# FBAR/FATCA and accounts in home country



## michel.blanc (Sep 23, 2015)

Hello all,

I have a question about FBAR/FATCA that has really making me concerned recently.

I moved from France to the USA in 2008 to get a master's degree under a F1 VISA.
I have been working since September 2009 in an American company, in the USA.
I was for the first 2 years on the OPT (still F1 VISA) and then I switched to H1B in October 2011.
I have filed my taxes as a resident since tax year 2012.

In France, I have a few checking accounts + saving accounts (Livret A) with a total value of about 20.000 EUR. On top of that I have a brokerage account that my grandma gave me for a value of about 45.000 EUR.
Every year, the checking + saving accounts have something like 300 EUR of accrued interests, whereas the brokerage account, well, follows the market, so let's say between 1000 and 2000 EUR of profit per year. 

Now the problem. I have never heard of FBAR of FATCA until a few days ago, and I realise I'm eligible for both. To make things worse, I have never filled the form 1040 Sch. B, Part III, where you are supposed to say you have a foreign account because I didn't know my home country accounts would be considered as such.

What is the best, safe way to make this right?

First of all, am I supposed to pay US taxes on the interests that are accrued in France?

Then, how do I go about it? Do I do tax amendments for 2012, 2013, 2014 and same for FBAR? Or do I do the Streamedline Procedure and I'll have to pay a 5% fee? Or do I contact a tax attorney?

Your help is really appreciated.


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## Bevdeforges (Nov 16, 2007)

You'll get a whole range of answers here, but I'd say the most important thing is to back file the FBARs (FinCen) first of all. That assures that everything is disclosed - which is the main thing. (You want to demonstrate that you're not hiding anything from the IRS.)

Then, you can start working on the three years of back tax returns. But take a good hard look at whether or not including the Livret A interest (not much these last few years) and the brokerage account income makes a significant difference in the taxes you "should" have paid. I wouldn't go the streamlined route at this point (given the 5% fee). First see how the numbers turn out if you go for simple amended returns for those years. Yeah, you'll owe interest on any amounts due, but if the amounts are trivial, the interest will probably be a whole bunch less that the streamline fee.
Cheers,
Bev


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## michel.blanc (Sep 23, 2015)

Thank you for your detailed answer. So, what would be a "significant difference"? More than a couple of hundreds? So are you saying that if for instance I owed 1000$ of taxes per year, I should go the streamlined way? Also, I think I already pay taxes on the brokerage account in France, so I still need to pay some to Uncle Sam?


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## Bevdeforges (Nov 16, 2007)

See, that's the tricky bit. Income taxes you pay on the brokerage account in France can be credited against any US taxes you incur by reporting the income. (Called the Foreign Tax Credit.) There's a reasonable chance that the net result will be $0 taxes due, so that it's just a reporting exercise.

If you've max'd out your Livret A account, you're only talking about 450 to 500€ a year in interest, maybe $600 US. (And that only in the earliest year - the rates have been coming down.) Depending on what your tax bracket is, you could be talking maybe $100 or possibly $200 in additional tax - and frankly the IRS isn't going to waste time running you down for that. If they figure it out, they'll likely just send you a bill (with interest), you can pay it and just report things straight going forward.

But you should probably run the numbers first, just to be sure.
Cheers,
Bev


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## michel.blanc (Sep 23, 2015)

Thanks! So, I'm trying to run the numbers... I'm looking at form 8938 and I have read all the instructions, but I cannot figure it out. I have three important questions so far:

1- I have a brokerage account that is managed by a firm (gestion de portefeuille), is that a deposit account, custodial account, or other foreign assets?
'
2- Form 8938 Part III items c, d, e: I don't understand what are the "form and line" and "schedule and line". The instructions does not explain anything. After I reported all my accounts in Parts V and perhaps VI, what's the next step?

3- How do all the numbers in Part III get linked to the body of form 1040? In other ways, where is the part where I compute the taxes I owe on those foreign accounts...?

Thanks a lot!


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## BBCWatcher (Dec 28, 2012)

Take another look at what Bev wrote. You're doing this in the wrong order. Step 1: File FinCEN Form 114 for all the years that you missed and with a valid, truthful explanation why you're filing late. ("I didn't know" or words to that effect is one of the choices, and that seems to fit.)

Step 2: Have a coffee break. Not a weeks long one, but the next steps are less urgent.

Step 3: Figure out the interest, dividends, and/or capital gains on all your previously unreported accounts, starting with tax year 2014. (TaxAct.com and TaxSlayer.com still have their free 2014 editions available as I write this, and they're helpful.) Interest and dividends are reported on Schedule B, as you already know since you mentioned that. So figure out what errors you made on Schedule B and start preparing a correct version. Capital gains are reported on Schedule D. You'll also likely need to take a look at IRS Form 1116 (Foreign Tax Credit) and figure out what French income tax (not other types of tax) you paid on your interest, dividends, and/or capital gains. Let the tax preparation software help you at least with that since 1116 is a bit complicated to do "by hand." Use any reasonable, defensible exchange rate from euro to dollars, though the IRS's published rate is a good one to pick. You might also take a quick look at the U.S.-France tax treaty to see if there's any relief there, though I doubt it -- and Bev probably would have mentioned it if there were.

Step 4: Once you have Schedules B and D (as applicable) and Form 1116 figured out, _then_ you check the filing thresholds for IRS Form 8938 ("FATCA"). If you meet or exceed the filing thresholds, prepare an 8938. (Tax preparation software is good stuff again. By this point you may figure out that paying the ~$15 for the previous tax years is worth the price, but 2014 is free so you can test out that idea.)

Step 5: Probably concurrently with Step 4, get a 1040X prepared. Once you're satisfied with everything, send your amended tax returns to the IRS. You don't need to pay any balance owed at that point in time, though you can. The IRS will send you a bill for anything outstanding, including interest and penalties. For the amount of previously unreported income you're talking about this won't be much. The IRS's interest rate is currently 3%, and the penalty is 0.5% for each month (or partial month) the tax owed is late up to a maximum of 25%. For example, if you file your amended returns in November and pay by December 15, the penalty for tax owed in tax year 2014 is about 4% and the interest about 2%, plus there's the tax you should have paid. Even 2012 and 2013 shouldn't be much worse than that, and you haven't even reached the maximum penalty (25%) for either tax year assuming you file within the next couple months.

Given all that, I completely agree with Bev that ordinary, standard late filing is the correct approach. The IRS's domestic Streamlined Program doesn't make sense. This sort of thing happens all the time, so just declare the accounts and income voluntarily, pay the tax (with a bit of penalty), and "no problem."

One side question I have is why you didn't file a 2011 tax return, evidently. If your visa status changed to H1-B at that point in time wouldn't 2011 have been your first tax year? Or did you mean that you filed for the first time in 2012, meaning a 2011 tax return? In 2011 you presumably would have been what's called a "dual status" filer, the common situation when it's your first partial tax year. In that year you'd have both a 1040 (resident tax return) and a 1040NR (non-resident tax return), with special instructions for filling out both, apportioning income between them, etc. Does any of that sound familiar? I'd just make sure you feel quite comfortable about 2011 as well since the IRS just might want to visit that issue now that you need to send them some amended returns.

Anyway, start with Step 1 -- including 2011 if required, by the way -- and then pause a bit. FinCEN Form 114 is the real serious stuff, quickly resolved.

Congratulations by the way on passing the "treaty point" when you qualify for future U.S. Social Security retirement benefits. Even if you were to pack up and move to France, continuing social insurance contributions there, you've spent enough time contributing to the U.S. system so that you will qualify for some future U.S. retirement benefit, and (in most cases) your spouse as well. When that time comes, if you haven't reached the 10 year mark (around 2020) on the U.S. side, be sure to tell the U.S. Social Security Administration about your contributions in other treaty countries (e.g. France), and they can count those to help you qualify for your U.S. benefits. You can visit SSA.gov to look at your U.S. earnings history so far to make sure it looks correct. If you see some contributions for 2011 that's another indication you probably ought to have filed a tax return for tax year 2011, though it still depends on how much you earned. (Maybe if you started in October you were off the hook since you didn't earn enough to meet the filing threshold -- that's all I'm really asking, I think. Count your previously unreported non-U.S. passive income -- it's worldwide income that counts.)

I'm pretty sure you were required to file FinCEN Form 114 in 2011, even if you weren't required to file a tax return, so out of an abundance of caution I would recommend filing for 2011, too. The statute of limitations is 6 years for that reporting form, and 2011 is clearly still within the statute of limitations.


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## BBCWatcher (Dec 28, 2012)

One further point about 2011. Another reason why 2011 is interesting for you is that it was presumably a low earnings year since you only started work in October, thus low or zero U.S. income tax, but you still paid some French income tax on your passive income. So you might be able to pick up some excess Foreign Tax Credits on the U.S. side in that tax year that you can then carry forward to offset any U.S. tax you still owe but didn't pay in 2012, 2013, and/or 2014. So even if you weren't required to file a U.S. tax return for 2011, it's worth taking a look at that possibility if you end up with an unpaid tax bill for tax years 2012, 2013, and/or 2014. Hopefully that makes sense, but just ask a follow-up question if it didn't.


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## michel.blanc (Sep 23, 2015)

Thank you so much for your very detailed answer, you are very knowledgeable.

To answer your question:
- I started working in 2009 under OPT (F1 VISA), and I filed a 1040NR-EZ (tax year 2009)
- In 2010, still under OPT (F1 VISA), I filed a 1040NR-EZ (tax year 2010)
- In October 2011, I switched to H1B and I filed a 1040NR-EZ (tax year 2011)
- In 2012, still under H1B, I filled a 1040EZ (tax year 2012)
- In 2013 and 2014, still under H1B, I filled a 1040 (tax years 2013 and 2014).

So, I have been working with a full salary since September 2009.

I haven't done any dual status filling, I guess I read somewhere that I could still file as NR in 2011.

Now I'm worried about what I read in the 8939 instructions:

Special rules for resident aliens.
You are a resident alien if you are 
treated as a resident alien for U.S. tax 
purposes under the green card test or 
the substantial presence test. For 
more information, see Pub. 519, U.S. 
Tax Guide for Aliens. If you qualify as 
a resident alien under either rule, you 
are a specified individual even if you 
elect to be taxed as a resident of a 
foreign country under the provisions 
of a U.S. income tax treaty. If you 
have to file Form 8938, attach it to 
your Form 1040NR.

So if I understand, I will also have to amend my taxes returns from 2009, 2010 and 2011? And same for the FBAR?

This is absolute hell.


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## BBCWatcher (Dec 28, 2012)

michel.blanc said:


> - In October 2011, I switched to H1B and I filed a 1040NR-EZ (tax year 2011)


I'm under the impression when your visa status flipped in October, 2011, that was a dual status tax year for you. Or possibly from September, 2011, since there's a two year tax treaty limit. IRS Publication 519 would be the first place I'd look to figure out whether you were a partial year tax resident or a full year non-resident in 2011.

But if the IRS didn't object to your 2011 tax return, it seems fine to me to proceed under the assumption that you got it right -- or, that if you didn't, it didn't matter that you got it wrong. (The IRS doesn't generally worry about misfiling if there's no tax impact.)

I still recommend taking a look at 2011 in due course to see if you can pull in some foreign tax credits as I described, but you'll only be able to do that if it should have been a dual status tax year (and amended as such). But if you cannot generate some excess foreign tax credits to pull forward, I'd let it be and just fix tax year 2012 forward.



> I haven't done any dual status filling, I guess I read somewhere that I could still file as NR in 2011.


If Publication 519 says so, then no problem.



> So if I understand, I will also have to amend my taxes returns from 2009, 2010 and 2011? And same for the FBAR?


OK, one step at a time! But no, I don't think so, if you want the answer first.

FinCEN Form 114 ("FBAR") is a separate report sent to a separate agency with its own separate rules. It's not a tax return, and it's not sent to the IRS. So anything having to do with FinCEN Form 114 you consider separately. The instructions for that form are available here. So let's go take a look to see if you were supposed to file FinCEN Form 114. According to the instructions, you must be a "United States person....See General Definitions...." OK, skipping ahead: "United States Person. United States person means United States citizens (including minor children); United States residents; [....] Note. The federal tax treatment of an entity does not determine whether the entity has an FBAR filing requirement." OK then, so what's a United States resident? Keep reading: "United States Resident. A United States resident is an alien residing in the United States. To determine if the filer is a resident of the United States apply the residency tests in 26 U.S.C. section 7701(b). When applying the residency tests, use the definition of United States in these instructions." OK, let's set aside that second part since I think we can safely assume you were/are physically present in the FBAR definition of "United States," a definition that seems pretty air tight. So now let's take a look at 26 US Code § 7701(b). Here's the first relevant part:

_(b) Definition of resident alien and nonresident alien
[....]
(A) Resident alien
An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual [is] [...]
(ii)Substantial presence test Such individual meets the substantial presence test of paragraph (3)._

I omitted the parts that don't apply to you. And then there's some text about the Substantial Presence Test, but note this helpful part:

_(5) Exempt individual defined
[....]
(A) In general
An individual is an exempt individual for any day if, for such day, such individual is—
[....]
(ii)a teacher or trainee,
(iii)a student [....]_

Fun, isn't it?  But hey, that's you, when you were the F-1 visa holder. Good news!

Anyway, on further quick read, my interpretation is that you were not required to file FinCEN Form 114 reports for 2009, 2010, or even for 2011 (even counting your H-1B time). However, you were required to file FinCEN Form 114 reports for calendar/tax years 2012, 2013, and 2014. _All that said_, there's no penalty for over-reporting, so if you disagree with or doubt my interpretation then you can also file the 2009, 2010, and 2011 reports. I explained above how you file late FinCEN Form 114 reports, and it's pretty easy. We have not heard stories of the U.S. Treasury Department penalizing anybody for being late on these reports as long as they voluntarily come forward (before the Treasury Department contacts them) and provide a truthful reason why they're late along with a truthful report. But since there are _published_ penalties for non-filing these reports, Bev and I are recommending you start with the FBARs then worry about the amended tax returns a bit later.

Let's pause there for now, OK? Make sense so far?


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## michel.blanc (Sep 23, 2015)

Thank you very much BBCWatcher. I think I can handle filling the FBAR for the last three years. I'm just very worried about the following IRS statement:



> The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.


I'm worried because I've never mentioned on my 1040s that I have foreign accounts, nor paid taxes on. Don't you think they have some very basic database check, something like: 
*IF FBAR filled
*THEN check 1040 foreign account checkbox?

Also, let's say I file the three late FBARs, but I don't do anything about amending the 1040s. Honestly, I'll have to both understand the french tax code and then the US tax code; it will probably take me 100 hours, all of this to realize I owe either $0 or a very limited amount (I cannot believe it would get anywhere near $1000). So what are the risks/penalties if I file the FBAR but not the 1040s? Am I in safe-ish water by just filing the FBARs?

Thanks again!


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## BBCWatcher (Dec 28, 2012)

Where are you finding that quote from the IRS? You're leaving me guessing.

....But I don't think I'm disagreeing with the IRS, wherever you found that quote. Above I posted "Step 2" and "Step 3." Step 2 says: "Have a coffee break. Not a weeks long one, but the next steps are less urgent." Less urgent does not mean "wait forever." Yes, you should proceed to Step 3 (within a few days, I suggested) and get the unreported income cleaned up. You don't have to do it _five minutes_ after submitting your delinquent FinCEN Form 114s, but you should do it _reasonably_ soon. Eventually the IRS might get curious why your FBARs don't correspond well to your tax returns, but "eventually."


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## yankeebrit (Sep 24, 2012)

Michael,

Did you ever get this sorted out? I am ina similar situation and just wondered what you ended up doing?

Thanks


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