# Sale of Mutual Funds



## madeamistake (Jan 16, 2018)

Good morning

I am in the process of tidying up all my US tax paperwork ahead of renouncing in early 2019 hopefully. 

I've now realised that in 2010 I didn't report the capital gains from the sale of some mutual funds that were originally gifted to me in the 1980s when I was a child! 

I sold the shares for €7000 but I've no idea what the initial cost basis is. I only filed my 2010 tax return in January 2015 (so I am now just beyond the 3 year statute of limitations) when I realised I had to catch up on my US tax returns as an expat. I'm not sure how I failed to include the capital gains, but I did - possibly because I was overwhelmed by the paperwork of doing so many years at once and because I didn't really know what I was doing (I tried to copy tax returns from years before that my mum had done for me). Also the capital gains did not need to be reported in the UK, where I was tax resident, as it fell below the annual allowance limit. 

In 2010 I did not owe any other tax in the US so I am guessing (literally guessing) that I probably didn't owe any long term capital gains tax at all. I know if I speak to a tax adviser they will probably charge me a lot of money to correct this omission (I am already forking out £6000 to go through the streamline process for 2014 - 2016 when I also mucked up my returns). 

Do you think it is necessary to go back and amend the 2010 return? I made an honest mistake and I'm more than happy to pay any tax plus interest that the IRS does ever come after me for. They haven't spotted the mistake yet (and they would presumably have access to 1099 information so could have easily spotted this mistake themselves). 

Any thoughts much appreciated. Feeling very weary with all this tax mess. The US system is just so unbearably complicated.


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## Bevdeforges (Nov 16, 2007)

Once the statute of limitations has passed, they aren't going to "come after" you. (In theory, if you didn't report the capital gain at all, I suppose it remains open - but only for that one item.) 

A friend of mine just recently renounced and, to be honest, they don't really review your tax returns at all - just check the statement that you are "up to date" on your returns, so by filing streamlined you can say you are with complete assurance. Do not re-open old years if you don't have to!
Cheers,
Bev


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## Moulard (Feb 3, 2017)

In addition to what Bev says...Its also beyond the limit of the declaration you will make on form 8854 to say your last 5 years worth of returns are in order. So you won't even have to cross your fingers when you sign it.

Technically you aren't actually allowed to amend returns more than 3 years unless there is a foreign tax audit that affects the carryover amounts on Form 1116.

So do not worry.


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## madeamistake (Jan 16, 2018)

Thanks so much, this is very reassuring. I think even in a worst case scenario I would only owe a few hundred dollars of tax maximum, and if they haven't been in touch by now then I guess they aren't too bothered.


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## Dunedin (Aug 12, 2013)

The implication of the comments about the UK tax position is that the gain on the mutual funds was not caught by the Offshore Income Gain rules, whereby gains on non-UK resident funds which do not have “reporting status” are subject to income tax, rather than capital gains tax.


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## madeamistake (Jan 16, 2018)

I have no idea what any of that means! Can you explain in plainer English? Sorry - this total lack of understanding goes some way to explain why I am in the mess I am in with these wretched taxes!


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## Dunedin (Aug 12, 2013)

Most US citizens who buy mutual funds buy US domiciled funds. There are US tax penalties for buying non US funds.

As far as the UK is concerned, US funds are simply non-UK funds. In the mid 1980’s UK residents started buying non-UK funds which rolled up income, and therefore they got a better-but more lightly taxed-capital gain on a sale. 

The UK introduced tax rules which broadly say that unless the fund chooses to register with HMRC and send regular information (which is called a reporting fund) then any gain on sale will be subject to income tax, not capital gains tax. It does not matter if the fund does actually pay out its income; that is not sufficient.

Most US funds did not obtain reporting status, because they have few UK resident investors and a modest annual cost. 

You can see the current list of reporting funds on HMRC’s website
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds
It is a long list, because many funds sold to UK residents are domiciled in Dublin and Luxembourg. There are some US funds but these are only a small fraction of the total number of US funds.

You may or may not wish to do something about your situation. However, it is sadly common for US citizens not to take advice on this area when coming to the UK. So perhaps warn others who are considering UK residence.


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