# (semi-)complicated questions!



## damianociambellano (Dec 11, 2014)

I'm so confused and a little scared i made some mistakes with my tax returns.. if you can answer some of these questions i would be super grateful!
the more i read into it, i the more headaches i get.. hopefully this can help someone else too!

My story in a nutshell. 
I was born in Italy, moved to the US at age 23, married my now wife (US citizen), became a US citizen myself at the age of 28, my wife gained Italian citizenship, we moved to UK in 2011 to do a PhD/work and bought a house last year.

Questions: 

1.	I own an apt in Rome, bought by my parents with their savings for me as a future investment, years before I moved to the us and became citizen. The apt has been empty for a long time, but in the last 4 years it has been rented. The rent has gone directly to them, but the rental contract is under my name. Should I have reported this as rental income, even though I’ve never received any of the funds? 
2.	The rent has been less than $14000 per year. If I had to report this, couldn’t I make it look like a gift? I know that gifts for $14000 or less a year are not taxable (form 709). It would show like the rent has come to me and then I’ve gifted it to them. 
3.	Since I don’t receive the rental income, and I don’t even have a bank account in Italy, how will they know what is going on with this property, unless I report it? If I decide not to report anything, will I have trouble one day when I decide to sell this house? 
4.	Income in UK under $100000 is exempt from us taxation because it’s already taxed in UK. My income however is a scholarship; therefore I don’t pay taxes to UK either. Does it mean I should have been taxed in the US? 
5.	My wife and I bought a house in UK in 2013. My parents helped us with the deposit by giving us $30000. Is that considered a wage and therefore taxable? Or is it a gift? I know that gifts under $100000 received by family members are tax free. Correct? Either way I have not reported that donation. Should I go back and amend that year tax report? 
6.	I’ve just learned about FBAR. In 2013 I briefly had just under $90000 on our bank account which then went to pay for the deposit for the house. Some of that amount was from my parents (see 5), the rest from my own savings that I transferred from my US bank account. Should I submit my FBAR for that year explaining that I didn't know I had to report it, or should I just start fresh with this year? 
7.	I recently received payment from an insurance company for an accident I had in 2013. I fell off a bike and broke my shoulder. I had to have surgery to fix it, and now I have a scar and limited movement. The payment ($11000) will be deposited into my bank account in UK, and I will report it in FBAR. Is this considered income and therefore taxable, or health insurance payments are tax free? 

thank you!


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## Nononymous (Jul 12, 2011)

1. That's kind of an odd one. If the contract is in your name but you've not received the money, is it considered your income? Probably depends on who you ask. The US would never know so I wouldn't worry too much there. However, if it's technically your income you would also need to report that to the UK, which is your tax residence. (In whose name, if at all, are your parents reporting that income to the Italian tax authorities?)

2. I suspect you'd pay tax on the rental income, regardless of what you did with it - spent it, gave it to your parents as a gift, converted it to gold coins so that you could roll around naked in a big pile of cash.

3. Overseas real estate seems to be largely undetectable by the US. I'd be more concerned about the UK.

4. The $100k US exclusion is for earned income, which a scholarship might not be. I would read the fine print. You might be screwed on that one. (Personally, if that were a UK source scholarship, I'd just call it income and claim the FEIE - sending the US a cut of your UK funding while you go to school in the UK would be immoral and stupid.)

5. If your parents gave you money to buy a house, that's a gift, not income. If such gifts are reportable on US tax returns, then you can decide to follow those rules accordingly, if you wish. 

6. FBAR only reports the high balance for the year, unless the sums are vast and/or the proceeds of crime nobody seems to care where the money came from, or what was done with it. If you wish to become compliant there are different approaches - start filing as of now and say nothing further, or enter the streamlined program and file the past three years. Being unaware of FBAR is a pretty solid reason for not having filed, given that it's still not well known among expats.

7. FBAR has nothing to do with income - only bank balances. Whether an insurance payment is considered income is an entirely different question. I would imagine not, but with the US who knows? You would also have the same question for your UK taxes too.


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## damianociambellano (Dec 11, 2014)

1. yes contract is in my name, and taxes have been paid to italian tax authorities regularly. So the profit made i guess (rental minus taxes owned) has gone completely to them. i would assume that there is a double taxation legislation between UK and IT, that's a whole another world i need to explore! 

3. when i will eventually sell that property, i will no longer be in the UK, so im not concerned about that. however, if i don't report it to US, how will i explain that money suddenly showing up in my bank account?!

6. I thought Streamlined program is only for those who never filed, but we did always file on time.. 

see the headache? i just want to move to Mars and start fresh! 
thank you for your answers tho!


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## Nononymous (Jul 12, 2011)

3. You don't have to explain the money in your bank account. FBAR is only for tracking balances - you do not have to justify money coming or going. But if you wanted to do things by the book you'd probably owe capital gains tax to some combination of the US and Italy.


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## Bevdeforges (Nov 16, 2007)

I concur for the most part with what Nononymous has said, with a couple "clarifications."

#1 - technically this is YOUR rental income and you should have been reporting it to the US (and possibly in Italy - though the Italian tax system seems to take much of their taxes at the source). If your parents are declaring it in some manner, I'd just let it go for the time being.

#2. Problem is that gift tax is completely separate from income tax and you can't take a "gift" to your parents as a deduction in any sense on your US tax forms. The amounts "gifted" to family members (or anyone else) ultimately come back to haunt you when it comes time to do your estate taxes.

#3. Basically the main problem you could run into on the sale of the house is with the Italians, if they aren't getting their taxes on the income. But if your parents are declaring the income and paying taxes on it, I suspect it won't be that big a problem (though it may really complicate your parents inheritance taxes when they go). But overall, the US won't really have any way of knowing what's going on.

#4. Maybe. Scholarships are peculiar. It may depend on the source of the scholarship (i.e. from the government or from a private agency). Found this: Tax Topics - Topic 421 Scholarships, Fellowship Grants and Other Grants though haven't read through it. Could be good news, though, as I see scholarships are tax free if they meet certain conditions.

#5. Gifts are not income. And since I assume your parents are not subject to US taxes, they only have to meet whatever requirements Italy has for reporting gifts (if any).

#6. Basically your choice. Unless you have other "oddities" on your income tax filings, chances are they aren't going to do much about matching up prior FBARs against the tax returns you filed. And under most of the bilateral agreements, I don't see anything about the banks reporting past years' information unless requested for such from the IRS. Personally, I'd just start filing this year and going forward. If they really want your prior year FBARs they're far more likely to just send you a letter asking for the prior years before they do anything nasty.

#7. Rest easy - payments from most forms of insurance are not considered income. Leave it off your US tax returns and just include the balance in whatever you report for your FBARs - but it won't be identified as to the source, just mixed in with whatever your high balance is for the year. Unless you have something really peculiar on your income tax returns, they'll just stick it in the computer with the rest of the "data" they've been collecting on us all and that will be the end of it.

As far as the UK taxes are concerned, you're on your own. But the KISS principle applies when dealing with the IRS.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Even if the rental income is considered yours and U.S. reportable -- and it very well might be -- you have at least two defenses against owing any U.S. income tax.

One is that Italian income tax has been paid, so that translates into a Foreign Tax Credit (IRS Form 1116) on your U.S. tax return -- assuming _you_ paid it. It's entirely possible, even likely, that your Italian tax rate is higher than the U.S. rate on that income, thus it would be to your advantage to report the income and the tax paid on it because the U.S. lets you "bank" excess Foreign Tax Credits that may be valuable to offset future U.S. income taxes on the same category of income.

The other defense is the U.S.-Italy tax treaty. Again, even if the treaty says that only Italy taxes that income, you'd still report the income on your U.S. tax return. But you'd then avoid U.S. tax on that income (assuming that's what the treaty says) by filing IRS Form 8833.

The IRS has some rules discussed in Publication 970 describing the tax treatment of scholarships. The good news is that scholarships are _generally_ U.S. tax free. However, there are some circumstances when a portion of your scholarship may be taxable. Even so, the U.S. has a personal exemption and standard deduction that shields about $10,000 (or more) of general income from U.S. income tax. Consequently if a scholarship is your only other source of income then you're probably not going to owe any U.S. income tax on that scholarship.

Regarding the gift -- it is a gift -- you and your wife received to help buy a home, you each received $15,000. That's just over the IRS's limit of $14,000. However, it's the _donor's_ job to report the gift (if subject to U.S. tax jurisdiction) and pay tax owed on it, if any. (I don't think there'd be any tax owed anyway. It'd just count against the donor's lifetime limit.) Check IRS Publication 559, but assuming I'm correct you don't have anything to do.

Regarding your insurance benefit, is that a payment from a medical insurance company to reimburse your medical expenses? If so, no, that's not U.S. taxable or reportable income.

I would get your FinCEN Form 114 ("FBAR") filing up to date. There is currently no penalty for a late filing with a valid excuse -- "I didn't know until now" is a valid excuse if truthful -- so why the heck not get that filed to sleep easy? I would.


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## Nononymous (Jul 12, 2011)

4. I remember this now from grad school, back in the day. From the US perspective, scholarships are tax-free when they cover tuition and other required expenses, but not living expenses. If you receive a fellowship that exceeds your costs, the portion beyond tuition would be taxable income. I have no idea if it falls under the FEIE - it might be considered earned income if you have teaching duties or other requirements. At the very least you'd have the personal exemption.

You can draw your own conclusions about the fairness of a situation whereby an EU national studying in the UK receives a stipend for living expenses and pays no tax, while you by virtue of also being a US citizen receive the same stipend but send a percentage of it to the US government. (You can also draw your own conclusions about whether you want to declare that income, or call it "earned" and try to exclude it under the FEIE.)


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## damianociambellano (Dec 11, 2014)

thank you guys for your help! slightly clearer head.. i know now that i should probably look for professional help.


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