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Old Jan 30th 2012, 1:01 pm   #1
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Default Warning: TurboTax, Foreign Assets & Form 8938

'Tis the tax season!

Sorry for the length of what follows, but if you are going to use Turbotax and you have any foreign (non-US) assets, please be aware...

The new IRS foreign asset reporting requirement (Form 8938) has been implemented by Turbotax in a...'strange'...manner that can get your filing rejected.

At some stage during collecting your income information TurboTax points out that the IRS now requires foreign assets to be reported, and simply asks if you have any foreign assets. A simple Y/N question. If, like me, you answer 'Yes' then the software generates a partial Form 8938 and, from that point on, requires that the form be completed.

Note that the software logic does not take into account the reporting thresholds. It doesn't then, for instance, ask for the maximum balance and then skip all the paperwork if the balance is lower than reporting requirements. Many of you will not meet the reporting thresholds, and therefore do not need to complete and return a Form 8938.

So far, this isn't a problem if you decide to fill out the form anyway - except that it currently only allows for a single account to be reported.

The problem arises when you figure out that, for tax return purposes, as you do not meet the thresholds, you should simply answer 'No' to the question. If you go back and do that then the Form 8938 disappears from your workflow. Job done. Or so it seems.

The error is that Turbotax does not remove the partially completed Form 8938 details from either the paperwork (if you print and mail your return) or the e-filing data. I discovered this when both my Federal and State e-filings were rejected. There is no way to correct this other than to delete the data/files for your return and start from scratch again. Once you say 'Yes' to that simple question you are trapped.

I'm trying to communicate all this to TurboTax but figured it would be worth posting it here as well because I am sure I am not going to be the only expat caught out by this bug in the software.

I hope this helps someone!
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Old Jan 30th 2012, 3:04 pm   #2
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

Oops, that's a major Q&A failure.
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Old Jan 30th 2012, 4:30 pm   #3
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

Good tip, thanks!
We used Turbo Tax in 2005, and since then have gone back to the tried and true paper & pencil method. I simply did not find Turbo Tax's Q&A method inspired confidence that the result would be accurate. I do have to do the 8938, and hopefully it won't be much extra work since I've already gathered all the relevant information for the Schedule B and the Treasury Form TD F 90-22.1...
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Old Jan 30th 2012, 6:19 pm   #4
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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Oops, that's a major Q&A failure.
Quote:
Originally Posted by robin1234 View Post
Good tip, thanks!
We used Turbo Tax in 2005, and since then have gone back to the tried and true paper & pencil method. I simply did not find Turbo Tax's Q&A method inspired confidence that the result would be accurate.
It certainly feels as though the logic was scrambled together at the last minute. The question itself is misleading and lacks the context to answer it correctly, and the underlying logic that doesn't clear out the partial form is horrible. All in all a poorly implemented and tested addition to the logic.

I've only been filing for the last 3 years (including 2011) and so far was happy with the TurboTax approach, but this event means I shall re-assess options for the 2012 return.
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Old Jan 30th 2012, 6:23 pm   #5
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

Oooh, thanks for the heads up.
I'm using Turbo Tax for 2011 but haven't got that far yet so I'll bear it in mind when that question comes up.
The question is, if you answer 'no' to the fact that you do have assets abroad, is that setting yourself up for lying when you click the "I agree that everything I have submitted is accurate and correct as far as my knowledge extends" (or whatever the wording is when you authorize your e-submittal)?
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Old Jan 30th 2012, 6:30 pm   #6
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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Oooh, thanks for the heads up.
I'm using Turbo Tax for 2011 but haven't got that far yet so I'll bear it in mind when that question comes up.
The question is, if you answer 'no' to the fact that you do have assets abroad, is that setting yourself up for lying when you click the "I agree that everything I have submitted is accurate and correct as far as my knowledge extends" (or whatever the wording is when you authorize your e-submittal)?
I think it is fine. The question answer itself (the "yes" or "no") does not get submitted. What it does is decide whether the software generates a Form 8938 or not.
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Old Jan 30th 2012, 7:27 pm   #7
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

I suppose this is the best thread yet to raise this issue. The concerns I raise may, or may not, be valid. Reporting on Form 8938 is NOT just duplicating the info from FBAR. It may be prudent not to file too early this year. There are at least two issues that could effect the UK expat living in the US.

1) Pensions. Pensions in the UK, for both amounts already contributed or distributions, have to be considered for 8938. There is a possibility the value is $0, but read the instructions and think carefully before arriving at that conclusion. Anyone now in receipt of a foreign pension has to consider declaring it (applicable thresholds?). This does not apply
to the UK State pension as pensions from foreign governments are exempted.

2) Property in the UK. Rental property you own in the UK seems to be a stipulated asset. If it's your personal residence, and you're letting it whilst resident in the US, is it still a rented asset? There is no definitive stance that I can find on this yet. There are indications that your personal residence (that you're living in) does not have to be reported.

3) There is other wording which, at this time, is confusing. So far, I've found no conclusions to these on any of the reliable tax sites. It may be pragmatic not to file too early this year, at least not until there is a better understanding of what exactly is 'a specified asset' and 'held for investment'. Is the mortgage you have with Halifax (a Foreign Person) on the property back in the UK a 'foreign financial debt instrument' or a 'foreign contract' on assets held for investment?

There may be no concerns on any of the previous. If anyone can confirm that through reliable sources, we would all be grateful.

I have my own opinions regards TurboTax (crap in, crap out). For simple straightforward reporting, I would guess it's fine. It's just an IT programme and has no idea if the info you've indicated is accurate for the situation. It's not a guardian, and never questions what you may have unwittingly not told it about your circumstances.

This is the only article I have found that delves into the requirements for 8938, courtesy of the ACA website:

http://www.aca.ch/fatcabna.pdf

This one person's (qualified) opinion from the Bureau of National Affairs.
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Old Jan 30th 2012, 8:22 pm   #8
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

Thanks for that article, theOAP.

I had noticed the wording in the Form 8938 instructions about pensions. I have a small defined benefit pension from a job I had in England from 1983 - 1991. There is no account value that can be expressed in ££, but when I'm 65 I will be due a pension of so much per year. It looks as if in the Form 8938 I should list the details of the pension provider and list the value as $0.

This is an example of something that comes within the purview of the 8938 but is not included in FBAR. (I think.)
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Old Jan 30th 2012, 8:46 pm   #9
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

My OH has some kind of pension plan (I guess that's what it's called) from when he worked in the UK from 2000 to 2004. I know he can't access the funds until he's around 60, or thereabouts. I think the balance was around £5k, when we last checked in early Dec. Is this something that we need to claim? And on what form would we claim it? What evidence does the IRS need for the balance - would a balance printed from the website be fine?

If our UK current account had more than $10k in it, at any time last year, does that have to be reported (the current balance is less than $1500)? What form has to be used for that? This adds such a layer of complication to our taxes!

I was hoping I could use TurboTax, as I've used them every year, but now I wonder if it can handle it!
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Old Jan 30th 2012, 8:49 pm   #10
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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There is no account value that can be expressed in ££, ..... It looks as if in the Form 8938 I should list the details of the pension provider and list the value as $0.
Ah, that's the sticky bit. Although you don't know your exact interest in the pension, you should know how much you have invested.

Quote:
Originally Posted by robin1234 View Post
This is an example of something that comes within the purview of the 8938 but is not included in FBAR. (I think.)
On the other place, one of the professionals made a post stating that it is now considered essential to include final salary pensions and defined benefit pensions on FBAR.

This is where I start my rant about compliance becoming so complicated that we're being compelled to hire an advisor. In the UK, with 8938, that's becoming very expensive.

By the way, on Form 8938, which of the options will you list your pension holder as, a company, a trust,....? Usually, pension funds are held by an outside firm, and the company is only responsible for administration. Of course, yours may be by the UK Govt.

Last edited by theOAP; Jan 30th 2012 at 9:01 pm.
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Old Jan 30th 2012, 8:52 pm   #11
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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Originally Posted by Bluegrass Lass View Post
My OH has some kind of pension plan (I guess that's what it's called) from when he worked in the UK from 2000 to 2004. I know he can't access the funds until he's around 60, or thereabouts. I think the balance was around £5k, when we last checked in early Dec. Is this something that we need to claim? And on what form would we claim it? What evidence does the IRS need for the balance - would a balance printed from the website be fine?

If our UK current account had more than $10k in it, at any time last year, does that have to be reported (the current balance is less than $1500)? What form has to be used for that? This adds such a layer of complication to our taxes!

I was hoping I could use TurboTax, as I've used them every year, but now I wonder if it can handle it!
First, add up all that you consider should be included. Then measure that amount against your individual threshold. You may be below it, and not have to file 8938 (you lucky person!).
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Old Jan 30th 2012, 8:55 pm   #12
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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Originally Posted by Bluegrass Lass View Post
If our UK current account had more than $10k in it, at any time last year, does that have to be reported (the current balance is less than $1500)? What form has to be used for that? This adds such a layer of complication to our taxes!
If it's over $10,000 at any time, it should be reported on an FBAR (you unlucky person!).

Last edited by theOAP; Jan 30th 2012 at 8:57 pm.
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Old Jan 30th 2012, 9:10 pm   #13
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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If it's over $10,000 at any time, it should be reported on an FBAR (you unlucky person!).
Darnit! Is that form 8300 that it is reported on?

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Old Jan 30th 2012, 9:11 pm   #14
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

Quote:
Originally Posted by theOAP View Post

By the way, which of the options will you list your pension holder as, a company, a trust,....? Usually, pension funds are held by an outside firm, and the company is only responsible for administration. Of course, yours may be by the UK Govt.
It's an outfit called The Pensions Trust. It is my final salary pension with the Youth Hostels Association (England & Wales) for whom I worked in the 1980s. Salary was tiny, so pension is tiny too. It was employer's contributions only.

This is the part of the instructions I was relying on;

If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest as of the last day of the tax year, use a value of zero as the maximum value of the asset.
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Old Jan 30th 2012, 9:19 pm   #15
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Default Re: Warning: TurboTax, Foreign Assets & Form 8938

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Darnit! Is that form 8300 that it is reported on?
The FBAR is TD F 90-22.1. It's filed with the Treasury, and not with your taxes.

Form and instructions here:
http://www.irs.gov/pub/irs-pdf/f90221.pdf
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