different).

Reading lawyers blogs get you scared on how quiet disclosures are worrisome and streamlined/OVDP is best way.

Can someone share their experience on quiet disclosure or offer perspective?


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## BBCWatcher

Well, the Streamlined Program means that, once correctly filed and (let's assume) accepted by the IRS, the issue is completely and properly put into the past. Otherwise if you've still failed to disclose information then there is no effective statute of limitations, meaning that the IRS and/or the Treasury Department can pursue legally permitted penalties and sanctions whenever they want, even years or decades later.

So would you take what is ordinarily a fantastic deal (the Streamlined Program) if you qualify for legal certainty? I would, but perhaps others disagree.


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## nitinkhosla79

Thank you Ben. Yes streamlined seems good but it is not legally certain. There is 5% penalty on balance (pretty high in my case) and issue of willfulness. Only OVDP is clear but it is ridiculous 27.5% penalty.

I don't know if my CPA is more practical or naive and ignorant what might be happening in this regard.


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## BBCWatcher

Are you looking at the _overseas_ version of the Streamlined Program, or the domestic one?

If you're looking at the domestic one, you would compare the Streamlined Program versus ordinary late correction (amended tax returns, late FBAR filing) for all affected tax years. Either way you fully close out the legal issues and fully start the statute of limitations clock. If you do only a _partial_ correction/late filing, where you only fix the most recent one or two tax years and ignore the older ones, then you live the rest of your life with a cloud since the IRS/Treasury can _theoretically_ go after you any time they want. (Whether they do or not, and what they can legally demand, are separate questions, but they maintain the legal right to do so.)

Make sense? I'm not necessarily recommending a specific approach here but just trying to lay out the options and their pros and cons. That said, I'm not a big supporter of the "one or a couple years only" approach. That seems a poor option because you're alerting the IRS/Treasury that there was a problem but then not fully correcting it, especially when it's probably rather inexpensive to correct the problem fully if you do so all at once, especially given that penalties "cap out." If the IRS or Treasury come to you first about the remaining problem, generally it gets more expensive immediately at that point.

The OVDP is generally for very, very seriously delinquent individuals. There are a few such "notorious" individuals but not many. I think you can safely ignore that option if you're just dealing with a minor bit of thus far unreported interest income/overseas accounts, even over several years.


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## Bevdeforges

nitinkhosla79 said:


> I have around 150,000$ in overseas account and i want to bring in compliance. With exchange loss, i think it will be around $0 - 800 tax due(max) in last 3 years. My CPA is suggest to do quiet disclosure for 2014(amended return) and it should be fine. He says IRS does not have resources to digg in (post recession time was different).
> 
> Reading lawyers blogs get you scared on how quiet disclosures are worrisome and streamlined/OVDP is best way.
> 
> Can someone share their experience on quiet disclosure or offer perspective?


Given the relatively small amount due, I'd opt for the amended return for 2014 and see how it goes. Quite honestly the IRS has been known to use "shock and awe" publicity to try to cow folks into compliance, particularly on relatively small issues. (And yes, to the IRS $800 is still pretty small potatoes.)

If for any reason they were to come back and start asking about years prior to 2014, you would probably have some time to either negotiate a settlement or to simply backfile at that time, paying the interest due on any amounts owed. But I'd be willing to bet the amended return resolves the issue in one fell swoop.
Cheers,
Bev


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