# A few questions about preparing my returns



## Sparky McGhee

I am going to file my own 3 years of 1040's and 6 years of FBAR's for the Streamlined thingee. I have a few questions and would really appreciate some help. 

Concerning my foreign income and situation, I have a scholarship and a modest salary to declare. I understand that I should declare both of them on line 21 with a schedule. If someone could tell me how to write a schedule I would appreciate it. 

As far as FBARS are concerned---Can someone tell me How do I submit a check for my penalties?

Also, in the FBAR filing system, it is not clear how I submit my explanation for being late. is this a separate form? When I submit, will it let me upload the form at the same time as the FBARS? How do the 3 years of 1040's get uploaded, at the same time? I would appreciate it if someone could tell me the nuts and bolts stuff with getting these forms in.

I have a question about Form 8938. The only assets I have are the bank accounts with negilgible interest and an index fund (about $40K) which has yielded about 15% (total) since 2009.I don't think I have to submit 8938. The instructions say the following:

"Unmarried taxpayers. If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year."

I have much less that $200,000.

Much appreciate the advice.


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## Bevdeforges

Sparky McGhee said:


> I am going to file my own 3 years of 1040's and 6 years of FBAR's for the Streamlined thingee. I have a few questions and would really appreciate some help.
> 
> Concerning my foreign income and situation, I have a scholarship and a modest salary to declare. I understand that I should declare both of them on line 21 with a schedule. If someone could tell me how to write a schedule I would appreciate it.
> 
> 
> 
> Salary goes on line 7 - and then you can "exclude" your foreign earned income via the FEIE. What winds up on line 21 is your exclusion amount (as a negative number).
> 
> Assuming that the scholarship should also go on line 21, all they need for a "schedule" would be a separate sheet of paper referencing line 21 with a list of what goes into the total figure you post to that line. Example:
> 
> FEIE from form 2555-EZ: (15,000)
> Scholarship (include details): 10,000
> Total line 21 (5,000)
> The parentheses indicate a negative amount - that's how form 2555 asks you to indicate the amount you're excluding.
> 
> 
> 
> 
> As far as FBARS are concerned---Can someone tell me How do I submit a check for my penalties?
> 
> 
> 
> You don't pay up front. Send in the FBARs with your explanation for why they're late (choose one of the available options). If they choose to assess a fine, they'll let you know. At the moment, they don't seem to be assessing fines for late filings. But let them choose how they want to do things in your case.
> 
> 
> 
> 
> Also, in the FBAR filing system, it is not clear how I submit my explanation for being late. is this a separate form? When I submit, will it let me upload the form at the same time as the FBARS? How do the 3 years of 1040's get uploaded, at the same time? I would appreciate it if someone could tell me the nuts and bolts stuff with getting these forms in.
> 
> Click to expand...
> 
> There is a line on the FBAR form you file online where you indicate the reason for a late filing. (As it is, you have to indicate the year you're doing the filing for - so obviously you're far from the only late filer) There's a drop down menu on that space with a number of possible explanations. Unless your situation is incredibly weird, just choose the "canned" excuse that best fits your situation.
> 
> You want to use the "individual" filing for the FBARS, which involves downloading a pdf form. You fill it in on your computer, save the form, and then attach the pdf file to the filing to send it in to the service. I think you have to do one year at a time.
> 
> But you don't file your 1040's on the FBAR site. Save copies of your FBAR filings, print them off and send them in with the 1040's if you're doing the Streamlined program. Not sure, but I don't think you can do your tax filings electronically under the Streamlined program. (Someone will jump in here if that's not the case.)
> 
> 
> 
> 
> I have a question about Form 8938. The only assets I have are the bank accounts with negilgible interest and an index fund (about $40K) which has yielded about 15% (total) since 2009.I don't think I have to submit 8938. The instructions say the following:
> 
> "Unmarried taxpayers. If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year."
> 
> I have much less that $200,000.
> .
> 
> Click to expand...
> 
> Exactly right - if your "specified foreign financial assets" are less than $200,000 and you live outside the US, you have nothing to file. (One big advantage of being not-so-well-off.)
> Cheers,
> Bev
> 
> Click to expand...
Click to expand...


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## Sparky McGhee

Bevdeforges said:


> But you don't file your 1040's on the FBAR site. Save copies of your FBAR filings, print them off and send them in with the 1040's if you're doing the Streamlined program. Not sure, but I don't think you can do your tax filings electronically under the Streamlined program. (Someone will jump in here if that's not the case.)


Okay, now I understand. In my earlier thread I mentioned I owed money from previous years (going back to 2001) which I am trying to pay. I don't owe a lot but it is obviously long overdue. I have never been contacted about any delinquent filings so I think I am safe there. 

My plan is to file the FBARS online, send copies in with the 1040's by regular mail soon after, and then pay my taxes on the years I owe. Is there anything wrong with this idea?


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## BBCWatcher

Sounds good to me. A couple further points, though:

1. It's been a while since I dealt with a scholarship on my tax return, but as I recall the part of your scholarship that paid for educational expenses (tuition, books, etc.) generally isn't considered taxable income, so that's good news. IRS Tax Topic 421 has a short explanation. I think the way it works is that you report as gross income only the part of your scholarship that is not ordinarily tax free. Of course you want to keep personal records on both your scholarship funds received and your educational spending in case the IRS comes asking further questions.

If you're attaching an explanatory form as Bev describes -- and I think you do that when you take the Foreign Earned Income Exclusion (Form 2555) -- then you can make that scholarship information perfectly clear.

Apologies in advance if you've figured all this out already better than I've explained it. IRS Form 2555 probably has instructions on how to handle scholarships, and I haven't reviewed those. I don't think I've ever had that particular combination (FEIE and scholarship), so I'm not completely familiar with that path. But I know scholarships can be either taxable, non-taxable, or some of both.

It may not matter in the end in terms of tax owed, but it's probably best to report this the way the IRS wants.

2. OK, that was good news, but now some potentially bad news. With respect to your index fund, if it's a _foreign_ (non-U.S.) mutual fund (sometimes called a "unit trust" in certain countries) then it might very well need to be reported differently on your tax forms than a comparable U.S. fund. It might need to be treated per PFIC and/or foreign trust rules. Again, if you've already explored those issues, apologies for repeating the information.

I said potentially bad news, though. In fact this might be good news. If your index fund is indeed a PFIC then you'd ordinarily take what the IRS calls QEF elections, essentially "mark to market" accounting each year for your index funds. The total gains each year would then be reported as income. And that shouldn't be a problem if my understanding is correct, because your index fund is small, the gains are likely very modest, and such annual gains should slide under your personal exemption and standard deduction. When you then turn around and sell your funds you'll then only be responsible for the gains on that final year, again probably tax free (or at least closer to it). So if you have relatively modest PFIC holdings then the IRS tax treatment could be very favorable, if my understanding is correct. You have some extra pages to submit with your tax return each year, and that's not fun, but the tax consequences could be very good.

Hope that helps.


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## Sparky McGhee

*Thanks*

Thanks BBC, I appreciate it. My index fund is the Kospi 200, administered by Samsung Investments. I don't know if this is a PFIC. Do you happen to know?


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## Bevdeforges

The scholarship funding won't be considered as part of the "earned income" covered by the form 2555. It's a separate item (though why they considered scholarships "unearned" is anyone's guess <g>).

On the investment fund... what you could do is simply report it on the FBAR report, indicating the high balance for the years you're reporting. That way you've at least disclosed it and if they have further questions or problems with it, they'll be in touch. (And, you'll have documented the fact that you're not "hiding" anything from them.) 
Cheers,
Bev


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## Sparky McGhee

Thanks, Bev. That makes sense. If they want more paperwork for their holiday-season reading, they can ask for it. I think the taxable returns on my funds is going to be in the single digits year over year, anyway. 

One final question before bedtime in Beijing -- I mentioned that my transcript appears to be missing a year or two. This was the odd thing I wrote about in my first post: the POA didn't go back quite far enough, but when my accountant called back, the POA was mysteriously denied. Maybe a grumpy clerk having a bad day, but I don't know. I have since learned that I can get transcripts myself online. Should I ask for the missing year first, or should I pay what I know about now and worry about the last year later? (For some reason I place ominous importance on this issue...I don't want to trigger some disastrous outcome when I could have left well enough alone).


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## BBCWatcher

Bevdeforges said:


> The scholarship funding won't be considered as part of the "earned income" covered by the form 2555. It's a separate item....


No, that's my point. If it's a big/generous scholarship a portion of it may be considered earned income. (I was fortunate enough to be in that position at one point in my life.) If tuition > scholarship, no, generally the entire scholarship is not taxable (and also not earned income).

You have to separate a big scholarship into two buckets, basically.



> On the investment fund... what you could do is simply report it on the FBAR report, indicating the high balance for the years you're reporting. That way you've at least disclosed it and if they have further questions or problems with it, they'll be in touch. (And, you'll have documented the fact that you're not "hiding" anything from them.)


That's the U.S. Treasury. We're talking about the IRS now -- different agency. This is bad non-advice, Bev, in my view, in the age of FATCA. No, this shouldn't be swept under the rug. Do this right and the tax is probably zero anyway. Do this wrong and the tax (and possible penalties) aren't zero. Easy decision! (Especially in a Streamlined Program filing.)

Yes, Sparky, it looks like the Samsung Investments Kopsi 200 index fund would be a foreign mutual fund and thus among the PFICs. So I think you'll need to include IRS Form 8621 and, most probably, take QEF elections using that form. But as I mentioned I don't think the tax consequences will be negative. They might actually be positive in your case.


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## ForeignBody

Sparky McGhee said:


> Also, in the FBAR filing system, it is not clear how I submit my explanation for being late. is this a separate form? When I submit, will it let me upload the form at the same time as the FBARS? How do the 3 years of 1040's get uploaded, at the same time? I would appreciate it if someone could tell me the nuts and bolts stuff with getting these forms in.


On the FBAR website you have a number of choices under "If this report is being filed late select a reason for filing late". If none of the set reasons fit, select "Other" and a box opens in which you may write your explanation.


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## Sparky McGhee

Hi I mentioned that my transcript appears to be missing a year or two. This was the odd thing I wrote about in my first post: the POA didn't go back quite far enough, but when my accountant called back, the POA was mysteriously denied. Maybe a grumpy clerk having a bad day, but I don't know. I have since learned that I can get transcripts myself online. Should I ask for the missing year first, or should I pay what I know about now and worry about the last year later?


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## Bevdeforges

Pay what you know about and have been assessed for first. Meanwhile, you can pursue the matter of what happened with the other year or years. 
Cheers,
Bev


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## Sparky McGhee

Bev, regarding the schedule, you said. 

_Assuming that the scholarship should also go on line 21, all they need for a "schedule" would be a separate sheet of paper referencing line 21 with a list of what goes into the total figure you post to that line._

I have to submit the 3 years of 1040's online with the 6 years FBARS. Is there a way to submit a schedule electronically?


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## BBCWatcher

The FBARs (FinCEN Form 114) are filed electronically. But my understanding is that you're participating in the Streamlined Program. That program is paper-based for your 1040s, isn't it?


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## Sparky McGhee

My understanding is that I post the FBARS electonically and three years of 1040's are included in the online collection, with a hard copy of the submission to the IRS directly following.


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## Bevdeforges

It can be very difficult to e-file your tax returns from overseas. You pretty much have to use one of the commercial tax preparation softwares, which would require you to pay for the e-filing. I'm not sure how that works for backfiling and, as BBCWatcher indicates, may not be do-able for the Streamlined procedure.

To file the FBARs electronically, you download a fillable pdf file, fill it out, save a copy for yourself and then upload the completed form(s) to the FBAR site. For the tax filing, just print out the FBARS and enclose them with the paper copies of your tax returns. (The FBAR filings go to a different department within the Treasury anyhow, so you can't submit your 1040s "with" them electronically in any event.)
Cheers,
Bev


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## Sparky McGhee

Hmmm....could I compose the schedule, convert it into a PDF and upload it along with the rest? Also, why is it hard to e-file from overseas? I have a VPN is that has anything to do with it.


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## Bevdeforges

Sparky McGhee said:


> Hmmm....could I compose the schedule, convert it into a PDF and upload it along with the rest? Also, why is it hard to e-file from overseas? I have a VPN is that has anything to do with it.


The process of e-filing is tricky. It actually has nothing to do with your IP address. In most cases lately it seems to boil down to the fact that most tax prep software cannot "properly" deal with foreign addresses (at least not the way the IRS wants to deal with them). What's galling is that the IRS "fillable forms" for e-filing still won't take the foreign addresses after several years of complaints. 

You can't upload your tax forms as pdf's - efiling requires that you submit through a tax preparation software (or the e-file "fillable" forms - which, although they resemble pdfs, are apparently different when actually submitted). And besides, the tax forms don't go to the Agency With The Frightening Name where you have to submit your FBARs. 

Not worth fighting it out at this point. Print 'em off and mail them in and then you've done your duty. 
Cheers,
Bev


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## BBCWatcher

Sparky, are you participating in the Streamlined Program and following that program's instructions?


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## Sparky McGhee

BBCWatcher said:


> Sparky, are you participating in the Streamlined Program and following that program's instructions?


Well, now, those are leading questions if I have ever heard them. What's on your mind BBC?


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## BBCWatcher

Streamlined Program participation means you're given consideration for more favorable tax treatment. But there are a couple conditions to be considered for acceptance in the program. One is that you have to actually participate, and another is that you have to follow the IRS's instructions.

If you're e-filing your 1040s you're doing neither. Hence my questions. I'm curious why you wouldn't at least try to get more favorable treatment than the status quo.


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## Sparky McGhee

My understanding is that the Streamline submission goes through the Fincen system and it should include 6 years of FBARS and three years of 1040, all submitted electronically. This is followed by a hard copy of the collection to the IRS by mail. Is this not correct?


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## StewartPatton

Sparky McGhee said:


> My understanding is that the Streamline submission goes through the Fincen system and it should include 6 years of FBARS and three years of 1040, all submitted electronically. This is followed by a hard copy of the collection to the IRS by mail. Is this not correct?


Nope. It's not. Read the instructions on www.irs.gov.


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## Bevdeforges

Actually, the instructions are here: U.S. Taxpayers Residing Outside the United States

And on a quick skim of the instructions (yeah, "read the fine manual") I see nothing about sending in a hardcopy of your FBAR filings with your tax returns. You file your FBARs electronically, indicating that you're filing as part of the Streamlined program and you file your 1040s and/or 1040Xs in paper form by post. 
Cheers,
Bev


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## Sparky McGhee

Okay, so no 1040's with the FBARs and no FBARs with the 1040's. That makes things simpler.


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## ForeignBody

Sparky McGhee said:


> Okay, so no 1040's with the FBARs and no FBARs with the 1040's. That makes things simpler.


Take a good look at the FBAR website and you will soon see that it is impossible to file 1040s there. As others keep saying, read the Streamlined instructions carefully. You need to follow them otherwise you will mess up and risk losing the protection the scheme offers.


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## StewartPatton

ForeignBody said:


> Take a good look at the FBAR website and you will soon see that it is impossible to file 1040s there. As others keep saying, read the Streamlined instructions carefully. You need to follow them otherwise you will mess up and risk losing the protection the scheme offers.


Great point. If you don't do Streamlined correctly, then all you are doing is admitting to the IRS that you committed an act that carries with it a $10,000 penalty . . . up to 6 times. Yeesh. It pays to get it right, folks.


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