ClosedAcc 7654

Really, really, the last thing I will say. When I mentioned a lifetime of not knowing if you were going tobe found out, this was based on the statute not starting. To start it requires action by filing what was missed.

If you file everything you need to it could push out to 6, assuming you are not deemed to be fleeing justice in any way. Even I consider that unlikely. If you do file, you have to refer to periods in the past on the various forms so you're kind of admitting to not filing in the past. Nonetheless, once filed, the statute does start, and after 6 years you're worry free.

If you do nothing and continue to not report income, small or not, and accounts, the statute clock does not start so after 6, 10, 20 years, whatever, you're still on the hook. No FBAR and income listed means no statute starts.

Anyway, just clarifying. I do remain convinced that it's not what has happened so far, but what will happen that is the issue. As JAJ surmises correctly, we do place a premium on certainty where we can control it; while not wishing to part with such a sum, fortunately we could afford to do so, though wish we'd known what we were doing to avoid it in the first place. May not be the case for everyone so we feel blessed that we at least had that option.

JAJ

Again - not true. The filing of a tax return starts the statute of limitations. The tax return does not have to be perfect. And you do not have to refer to prior periods when you file a 1040.

FBAR, usually it's 6 years if the FBAR is not filed. It's different to a tax return.

ClosedAcc 7654

Getting bored with this so believe what you will folk - better still look it up and check all is good with an actual attorney. Statutes are in play when there is no hint of fraud, or if you start a filing, that is only for that year and on. The past remains fair game for the IRS. If there is perceived fraud, there is no statute. OVDI wipes clean all sins of the past so you can start with a clean slate.

Once again, there is NO statute on returns that are perceived as fraudulent. Fraud is whatever the IRS decides it is. If you withhold filing something because it may indicate past fraud, it is fraud in itself. Fraud equals no statute. Simple as that.

So, if you didn't check the box admitting to foreign accounts on a 1040, interest Schedule B, 7a, earned any interest that went unreported because it was trivial, that's fraud. If you filed the FBAR and 8938 without referring to accounts being open in the past, that's fraud (8938 asks about whether the account was open in the past. If you say it's new, it's fraud). File first time FBARs or Quiet Disclosures for past returns and there is a possibility of alerting the IRS as the GAO has instructed them to investigate. Statutes apply if you never did anything wrong and reported everything to the best of your knowledge, but many, like us, failed to tick the box because tax on interest was being withheld by the UK and we didn't think it would matter on the small amounts given interest rates. We were very wrong.

If you find yourself in this situation, you can only hope they lose interest before your name comes up and you have an expensive battle even if you can somehow make the case.

This is information based on advice from our lawyer, not a scummy one by any means, and consistent with two others we interviewed. JAJ is based on, well I guess reading things...she is correct in many respects but misses the point about perceived fraud.

Yes, we screwed up and didn't tick the box. Didn't think it would matter. Mea culpa...

ClosedAcc 7654

From the IRS...
25.6.1.9.5.2 (10-01-2010)
Fraudulent Return

There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax.

An amended non-fraudulent return submitted after a fraudulent return does not begin the period of limitations. See Badaracco v. Commissioner, 464 U.S. 386 (1984).

In processing the amended return, you must coordinate fraud/potential fraud cases with Examination. See IRM 25.6.1.9.9.1, Procedures for Expeditious Assessments, if examination does not select the case.

Fraud is not defined in the Code or regulations, but several indicators of fraud are provided in IRM 25.1.2.3, Indicators of Fraud. There are two terms used in the fraud development process: Indicators of Fraud and Affirmative Acts (Firm Indications) of Fraud.

Indicators of Fraud are actions that may have been done for the purpose of deceit, concealment or to make things seem other than what they are. Examples include substantial unexplained increases in net worth, substantial excess of personal expenditures over available resources, and bank deposits from unexplained sources substantially exceeding reported income. See IRM 25.1.1.3(1)(a), Indicators of Fraud in and of themselves do not establish that a particular process was done. Fraud is an actual, intentional wrongdoing. While bad faith or evil intent need not be shown, it must be shown that the taxpayer had the specific purpose to evade a tax believed to be owed in mind when performing an act (or making an omission).

Affirmative Acts (Firm Indications) of Fraud are those actions that establish that a particular process was deliberately done for the purpose of deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or make things seem other than what they are. Examples include omissions of specific items where similar items are included, concealment of bank accounts, failure to deposit receipts to business accounts, and covering up sources of receipts.

Generally, the taxpayer whose return is at issue will be the one who committed the fraud. In the case of a joint return, the fraud of one spouse will keep the assessment period open with respect to both spouses.

Note:

If the Service has asserted the civil fraud penalty against the taxpayer, the taxpayer’s MF account will show a TC 320.

For purposes of IRC Section 6501(c)(1), fraud is not limited to the fraud of the taxpayer. The fraudulent return exception may apply if someone affiliated with the taxpayer’s return (such as a tax return preparer) committed the fraud that caused the taxes on the return to be understated, even if the taxpayer did not commit fraud and did not know of the other person’s fraudulent intent at the time the return was filed.

Note:

When considering whether the fraudulent return exception applies to a particular return due to the fraudulent intent of someone other than the taxpayer, the person in question must have committed fraud with respect to the return at issue for the exception to apply. For example, if the Service is investigating returns prepared by a particular tax return preparer because it suspects that the preparer may have committed fraud with respect to the preparation of one or more returns, the fraudulent return exception applies only to those returns that the Service can show were prepared with fraudulent intent.

Consult with local counsel if you have questions on whether the assessment statute is open because the fraudulent return exception applies.

lansbury

It seems you did in fact file a fraudulent tax return as you are saying you left off UK income, and therefore got punished for it. Most of us did not in fact file fraudulent returns and declared all our UK income, and ticked all the boxes. All some of us overlooked was the FBAR form. As JAJ says in that situation correcting the matter and filing the FBAR going forward as and when required is all that is necessary. Correcting the matter when you filed a false return is something different, as you found out.

ClosedAcc 7654

Have never said otherwise. We didn't bother because it complicates the whole return process and we thought the income too small to bother with. Had we done everything right, we would have actually had a refund. Even with past refunds disallowed by statute, we still only owed about $100 a year once we figured the difference between the UK 20% withheld and our US rate. They take even small amounts seriously it seems. Nonetheless, we were sloppy, didn't do it right, and paid for it big time. We figured, worse case, knowing any amounts were tiny, we'd have proportionate penalties and reason would prevail. FBAR, and the choice of the GAO to turn it into a massive money maker, changed all that.

Thing is, if you have a UK account, it may well have interest. Unless you declared that interest you're the same as us. If you had interest and you declared it, you must have ticked sched B, 7a, affirming you do have foreign accounts, which will have led you to the FBAR instruction. The question is how you could have missed FBAR without filing a factually incorrect return? If you're reporting any interest, you also have to check the 7a box if you have foreign accounts even if no interest. A technicality maybe but that's the problem as that's fraud too. The two are tied together. If you have a couple of non interest accounts, here and abroad, that's about the only way to not offend.

Gven that, explain how you can accidentally not file FBAR without fibbing on schedule B? There's a lot of people in the same boat.

If you really had no interest, we are advised by our attorney that just a Treasury warning is issued and no penalties assessed if you are upfront with what you're doing. In that case you are in the clear.

I am certain that there are folk on this forum who find themselves in the same situation and erred as we did. We are obviously not as perfect as the majority claimed. But before you think yourself totally clear, ensure you checked 7a. I suspect there may be a few more people than you think, though neither of us, or this forum, has done a survey so can't say where the moral high ground is.

If in doubt, ask an attorney not a forum - this is only useful for shared experiences and opinions, absolutely not tax decisions.

nun

The basic issue with FBAR is the fear it causes because of the disproportionate penalties that it threatens. If you make make an error on your domestic US taxes all you pay is interest on the amount you owe which seems sensible. The punative nature of FBAR speaks to a basic misunderstanding of the vast majority of US tax payers with foreign accounts.

How should one decide the threshold of tax owed to file 1040X and FBARs, $1, $10, $100 etc when the fine might be unconnected to the amount owed?

durham_lad

I can see someone reporting a small amount of interest but not realizing that they had to file an FBAR form (TD F 90) if their interest bearing account had only been above $10k once during the year. I only record the balance in my spreadsheet on my UK bank once a month from the monthly statement.

When I do report, I report the highest figure from my spreadsheet, I don't search all the statements line by line and report the highest daily balance, so even though I do file FBAR I am probably doing it wrong, however the interest I report and pay tax on is correct.

JAJ

Once again. Fraud is not "whatever the IRS says it is". It require proof of wilful intent to a standard that will satisfy a tax court, over and above simple negligence. Can't see how $100 of tax would come even close.

Perhaps take a look at the kind of prosecutions that are being reported:
http://federaltaxcrimes.blogspot.com...nvictions.html

The average tax loss on reported convictions (in the spreadsheet available for download) is over $2m.

ClosedAcc 7654

Well there you have it folks. Pick an answer that suits. One from a couple of attornies, or not. Bottom line, BE is not the definitive word and JAJ certainly won't be standing with you if caught. It's not the past - it's the future with advanced interchange and a GAO/IRS stated goal to pursue this that matters to us. We both have opinions, neither of us are lawyers. JAJ firmly believes her position and I respect that - mine is based on solid advice for our specific circumstances. Yours are doubtless different so seek advice from a pro.

So you pays yer money, and you takes yer choice. Believe what you will. Any doubts seek professional help and don't trust a message board. I can't repeat this enough.

One thing is I think the issue is fairly thoroughly discussed now, not a bad thing.

celticgrid

You are, again, wrong. Consider the scenario where you do indeed have foreign accounts, which contain more than $10,000. You do indeed earn interest on those accounts. However, if your income is below the threshold for a tax return to become necessary then you do not file a return at all. Therefore you do not file a fraudulent return - you do not file a return at all.

So, it is quite possible to miss FBAR without filing a return, factually incorrect or not. In fact you can go for years not filing a return and missing FBAR, with no fraud at all involved.

The possible scenarios are much more varied than your views suggest.

ClosedAcc 7654

Of course that's a scenario, and there are others I can think of on the fringes; however my remarks seem true for most people with an income and I did explicitly state when filing a 1040. Exceptions like this exist but are not really the norm. Most people here file taxes I would wager, and if they do my remarks are absolutely correct.

If you don't, good for you but you still have to file FBAR if you exceed $10k so I'd suggest you do that. It's a totally different process with a different filing deadline, directly to the Treasury.

What's with the 'I found a situation so you're completely wrong....' attitude? Chill. I believe I am allowed an opinion without being shouted down.

Steerpike

So how does all this disclosure by UK banks to US authorities jive with the idea that the UK banks are supposed to maintain your privacy? Has something changed in the past few years?

ClosedAcc 7654

Things changed when the US successfully sued UBS in Switzerland to reveal some very high value accounts a few years ago. They then took the long standing FBAR reporting process that was largely overlooked pre-2004 and turned it into a money maker by adding some nasty teeth. The big recent change was the US then started to seek agreements with foreign governments to exchange account information. The UK signed on, and banks are now required to provide information about accounts they can identify as US owned starting in 2014. How far back and exactly what is a little vague but if they have reason to connect an account to a US resident or citizen, they have to give it up. Nobody knows exactly what this future will look like as you may have picked up on, but the past is not necessarily a good guide as there will be much more info available in the new year. The US cares at present, let's hope the UK doesn't get similar ideas.

nun

I have to agree. I'm somewhere between JAJ's sanguine attitude and Bs3704's paranoia. There doesn't have to be a prosecution for people to have a terrible time dealing with IRS letters or trying to navigate cross border tax issues. We look for certainty in things, but there is a lot of interpretation in tax law, each case is different, and JAJ's and Bs3704's assertions don't really help the individual faced with a maze of financial and legal terminology.

There is ample reason to be frightened when reading the FBAR rubric and ample opportunity to file incorrect cross border tax returns when things like foreign accounts, investments and pensions are involved. A little ignorance and uneducated financial choices can leave the tax payer with difficult decisions to make and either a headache from trying to solve the problem themselves or a large hole in their wallet after paying a professional tax adviser.

The solution is to be pro-active with your finances and taxes to remove areas of complication. Avoiding a problem is better than trying to solve one...or deciding whether you have a problem at all.