# FBAR/8938: I made an unintentional mistake, will I get audit this way?



## robertc0909

The more I think about the problem, the more I am worried. So I'd like to check with someone who may had/heard of something similar before 

I was born in Asia, and I have quite a few bank accounts(around a dozen, if you want to be surprised!) over there.
The total balance exceeds $500K USD. Of course none of those are my money, I didn't have a job back then, my parents put their money into mine and my siblings accounts for their own use. I have never spent a dollar from these accounts, and hopefully won't have to. 

When I first became tax resident in the US in 2013, I learned about FBAR and 8938, so I went ahead and reported them. I also included the all interests income for the accounts I knew of.

However, this year I realized that there was two more account that I didn't know of. Apparently, my parents also forgot about these two accounts. The balance of account1 is ~$15K USD, and the balance of account2 is $508 USD. I'm not sure if I actually owe tax since I didn't claim full foreign tax credits in the past years. It's really possible that after I claim all foreign tax credits, I didn't owe more than a few dollars of tax. Even to be aggressive, I think I owed less than $300 USD tax.


My goal is to become compliant with the rules but I also really don't want to get an audit. 


Can I please seek for your advice?

1. My plan is to just go ahead and report these 2 missing accounts starting from this year, without amending past years. 
Will this trigger IRS's computer system? They might compare the number of accounts on FABR or 8938 from previous year and this year? And thus get me an audit? Will they (the computer or human) think these additional 2 accounts are big red flags? Do you folks know if they use computer to detect things like this?

2. Is it necessary to go back and amend each year of tax returns or FBAR? The main two reasons that I don't know if that's a smart move are a.) I've heard amending taxes or FBARs are easier ways to get an audit b.) It will really cost me too much time.. while this is not a good reason, I "feel" that's such a big effort to make up such an unintentional error (and probably didn't owe tax after claiming all foreign tax credit). Not trying to find an excuse but want to know in practice if this is necessary?

3. It also just came to my mind that my banks didn't know that I became US tax residents, so they didn't report to IRS that these are my bank accounts, while I reported those accounts on my end. I have banked with them for decades and the accounts were opened using my birth country government ID, when I was little.
Is this a problem? Am I supposed to call every of my bank telling them that I am a tax resident of US now? Did you folks do this?


Thanks. I know I'm not supposed to deflect the blame, but I really want some peace of mind and want to know that in practice, is just go ahead and reporting the omitted 2 accounts starting from this year reasonable? Do I need to amend the past or join the Streamline program for these 2 accounts?


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## Bevdeforges

I think your plan to just start reporting the two "missing" accounts is just fine. Minor discrepancies like this are not enough to trigger an audit. Normally, there needs to be some indication that you would owe a "significant" amount of additional taxes - which in this case, it's unlikely you would.
Cheers,
Bev


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## robertc0909

Phew. Finally I got it done. I just filed the return and fbar and included the previously two missing accounts. 

I felt relived for a split second since now nothing is missing. 

.. until I realized that for my insurance policy A. 
I reported A in the past years but in 2017 A reached its term and thus is closed. All the value in A is cashed into the bank account B, which I reported. I thought since A is closed, I didn't have to report it on 8938/fbar for 2017 (especially I report bank account B where A's value went into). But looking at form 8938, it looks like I should've still included A, and check "account is closed this year", rather than just omit A from 8938/fbar.

Will I get audited this way? Will IRS compare the past returns and audit me since A was in the past years but not in 2017's 8938/fbar anymore....?

A's total worth was $80K and all that amount is included in the value I reported for bank account B


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## Bevdeforges

Technically, officially, you are supposed to report (at least on the FBARs) all accounts that were open at any time during the year. However, in practice I have yet to hear of anyone being audited or otherwise harassed if their only "mistake" is to drop a closed account a bit too early.
Cheers,
Bev


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## robertc0909

Bevdeforges said:


> Technically, officially, you are supposed to report (at least on the FBARs) all accounts that were open at any time during the year. However, in practice I have yet to hear of anyone being audited or otherwise harassed if their only "mistake" is to drop a closed account a bit too early.


I want to thank you again for replying my question again  

Bevdeforges, I just realized I can also amend the return I just filed right away. Do you think it'd be wise to amend the just-filed 2017 return and the FBAR? My concern is amending the return would catch more attention from IRS and I don't know if it's wise since as I mentioned in my first post of this thread, I had 2 missing accounts that I didn't know exist until this year. And this year I just silently included the 2 accounts. And those 2 accounts are the ones that I think it's harder to explain.. 

And if I got audited for those 2 accounts, I probably will have to pay penalty (not sure f I can still enter Streamline program in that case) and also go amend all the past years returns/fbars  which is also a very daunting task.

Do you or other folks in this forum know if this kind of mistake is worth amending? or in my case I should just let it go and hope IRS won't knock my door?

Cheers,

Robert


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## Bevdeforges

Unless the two accounts contain a cool million or so, I'd just leave things as they are. As far as I know, there is no "auditing" of the FBAR reports - they seem to be used primarily to compare with any "unusual or irregular" items on your income tax returns. And it may also depend on whether or not the financial institutions holding those accounts have any inkling that you are a "US person" or not. (I.e. have they asked you for your US SSN?)
Cheers,
Bev


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## robertc0909

Bevdeforges said:


> As far as I know, there is no "auditing" of the FBAR reports - they seem to be used primarily to compare with any "unusual or irregular" items on your income tax returns.



Thanks Bev. 

Do you think it's also the case for form 8938? I basically just copied my 8938 to FBAR and thus both have the same omitted, closed Insurance account. 

(and no the total amount of the two accounts is actually less than $50K USD)



Bevdeforges said:


> And it may also depend on whether or not the financial institutions holding those accounts have any inkling that you are a "US person" or not. (I.e. have they asked you for your US SSN?)


Can I know why you ask if they know my US person status or not? No they don't. The insurance was purchased way before I arrived the US in my home country. Pretty sure they never asked me and don't have any record. 

Is it better that the financial institution know I'm US person or not for this case?


Many thanks. 

Robert


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## Bevdeforges

> Do you think it's also the case for form 8938? I basically just copied my 8938 to FBAR and thus both have the same omitted, closed Insurance account.
> 
> (and no the total amount of the two accounts is actually less than $50K USD)


The form 8938 is part and parcel with your income tax return, and thus any action (or not) will depend on whether or not the IRS notices any oddities within your returns that indicate that you are "hiding" something that would result in your paying more tax.



> Can I know why you ask if they know my US person status or not? No they don't. The insurance was purchased way before I arrived the US in my home country. Pretty sure they never asked me and don't have any record.
> 
> Is it better that the financial institution know I'm US person or not for this case?


If they are aware of the fact that you are (or "might be") a US person, then they will be obligated to report the account to the IRS under the FATCA reporting requirements for "financial institutions." (It's not as direct as this, but that's the net result.) 

If they report the account, then in theory at least, the IRS could make a run of what information they have received from the foreign sources against your US tax returns (based on your US social security number). I've never seen any evidence that they do this routinely, especially for small accounts (under $500,000 or so) but the possibility exists.
Cheers,
Bev


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