# FBAR for US citizen in UK



## USexpatUK

Dear forum,

I have read a number of post here of a similar theme.

I have just been made aware that my CPA should have been filing an FBAR and hasn’t.

I am a US citizen working in the USA and living in the UK. For tax purposes I am resident in both countries.

I have been filing in both countries and paying tax in the USA on my income there. My income in the UK is minimal (interest from bank and since 2013 some property income) and come under my ‘personal allowance’ currently at £10,600. The interest from bank accounts was the most in 2013 at £140 and the other years considerably less. No tax was paid on most of these incomes because they were in a tax free ISA (Individual savings account). The property income at the highest year is £2300, the other years less. All three accounts I hold in the UK (one ISA, one personal/checking and one joint/checking) have aggregate income over the last 6 years that is above the $10,000 threshold.

This UK income has not been declared on my US tax return, again because I was unaware this had to be done and my CPA did not advise me.

My CPA is working on helping me sort this out but following a conversation with him and his poor advise so far I do not have confidence in his knowledge or ability.

I understand from what I have read on the internet and here on the forum that I could file FBARs for the past years, and more forward correctly. Or I could undertake a ‘voluntary disclosure’.

I also understand there could be substantial penalties, but looking on the internet I am only scared to death. $10,000 per account per year etc means I will be bankrupt.

I am an artist earning between $50,000 and $75,000 over the last years. I am not a big earner but work hard for what I earn.


Any thoughts, experiences or advise greatly received.

From a worried man.


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## nyclon

I have moved your post to the tax forum where you should get more input.


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## ForeignBody

USexpatUK said:


> Dear forum,
> 
> I have read a number of post here of a similar theme.
> 
> I have just been made aware that my CPA should have been filing an FBAR and hasn’t.
> 
> I am a US citizen working in the USA and living in the UK. For tax purposes I am resident in both countries.
> 
> I have been filing in both countries and paying tax in the USA on my income there. My income in the UK is minimal (interest from bank and since 2013 some property income) and come under my ‘personal allowance’ currently at £10,600. The interest from bank accounts was the most in 2013 at £140 and the other years considerably less. No tax was paid on most of these incomes because they were in a tax free ISA (Individual savings account). The property income at the highest year is £2300, the other years less. All three accounts I hold in the UK (one ISA, one personal/checking and one joint/checking) have aggregate income over the last 6 years that is above the $10,000 threshold.
> 
> This UK income has not been declared on my US tax return, again because I was unaware this had to be done and my CPA did not advise me.
> 
> My CPA is working on helping me sort this out but following a conversation with him and his poor advise so far I do not have confidence in his knowledge or ability.
> 
> I understand from what I have read on the internet and here on the forum that I could file FBARs for the past years, and more forward correctly. Or I could undertake a ‘voluntary disclosure’.
> 
> I also understand there could be substantial penalties, but looking on the internet I am only scared to death. $10,000 per account per year etc means I will be bankrupt.
> 
> I am an artist earning between $50,000 and $75,000 over the last years. I am not a big earner but work hard for what I earn.
> 
> 
> Any thoughts, experiences or advise greatly received.
> 
> From a worried man.


First of all there is no need to panic. Many expats have found themselves in exactly this position.

Your worldwide income has to be declared on your US tax forms. Separately you must complete an FBAR if at any point in the year the aggregate of the maximum balances in your foreign financial accounts exceeds $10k.

A good starting point would be for you to look at the Streamlined procedure here:

https://www.irs.gov/Individuals/Int...-Taxpayers-Residing-Outside-the-United-States

This is specifically for people who have unintentionally not complied with the IRS income and FBAR requirements and provides protection from penalties.


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## Bevdeforges

Where is your CPA located? Because if you are living in the UK, you are most likely subject first to UK taxes. You say you're "working in the US" - but does that mean you are physically present in the US when you are working or maybe you are working remotely for a US company while being physically located in the UK.

As a US citizen, you are supposed to report your "worldwide" income on your US returns - regardless of where it is paid or in what currency. Normally, you also have to report your worldwide income in the country in which you are resident (or "tax resident"), but I'm not real familiar with the UK tax laws.

As ForeignBody has said, you need to take a look at the Streamlined program for rectifying your filings. The terms vary a bit depending on what your tax residency may be, but usually, this is the easiest way to get things right and then go forward without undue hassle.
Cheers,
Bev


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## iota2014

Hi USExpatUK

As Bev says, if you're classed as resident in the UK you'll need to report your worldwide income to HMRC. See https://www.gov.uk/tax-foreign-income/overview for the nitty-gritty including residence rules.


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## BBCWatcher

USexpatUK said:


> I am a US citizen working in the USA and living in the UK.


Echoing Bev, would you decode this sentence for us? That's a long commute, and the Concorde is no longer flying.


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## USexpatUK

Thank you nylon for moving the post to the correct place.

Thank you for your replies.

To clarify - my work is in the US. I am a choreographer who works on projects for weeks at a time in different states in the US and then return home to the UK in between. So I am physically present in the USA. What I need to do is count the days I am present because I think I cannot use the 'streamlined process' because I was in the USA too much. However I did not maintain an 'abode' there and was always housed by the company I worked for.

I have been filing tax returns in the UK. The English tax situation is also a mess as I took advise when I arrived here which turns out to be wrong. I now understand that I should have been reporting the US income here, but due to an interpretation of the double taxation agreement was told not to do this. This is another issue!


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## BBCWatcher

Unless the U.S.-U.K. tax treaty says otherwise (usually not) then, at least in basic terms, you'd let the U.S. tax your U.S. source income first but also report that income on your U.K. tax return, taking a tax credit on your U.K. tax return for the U.S. income tax you paid. For U.K. source income it's the opposite: HMRC taxes that first, then you also report it on your U.S. income tax return but take a Foreign Tax Credit (IRS Form 1116) to account for the U.K. income tax paid.

Yes, you'll probably have some tidying up to do. However, because of the foreign tax credits you'll probably owe little or no additional tax. The U.S. side (IRS) is likely to be pretty kind, in part because U.K. tax rates can be slightly higher. It's even theoretically possible you could get a refund on the U.S. side with a timely amended filing. (Not promising that of course, but wouldn't that be nice.) I'm don't know how HMRC will view things.

Was U.S. Social Security and Medicare paid by you and your employer on that income when you worked in the United States? How about U.K. National Insurance contributions when/if you were working in the United Kingdom? If those contributions were paid already on both sides of the ocean, that'd at least cut down on your outstanding tax exposures.


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## iota2014

BBCWatcher said:


> Unless the U.S.-U.K. tax treaty says otherwise (usually not) then, at least in basic terms, you'd let the U.S. tax your U.S. source income first but also report that income on your U.K. tax return, taking a tax credit on your U.K. tax return for the U.S. income tax you paid. For U.K. source income it's the opposite: HMRC taxes that first, then you also report it on your U.S. income tax return but take a Foreign Tax Credit (IRS Form 1116) to account for the U.K. income tax paid.


Unfortunately, since the UK income was less than the personal allowance, UK tax credits won't be available, so the UK interest income will presumably get taxed by the US.


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## BBCWatcher

That'd be true for that particular year, although Foreign Tax Credits on the U.S. side can be rolled forward and backward to a great extent, across tax years. "It depends."

I'm not promising any particular outcome, but _probably_ the U.S. side at least isn't too gloomy.


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## USexpatUK

Thank you for your further replies.

The amounts of income undeclared is a minus figure in 2013, just under £1500 in 2014 and under £5000 in 2015. Then this divided between my partner and myself as he owns 50% of the properties.

At this point I am thinking to do a 'quiet disclosure' by amending the last three years of tax reruns (since we owned the properties) and filing the backdated FBARS. I am not worried by any tax due at this point because it will be minimal. Next year I can get it right from the start.

The reason for my not filing my FBARs is because my CPA did not advise me I had to do this. One assumes they know best, and know which questions to ask! Question: Should I file these myself? I have heard they are not complicated and have looked up the IRS guidance to obtain the figures. I am wondering what my CAP would put as a reason for not filing previously.

BBCWatcher - your explanation of the double taxation agreement was helpful - thank you. I will check about U.S. Social Security and Medicare paid because some of the work was W2 income.


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## BBCWatcher

FinCEN Form 114 is an easy form. Even for most choreographers. 

Yes, just check to make sure you fully paid up the social insurance contributions as applicable on each side of the ocean. W-2 reported income should be just fine (Social Security and Medicare should be deducted), but if you had self-employment income in the U.S. then your CPA should have calculated some Self-Employment Tax that you paid. It's not clear to me if you also worked in the U.K., but if you did then there should be some U.K. National Insurance.


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## iota2014

> The reason for my not filing my FBARs is because my CPA did not advise me I had to do this. One assumes they know best, and know which questions to ask! Question: Should I file these myself? I have heard they are not complicated and have looked up the IRS guidance to obtain the figures. I am wondering what my CAP would put as a reason for not filing previously.


There's a drop-down list of selectable reasons. "Didn't know I had to file" is nice.


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## byline

USexpatUK said:


> Question: Should I file these myself? I have heard they are not complicated and have looked up the IRS guidance to obtain the figures.


I am probably the least accounting-minded person you are ever going to meet, and even I find the FBARs to be relatively simple. Converting to U.S. dollars is probably the hardest part, and I use a currency converter to do that for me. A calculator and the IRS's conversion chart work equally well.


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## USexpatUK

Thanks once again for your replies.

As I am not eligible for the Streamlined Foreign Offshore Procedures I will file amended returns for the last three years, and FBARs to cover the same period. 

Does anyone have experience of either a 'quiet disclosure' or using the voluntary compliance programs?


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## BBCWatcher

The Streamlined Program (domestic or offshore) is a voluntary compliance program. The OVDP is a less attractive offer for most people than either variant of the Streamlined Program, but some people can't do any better than the OVDP.

Why don't you start by figuring out what the tax, penalties, and interest due is per normal, late, amended filings. It might be pretty low.


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## USexpatUK

Thanks BBCWatcher. My CPA says if I enter OVDP then the penalties are likely to be in excess of $10,000. I have looked myself and can see there is a possibility for a 'warning letter' but I think my CPA is just guessing.

Does anyone have experience of either a 'quiet disclosure' or using the voluntary compliance programs?

I am still trying to think this through and make a decision I am comfortable with. Having looked on the internet I see that for people in my income bracket about .5% get audited. I have spoken with many people and read this forum and it seems unlikely the IRS would want to look at my merger earning or foreign bank accounts.

I have looked at the FBAR and can see it is straightforward to fill it in myself. I think I will file 6 years of FBARs - this years (which is in date) and the last 5.

Question: I assume they don't automatically pick up on late filed 'delinquent' FBARs? No consequence unless I am audited?

Also a further question: do I account for double counting in the foreign accounts before reporting the figure in the FBAR? if so, does anyone have experience of this?

Thanks once again for all of your help.


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## Bevdeforges

At this point there is nothing to suggest that there is any "automatic" review of late-filed FBARS. And no, you should not "adjust" for double counting of funds in the FBAR filings. They really, really want just a simple "high balance" for the year - even if you transferred the same $150,000 from one account sequentially to five other accounts and had no other money, then each of your six accounts should show a $150,000 high balance for that year.

Frankly, it's your call whether to go with the streamlined program or simply amend your prior returns to include the foreign income. Probably best to do the forms and see how much additional tax (and interest) you're talking about before deciding if you want the "absolution" of the streamlined program.
Cheers,
Bev


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## USexpatUK

Thank you Bev. 

It's not so much the tax and interest I'm concerned about - I am sure this will be minimal. It's the penalties. From what I have read these could be astronomical - $10,0000 per account per year is bankruptcy for some. I could not apply for streamlined program, but would have to go through OVDP. (Am I missing something here because everyone keep mentioning streamlined?)

When you say do the forms - are you meaning amended 1040?


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## Bevdeforges

The FBARs are a separate consideration from the tax returns themselves. The streamlined program originated for those who had been living overseas for sometime, blissfully unaware they had to file US income taxes at all - and it basically was nothing more than turning what had long been "standard operating practice" (file current year and backfile 3 years to get absolved) into a formal program. 

Your case is perhaps a bit trickier, since you're actually working in the US and not subject to the FEIE on your earned income. But given that you have filed for the years in question, I would be inclined to just amend those returns, do the FBARs and be done with it. That's plenty to show that there is no "willful intent" and it's highly likely you'll never hear anything further about the matter. (As long as you "go forth and sin no more" - i.e. file the way they want you to going forward.) 

Now, if you had a few million in income, and similar amounts in overseas investments and other financial accounts, I'd be a bit more concerned, but I gather that is not your case at all.
Cheers,
Bev


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## USexpatUK

Bev,

Thank you once more.

I agree that my case is more complicated. I would not qualify for FEIE simply on the 'physical presence' test. That is despite the fact I have ILR, am married to my husband, and we have three joint mortgages here!

My CPA has quoted me a nice $600 per year to back file - even though I hold him partly responsible for me being in this mess in the first place. I spoke with other CPA's who had no real clue what they were talking about - I seemed to know more than them from what I had read.

It's a lot of reading and not all of the new information sticks in my head first time - but this forum is super helpful


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## BBCWatcher

I don't think you should be paying your CPA to correct his own gross incompetence. Indeed, I'm not sure I'd want him anywhere near past or future filings given these mistakes.


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## USexpatUK

I agree in principle BBCWatcher, but I feel slightly stuck. The other CPA's I called did not seem to have the first understanding of this and did not inspire confidence in me. The UK based firm (who deals with US and UK taxes) who first alerted me to the issue quoted me £10'000 plus just to file the taxes and £250-£490 per hour for further advise. They were defiantly using scare tactics to solicit work.

I wonder at this point if I need to stick with the devil I know (my current CPA) rather than feel like I have to handhold and teach a new one. But I will certainly ask him if he will back file without expense to me.

I feel the people on this forum are more knowledgeable than the average CPA


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## BBCWatcher

It seems like you're paying a lot for a bad job. Why not pay yourself to do a better job, at least?


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