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Another FBAR question with larger balances in overseas investment account.

Another FBAR question with larger balances in overseas investment account.

Old Feb 18th 2024, 8:26 pm
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Default Another FBAR question with larger balances in overseas investment account.

Thank you for your time in advance.

I am a Green card holder who’s been living in the US since 2014. I want to get compliant with US tax with regard to foreign income but don’t know the best way to go about it and I want to double check the advice I’m getting from my CPA.

Since arriving in the US in 2010 I’ve had bank accounts at home (with balances totaling roughly $100k) and a rental property. I paid all the necessary taxes that were due to the home country over the years. My CPA always said to keep the 2 sets of taxes separate but make sure I fully paid the necessary home taxes (but obviously the home income etc wasn’t reported on the US tax return). I didn’t know about the FBAR until this year.

In 2021 I sold the rental property in the home country and paid all the necessary Capital Gains Tax etc in 2022. The proceeds of the sale were considerable - low 7 figures - which I placed in an investment account in the home country. For 2023 I had gains from the overseas investment account which my CPA has put on my US tax return for 2023 and has suggested that I file FBAR’s going forward starting this year as the balance in the investment account is large.

I’ve never filed an FBAR before and am curious what the best course of action is? I will file the FBAR this year (and going forward) but should I also file the missing FBAR (back 6 years I believe?) or should I be considering SDOP? I’m terrified of the penalties that I might face going forward.

Thank you.
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Old Feb 18th 2024, 8:43 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

I just filed my FBAR today as it happens. It is very easy to do and has to be done online. You can also file previous years with an explanation as to why they are late. I’m surprised that you haven’t filed them in the past as the tax software always asks the question, or the tax accountant should ask. The existence of any foreign account is indicated in Part III of Schedule B (interest and ordinary dividends) of your IRS returns.

Unless You have failed to report any interest on your IRS return then a few FBARs for earlier years should sort you out.
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Old Feb 18th 2024, 9:04 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by france9595
(but obviously the home income etc wasn’t reported on the US tax return).
Wow! If that's really the case, and you're not misunderstanding something, you should fire this CPA. This may be a big issue, both for the tax return and the FBARs.

The US taxes on the basis of all income, worldwide. Your CPA definitely should have known this. It might be that once you include both your rental income and the taxes paid on it in your "home" country, that you don't owe any additional taxes, but that would depend on your rental income, rental expenses, amount of tax paid, and the dual-tax treaty (if any) between the US and other country.

Do you have that advice from your CPA in writing? You may need to provide that as evidence to the IRS when you or a more knowledgeable CPA helps you revise your tax returns.
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Old Feb 18th 2024, 10:45 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Yes, i’m very worried because from what I've read the penalty would be severe if I went the streamlined route - 5% of the largest balance over the period of delinquency, so over $100k in my case which feels very harsh for a few years missing fbars (especially as I actually paid the appropriate tax at home).

And I don’t know if the IRS will even accept that as un-willful as the rental income wasn’t on the US return, only the UK return.
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Old Feb 18th 2024, 11:10 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

I don't have expertise with missing FBARs, but I know there are some here who can offer some advice. I suggest looking at previous threads here on FBAR filing and on rental income for more info. You may end up needing to get (better) professional advice.

Good luck.
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Old Feb 19th 2024, 12:19 am
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Default Re: Another FBAR question with larger balances in overseas investment account.

If you have unreported foreign income then you need to rerun your taxes for the prior 6 years to include all foreign income and determine if you owe the IRS any additional tax, which may or may not be the case. If you do not owe any additional tax then you can fix this without penalty by refiling the prior 3 years taxes to include all foreign income and submit the prior 6 years FBARs. If you do owe tax to the IRS for any of those years then your choices are to use the SDOP process which also requires amending the prior 3 years tax returns and filing the prior 6 years FBARS plus a 5% penalty of the highest aggregate balance for the prior 6 years; or to do the same without using the SDOP process thus avoiding the 5% penalty but rolling the dice on the IRS auditing you on those amended returns, or for any other reason. If they do so the 5% penalty could well seem like the deal of the century.

Either way you need to fix this. Use a professional with experience in this process, there are several out there who are very reasonably priced and competent in this scenario, but there are many more who will charge an arm and a leg. You can tell which is which by simply reading their web sites. The good ones are informative and the bad ones are designed to scare you to death. If you PM me I can provide details of a couple that have helped others in similar situations. I am not affiliated with them in any way.

From what you have said you would almost certainly be regraded as non willful which makes you eligible for the SDOP procedure, but won’t cut any slack if you are audited and found to be non compliant. Don’t forget Form 8938 with your tax return if you meet the relevant threshold, and hopefully you do not have any PFIC investments (foreign mutual funds like Unit Trusts, Investment Trusts, OEICs, ETFs, etc) which is another massive headache with further reporting requirements and draconian taxation.
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Old Feb 19th 2024, 11:30 am
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Default Re: Another FBAR question with larger balances in overseas investment account.

Maybe the OP has a defense that he relied upon the advice of a CPA. I don't know, but it is something I would seek advice on before opening this can of worms.
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Old Feb 19th 2024, 12:50 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by MidAtlantic
Maybe the OP has a defense that he relied upon the advice of a CPA. I don't know, but it is something I would seek advice on before opening this can of worms.
I would definitely be saying that. However, at the end of the day it is the taxpayer's responsibility to sign their IRS tax return saying that they believe it to be correct. Schedule B, Part III in the return is unambiguous.

On the 1040 where you sign it states:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
The preparer can always state the taxpayer gave him the wrong information but it is the taxpayer who signs off on the return.

Part III
Foreign Accounts and Trusts


At any time during 2022, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?

If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial
Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114
and its instructions for filing requirements and exceptions to those requirements . . . . .
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Old Feb 19th 2024, 2:30 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Written advice from a professional with full knowledge of all facts will provide solid grounds for a non willful defense but will not waive the 5% penalty for such a defense under the SDOP program, nor the much harsher penalties applied if the IRS discover the oversight. A few years ago the penalty was 25% with a non willful defense. The IRS changes the programs available to become compliant every few years. It is unlikely that they will get more generous than they are today. The problem for the OP (and anyone else in this situation) is that as soon as you know about any oversight regarding foreign accounts you need to fix it reasonably quickly because if you don’t you are now willful and those penalties can be ridiculously harsh.

Last edited by Glasgow Girl; Feb 19th 2024 at 3:10 pm.
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Old Feb 19th 2024, 6:26 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by Glasgow Girl
If you have unreported foreign income then you need to rerun your taxes for the prior 6 years to include all foreign income and determine if you owe the IRS any additional tax, which may or may not be the case. If you do not owe any additional tax then you can fix this without penalty by refiling the prior 3 years taxes to include all foreign income and submit the prior 6 years FBARs. If you do owe tax to the IRS for any of those years then your choices are to use the SDOP process which also requires amending the prior 3 years tax returns and filing the prior 6 years FBARS plus a 5% penalty of the highest aggregate balance for the prior 6 years; or to do the same without using the SDOP process thus avoiding the 5% penalty but rolling the dice on the IRS auditing you on those amended returns, or for any other reason. If they do so the 5% penalty could well seem like the deal of the century.

Either way you need to fix this. Use a professional with experience in this process, there are several out there who are very reasonably priced and competent in this scenario, but there are many more who will charge an arm and a leg. You can tell which is which by simply reading their web sites. The good ones are informative and the bad ones are designed to scare you to death. If you PM me I can provide details of a couple that have helped others in similar situations. I am not affiliated with them in any way.

From what you have said you would almost certainly be regraded as non willful which makes you eligible for the SDOP procedure, but won’t cut any slack if you are audited and found to be non compliant. Don’t forget Form 8938 with your tax return if you meet the relevant threshold, and hopefully you do not have any PFIC investments (foreign mutual funds like Unit Trusts, Investment Trusts, OEICs, ETFs, etc) which is another massive headache with further reporting requirements and draconian taxation.
Thank you for your thoughtful reply, it's much appreciated. I think you've pretty much summed up my options. I will DM you for professional recommendations.
Have you come across posters on this thread that have gone through the process (streamlined and quiet disclosure) and how it turned out for them in terms of penalties? I can't seem to find any?
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Old Feb 19th 2024, 6:42 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by Glasgow Girl
If you have unreported foreign income then you need to rerun your taxes for the prior 6 years to include all foreign income and determine if you owe the IRS any additional tax, which may or may not be the case. If you do not owe any additional tax then you can fix this without penalty by refiling the prior 3 years taxes to include all foreign income and submit the prior 6 years FBARs. If you do owe tax to the IRS for any of those years then your choices are to use the SDOP process which also requires amending the prior 3 years tax returns and filing the prior 6 years FBARS plus a 5% penalty of the highest aggregate balance for the prior 6 years; or to do the same without using the SDOP process thus avoiding the 5% penalty but rolling the dice on the IRS auditing you on those amended returns, or for any other reason. If they do so the 5% penalty could well seem like the deal of the century.

Either way you need to fix this. Use a professional with experience in this process, there are several out there who are very reasonably priced and competent in this scenario, but there are many more who will charge an arm and a leg. You can tell which is which by simply reading their web sites. The good ones are informative and the bad ones are designed to scare you to death. If you PM me I can provide details of a couple that have helped others in similar situations. I am not affiliated with them in any way.

From what you have said you would almost certainly be regraded as non willful which makes you eligible for the SDOP procedure, but won’t cut any slack if you are audited and found to be non compliant. Don’t forget Form 8938 with your tax return if you meet the relevant threshold, and hopefully you do not have any PFIC investments (foreign mutual funds like Unit Trusts, Investment Trusts, OEICs, ETFs, etc) which is another massive headache with further reporting requirements and draconian taxation.
Just to confirm. If I go SDOP and I re-look at my tax returns and I owe additional tax I adjust the 3 yrs returns and submit 6 yrs FBAR's and I pay the 5% penalty. I also pay the additional tax and are there any other penalties - interest on the additional tax presumably?
The IRS will look at the 3 year returns to check everything is good but will this trigger an audit further back passed the 3 years? Thank you.
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Old Feb 19th 2024, 6:53 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Yes, I know of several who have navigated these waters. You likely won’t find anyone who will discuss quiet disclosures in a public forum, or with anyone they don’t know personally for obvious reasons. Most that I know of have opted for the SDOP route and sucked up the 5% penalty. It is the only way to get closure for sure. Otherwise it is a 6 year wait for the statute of limitations to expire on the FBARs, and I don’t think there is a statute of limitations on Form 8938 (although the chances of your tax returns being audited after 3 years are low, and extremely unlikely each year after that unless they have you under serious scrutiny). The penalties for being caught in a quiet disclosure can be up to 300% of the highest aggregate account balance (50% for up to 6 years of delinquency) and although 50% for one year is more realistic or perhaps smaller than that it does make the 5% seem like a great deal to put it all behind you.

Last edited by Glasgow Girl; Feb 19th 2024 at 7:04 pm.
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Old Feb 19th 2024, 6:57 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by france9595
Just to confirm. If I go SDOP and I re-look at my tax returns and I owe additional tax I adjust the 3 yrs returns and submit 6 yrs FBAR's and I pay the 5% penalty. I also pay the additional tax and are there any other penalties - interest on the additional tax presumably?
The IRS will look at the 3 year returns to check everything is good but will this trigger an audit further back passed the 3 years? Thank you.
Under SDOP I think they do apply interest to the back tax but no additional penalty other than the 5%. If using the SDOP and you have declared all foreign income, completed all the correct forms, and made an accepted statement regarding reasonable cause you should not be audited any further. I would pay a professional to do this because you want to get it 100% correct. The better ones charge about $2,000 give or take depending g upon how complicated your situation is.
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Old Feb 19th 2024, 7:18 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Originally Posted by france9595
Thank you for your thoughtful reply, it's much appreciated. I think you've pretty much summed up my options. I will DM you for professional recommendations.
Have you come across posters on this thread that have gone through the process (streamlined and quiet disclosure) and how it turned out for them in terms of penalties? I can't seem to find any?
Hit the link below, it will take you to the USA forum index. Down the right hand side you will see ‘Search This Forum’. Type in FBAR and it should bring up a list of old threads. HTH.

https://britishexpats.com/forum/usa-57/
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Old Feb 20th 2024, 8:33 pm
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Default Re: Another FBAR question with larger balances in overseas investment account.

Thank you!
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