# FBAR, FATCA, Foreign Income — please help



## Supergreen

Like many on here, I have learnt about some US tax laws (FBAR, FATCA) and I have lost a lot of sleep over Christmas.

I’m a U.K. citizen who is living in the US after obtaining a green card through marriage. I moved to the US in 2018, obtained by EAD in Q4 and then my green card in Q4 2019. Since then I have submitted two tax returns (the first married filing separately and the second married filing jointly). It’s now time for the third and I have no idea what to do.

My goal is always to be able to sleep at night. I want to know that I can reasonably defend myself in the extremely rare chance that I am audited and I want to never do anything that could land me with sever penalties let alone anything criminal. You could say I plan for the extreme case and fall a bit on the over worrying side.

My situation is that I did not know about FBAR and FATCA. I’m very familiar with U.K. tax rules. Moving to the US was so complicated and fast that it took me quite a while to learn how things work. I didn’t really know how to do my tax returns, I just used turbo tax and called it a day. I just had a job and in the U.K. almost everything else is taxed at source or not taxed (e.g. stock held in an ISA).

So what does that mean? I left a couple of properties, a handful of bank accounts, and a stocks and shares ISA. Not to mention a pension from an old job where I was made redundant that I didn’t even know I had. So over the last couple of years I’d been simplifying and closing these out (just because I wanted to, not because I thought I had to). I resurrected my pension and moved it into a SIPP, I closed out most of my bank accounts, and most recently I sold the vanguard funds in my ISA. Roughly speaking I had maybe £10k in one or two accounts, £150k in my ISA, and a SIPP worth £25k. I also had a friend staying at my old home and technically speaking had rental income flowing into my bank accounts which was not insignificant (though no lease etc).

Upon learning about FBAR, I sold the stock, withdrew and closed the ISA, and then sent over the funds to the US via transfer wise (with multiple £10k transactions as that was my bank limit without paying a fee for a wire).

So now I’m really worried. For 2018 and 2019 I did not do an FBAR. I also did not know about FATCA and probably answered no to the foreign bank or income question on the 1040 and didn’t submit a FATCA.

Upon doing some reading I thought I should just move all the funds to the US in the first instance and close the accounts. As long as I keep everything under $10k from here on our then I can decide whether or not to amend the previous returns. At least I am compliant going forward. Well now I’m really worried about sending the money to the US. Since I split it up into £10k transactions, im sure that looks really bad and maybe they filed a SAR. If they did then they can probably see that I transferred a lot of money from a U.K. account and then see that I don’t have any accounts listed on an FBAR or FATCA. Maybe this could trigger an IRS audit. I then also realised that I can’t move my SIPP. So even if I hold nothing in my bank accounts from now on, I technically need to always file an FBAR because the pension puts me over the limit! I wish I could just give the pension away.

So im now a bit lost on how to proceed. On the U.K. side I should be good, and I’m going to ensure my accountant starts filing self assessments to report my rental income. But then on the US side I haven’t engaged with a CPA. Im worried that they would of course want me to conservatively go back and amend the last two tax returns and then conservatively file the FBARs via the streamline process and pay the 5%. That’s very costly given my balances and the fact I withdrew the money from the ISA to my bank first so now two accounts have a high balance of £150k.

What are my options? Is it worth going back since I’m only delinquent on two years and ensure I file this year correctly? Alternatively I can just not file an FBAR or FATCA. My banks definitely aren’t reporting me because they don’t know I’m in the US. Then next year onwards I’m good because I don’t have any balances above $10k (except the SIPP). I mean if I start filing forward on an FBAR then aren’t the previous delinquencies wilfull?

I’m debating between going back and amending my returns and filing fbars using the delinquent process where you add a cover note. I know it doesn’t apply when you owe taxes so either I could amend first or just not amend at all. I’m also concerned about the rental income and declaring the values of these properties (nothing to hide but why) since you need to claim depreciation.

As you can imagine I’m pretty spooked so any help would be much appreciated. I’m very capable to do all this stuff myself so I don’t intend to engage with a tax attorney but I’d be open to having a CPA do the paperwork once I decide the path forward.

One thing to add is that my first year I made 100k, but we are currently in the $450k gross income range (with probably an additional 50 from foreign rental to be added). We work for a tech company and are expecting 7 figures after our company ipo’s in the next year or so. Those RSU’s would come in as regular income on my tax return and it does concern me about being more likely to be audited.


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## Bevdeforges

The first thing to do is to relax. You're not really in any great jeopardy. On the first point, while there is a "deadline" for filing an FBAR, there is no penalty for filing one late. Just file the 2018 and 2019 FBARs - using reasonable estimates of the high balance in the accounts you held at the time - and get on with life. 

I'm not at all sure what you mean by "filing FATCA" - FATCA is a collection of laws and rules that applies both to individual taxpayers and to banks and financial institutions overseas. At this point, there is little or no attempt being made to match up FBARs with individual filings and it's still amazingly unclear precisely which sorts of "overseas investments" require which of the many supplemental forms prescribed by various parts of the FATCA rules and regulations.

Given your current income level, I would look into finding a good CPA or tax accountant (not a mere "tax advisor" or "tax preparer") - but at this point you can simply assume that the tax returns you have already filed were filed in "good faith" with no intention to evade anything. (Heck, even life long residents of the US have little or no understanding of the tax laws.) The resources of the IRS are stretched pretty thin as it is, so you normally have to do something pretty egregious to draw an audit. And actually, if you do draw an audit, you'll have a chance to review the findings with the IRS and make any necessary payments (or receive any refunds you may be entitled to). Try to resist any push from the CPA to back file or amend your filings unless there is something seriously amiss in what you did file. But hiring someone for your taxes is probably justified in your case, if only because of the rather large increase in your income in the current and coming year(s). 

I think your plan to just go forward with your filings starting this year is the best approach (and if it makes you feel better, back filing the two FBARs - reason for late filing is simply that you only just moved to the US and are just learning what filings are required).


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## Supergreen

Thanks bev, I was hoping you’d reply.

By FATCA I’m referring to the 8938 form that you file if your foreign balance has exceeded $150k at any point during the year. You must then list all of your accounts on the 8938 form.

My concern is that if I file the previous FBAR’s, I will be showing accounts with a high balance of about $210k since I had to move the money to another account it will look like I have had two accounts with this balance. Won’t they wonder why I didn’t submit the 8983 with my tax returns? (Which I believe also has a 10k fine).

I feel like if I backfill them FBARs then I open myself up to needing to amend the previous tax returns and submit an 8983. And that probably opens me up to an audit.

What are the chances of my international transfers (transfer wise and also via a popular US stock trading account) being flagged? I know that US accounts don’t report so it would just be the risk of the activity looking suspicious and then discovering the foreign account.


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## Bevdeforges

First of all, the FBAR reports are rife with "double counting" of one sum of money transferred among two or more overseas accounts. They don't require you to total up the "high balances" you report because it's pretty common and they know it happens. But just not filing the back FBARs is also an option - just start filing them going forward. The banks overseas if they report an account only report the year end balance - as long as the "high balance" you reported for the year is the same or higher than your year end balance, you're fine. (And that's assuming they actually check that sort of thing.)

The other thing to remember about your overseas balances is that they will only be reported by the banks if you have any "US indices" - i.e. you have a US address or phone number attached to that account in their (the overseas banks') records, show a US birthplace (again, in the bank's records) or have submitted a w9 or w8 ben form to the bank (basically to either give the bank your US SSN as a US citizen or to swear to them that you're not a US citizen or resident for tax purposes). But without a US SSN they can't actually match any specific bank balance to your tax returns.

International transfers of funds are flagged any time they exceed $10,000 as a matter of international convention. But not for tax purposes. And, Transferwise doesn't count as an international transfer. You transfer money from your bank to the local (i.e. same country) Transferwise account. Transferwise in the receiving country then makes a transfer from their local office to the receiving bank. There is no international transfer.

US Banks and "financial institutions" only report income events (sales of stocks, payment of interest or dividends, etc.). If you simply withdraw money from your bank (or financial institution) that's not income and of little or no interest to the IRS.


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## Supergreen

Thanks this is all very helpful and reassuring.

My concern about the FBARs are not that they will add up the balances and that these will exceed the 8938 threshold, but rather than actually just one of the balances exceeds the 8938 threshold on its own. So that is enough evidence that I should have filed the 8938 because there is no explanation for a single account having >$200k as a high or end of year balance. You would have had to have had >$200k actual funds for that to happen, so I’m worried that they might have a rule that looks for any account more than a certain threshold rather than the sum of all accounts (which would trigger a lot of false positives).

I can confirm that none of my bank accounts have any knowledge of my US presence. All of my U.K. accounts have my U.K. address and still assume I am just a regular U.K. person.

The only two potential triggers are the transfers made to transfer wise and the US broker (both of which were local faster payments transfers to U.K. banks and then convert over in the exact way you described). Potentially this could have triggered unusual activity and cause an investigation. I did nothing illegal (the funds just came from my bank account which just came from my ISA which was built up over many years of savings from my U.K. job) and the amounts while big to me are probably tiny to them so maybe I’m over worrying.

The other trigger is that I filed my P85 with the U.K. so maybe as a nonresident hmrc tells the banks to start reporting? They don’t have my US details let alone SSN. A long shot I know.

The real concern is the missing FBARs, the missing 8983’s, and the (small) unreported foreign income from selling my stocks in the ISA (which would also trigger PFIC) and becoming an accidental landlord and renting my apartments to friends. If on the very long shot I was audited and had to show my U.K. bank statements, it would show the sale of the stocks and some recurring transfers from a friend of a couple of thousand pounds. I did the math and after all the deductions etc there is really not much I owe, maybe nothing, maybe a few thousand, it depends if you want to risk claiming (valid) expenses and triggering an audit.

Now that I have been in the US for two years, I think I will continue to rent my property to a friend (but still no need for a lease agreement) and would like to be compliant with reporting this income in the U.K. and thus US going forward.

What would you do? I probably plan to start a company in a few years so I just want to make sure I don’t have an audit in 3-4 years and then this all comes back to me and I can’t explain it and just get FBAR fines of 50% of my account balance. On the other hand I’d be happy to gamble that they probably don’t actually care about me. The best defence might be to never file an FBAR. The trouble is I can’t get rid of the £25k pension account so I will always technically be wrong even if all my other accounts are tiny. So if I file forward then I admit to knowing about the rule and if I don’t file I will always be out of compliance. Lots of friends in the US have lots of random transactions on their venmo accounts (subletting etc) and don’t seem to worry about it. I don’t know how they’d explain those.

Another point is that maybe I’ll give up my green card before 7 years. My net worth will make me a covered expatriate so I might move back to the U.K. before triggering an exit tax. But depending on how life goes maybe I’ll stay here. I want to reserve that optionality and not have to worry that I’ll get caught out later for accidentally missing some forms and ticking the wrong boxes I didn’t know about.


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## Supergreen

I appreciate the point about the CPA. I have worked in investment banking (trading) for many years in the past so I am fairly financially literate (just very panicked) and would like to figure out the game plan before engaging so that I don’t say the wrong things and let them convince me to file an unnecessary OVDI or something as an example. I think you can rack up a big bill with accountants and take a more than necessary conservative route if you let them. But once I know what direction I should go in I will likely have them handle my finances going forward.

I try to remind myself I don’t have any Swiss bank accounts or illegal activity. I’m just a regular guy who didn’t know the rules, found out he’s doing a few things wrong, wants to get compliant and sleep at night knowing that I can always explain any situation. The worst case would be in 10-20 years to find that I had unreported income that summed up to a lot and then go to jail or something. My wife on the other hand thinks I’m massively over worrying and not to bother doing anything.


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## Bevdeforges

To be honest, I agree with your wife. Audits are generally based on how much they estimate they can get from you in back taxes. If the amounts are minimal, you're really not worth their trouble. Plus, it's rare that governments exchange financial or tax information - unless really large sums due to both sides are involved.


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## Supergreen

What would you consider to be a large sum?

The amounts feel large to me but the taxes due are probably not enough to pay the person looking into it. And a single digit percentage in comparison to the taxes I pay via my W2 job.


I feel like it makes no sense to go back in time but perhaps it does make sense to report this additional income going forward. Filing the previous two FBARs and amended tax returns (incl 8938) sounds like it could be more risk than it’s worth. I guess I have read too many legal blogs and am scared at the prospect of the punitive penalties. But in practice perhaps I have nothing to worry about. I’m 50/50 on whether to file FBARs going forward — it’s only my pension that triggers it, the only way it could be found is via an audit in which I self report it. I could always claim ignorance since my bank account would be <$10k but this would technically be wilful since I do now know the rule. On the other hand reporting it just gives up information on a silver platter for no reason (not that I’m hiding anything, but why let them pry).

It’s easy enough to report the rental income in the U.K. through self assessment and I’ll probably only owe £2k if anything because of the generous personal allowance. The problem then is I need to also report this foreign income on my 1040. I will be far away from the 8938 thresholds (and FBAR as mentioned) so no need to worry about that, but I’m a bit uncomfortable about having to work out the cost basis of my inherited properties and then start claiming depreciation. I’ll probably not owe very much if anything after depreciation or expenses but the complexity of it and giving away the value of my properties (it’s not high) to the US and then claiming depreciation really bothers me. Is there a path here where I could just report and pay tax on my rental income to HMRC and not bother declaring on my 1040? Or am I just asking for trouble.

Another option would be to just transfer the properties to a ltd company (or my sister, who is technically still part owner, but let me have them — we never even put them in our names). I looked into the ltd company route and it makes a lot of sense in the U.K. but when you are a US person then it’s complex. You have to report to say you’re a director of a foreign company and you also have to pay ridiculous tax on dividends unless qualified which I don’t really know if this is qualified or not.

I want to do the right thing but they make it pretty hard. It should be a lot easier than this.

Again there are a few questions here:

should I start reporting the rental income on properties my sister and I inherited but that is 100% mine to the U.K.? I think the answer here is yes because I don’t want it to rack up to 10 years of unreported income and put me in jail or something. No intent to evade the law.
should I backfill tax returns, 8938, and fbar? I think probably more risk than it’s worth
should I then report this foreign income to the US via my 1040 and all the associated pain of reporting depreciation on the properties and lowering the cost basis of the property? Not sure
should I file fbar going forward? Not sure. It would just be the pension and the <$10k account but that account will have the history of the rental income so if I do fbar I should probably make sure I’m correctly reporting the income and then claiming all the deductions.

If I take the approach mentioned then I will technically be 3 years out of compliance with 8938, 3 years out of compliance with reporting foreign income, and indefinitely out of compliance with fbar. I still have the opportunity to amend the past two years and do everything by the book so that’s why I’m trying to think things through so thoroughly. I’m going to be paying hundreds of thousands in taxes next year so I know it’s silly that I’m worried about this but the potential penalties and stories sound pretty scary and I think they take foreign things really seriously to avoid people not declaring world wide income.


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## Supergreen

Jca1 said:


> I agree that you might be supposing a larger degree of competence and inter-agency coordination than actually exists.
> 
> Here is an approach I'd consider in your situation, bearing in mind that I am not a lawyer or tax professional of any sort:
> 
> 1) Use the delinquent FBAR procedures to file FBARs, starting with the year you became tax resident in the US. You can do that safely, working with someone who knows what language to use, without risk of penalties. That gets you out of the worst possible problem, the 50% penalty (willful) or $10k per account penalty (non-willful). I've heard of FBAR investigations that started as a side effect of another issue like a questionable deduction being taken, so it's sane to close this off.
> 
> 2) 8938, PFIC, amending tax returns: It might be best to skip this. From speaking with lawyers, it's not clear that there's any obligation to amend a tax return you later discover is inaccurate. The penalty for a late 8938 is the same as an unfiled 8938: $10k per form -- not great, but not life-changing if you're earning hundreds of thousands of dollars a year either. I don't know whether the IRS automatically assesses penalties for late 8938s like they do for some other forms, so I'd be sure to find out before submitting one.
> 
> It's not clear that there's any penalty for failing to file the PFIC paperwork.
> 
> For the unreported income, you can look up what your penalty exposure could be during an audit (usually tax owed plus interest plus an extra ding if the unreported income is a large percentage of your total income). I wouldn't feel happy about paying tax on the ISA growth that occurred before you were a tax resident in the US, personally. I'm also not sure if I'd worry much about an audit -- an audit might focus on a specific issue with a specific return and unless you happen to get someone who really knows what they're doing might not spill over onto more obscure topics.
> 
> If you do decide to 'fix' all this stuff I'd probably use the streamlined program as you can potentially do that without penalties, but it might be more trouble and money than it's worth.
> 
> 3) ongoing reporting: I'd file the FBAR and other required forms accurately to the IRS and HMRC and don't omit income. But be wary of people encouraging ornate, risky, and unnecessary reporting. For example, I'd avoid anyone saying to file forms 3520 and 3520-A for the SIPP; it's probably not even a trust as there is no fiduciary.


Thanks, this is helpful. What do you think about this as an approach?

Option 1
1. File previous two FBARs using delinquent process.
2. Ignore past two tax returns with missing income and missing 8938.
3. File this year’s tax return with appropriate income and 8938. Also file accurate FBAR.
4. Going forward no need for 8938 but continue FBAR and reporting foreign income.

Option 2
1. Ignore past two tax returns with missing income and missing 8938. Also ignore missing FBARs.
2. File this year’s tax return with appropriate income and 8938. Also file accurate FBAR.
3. Going forward no need for 8938 but continue FBAR and reporting foreign income.

Option 3
1. Ignore past two tax returns with missing income and missing 8938. Also ignore missing FBARs.
2. Don’t file 8938 this year or FBARs.
3. Going forward no need for 8938. Make judgement call on FBAR and reporting foreign income.

With option 3 I open myself up to another year of non-compliance (and leave previous two open) but I won’t end up on some list of people who file 8938’s or high value FBARs. There would be less reason to ever open Pandora’s box.

With option 2 I can see a reason for an audit.

With option 1 I’m doing a reasonable attempt at closing out my past risk but still open myself up for an audit.


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