Scotsman In Texas

I have been in the USA since 2008 and I have 2 problems.

1) My accountant did not know about Form 8938 and has never filed one
2) I have filed FBar's myself but I realize I did not include some assets that I should have done (eg life insurance).

My new accountant is recommending I go down the Streamlined Filing Procedure where I come clean about declaring the assets. The steep part is a 5% fee on the greatest year end balance of each account. I sold a UK house over this time and so the penalty is $30k to $40k. All for forgetting a form!

There is another process called: "Delinquent International Information Return Submission Procedure" which has no penalty, but my account says that it is "very risky because the IRS can reject the reasonable cause statements and assess penalties."

I am at a loss with how to deal with this crazy situation. I don't believe I have any unreported income.

Cook_County

Have you reported income within the foreign life insurance policy? Why not ask the previous accountant to pay the penalty if s/he did not do what you asked so you are being penalised?


The IRS streamlined procedures are set out only on the IRS website; reasonable case is contained within the law so has greater standing. It sounds as if you have a strong reasonable cause argument, a good lawyer could assist you in constructing one.

hungryhorace

Honestly, is this fuss even worth it? It's a minor indiscretion, no malice involved. Do FBARs even get reviewed? I doubt it. They're just used to review in case the Treasury decides to go after you - which, unless you in those Panama documents - probably have nothing to worry about.

MidAtlantic

You have reasonable cause in that you relied upon (and presumably paid for) "professional" advice from an accountant.

The 8938 would require an amended return for each year and require a reasonable cause statement to be attached. See: https://www.irs.gov/Individuals/Inte...ion-Procedures

You would need to submit revised FBARs. See: https://www.irs.gov/Businesses/Small...-Accounts-FBAR Note especially the section Delinquent FBAR Submission Procedures way down the page.

There is no way I would entertain a $30/$40k penalty for this.

Scotsman In Texas

Thanks. Having spoken further with my accountant his advice is:

"If there is unreported income associated with any of the unreported items, I would suggest you use Streamline Filing." Streamline Filing attracts the 5% penalty, but it has some certainty to the process. So it may boil down to whether my previous accountant had correctly reported all my income from foreign sources or not. I know now that I should probably have been paying a quarterly excise tax on my UK life insurance premiums.

He also said: "Ultimately, the answer depends on how risk tolerant vs. risk averse you are in regards to these filings."

This is what drives me crazy. For a law-abiding tax payer who has tried his best to comply with a hideously complex system, the path I take should never be down to my attitude to risk.

IRS penalties aside, to sort through this mess is a $13.5k fee to a hard-to-find international accountant. Much as I love the USA, the cost of compliance in this country is absurd.

Moral of the story?

1) FIND AN ACCOUNTANT WHO UNDERSTANDS US REPORTING ON FOREIGN ASSETS (even if they are expensive)
2) FILE AN FBAR AND A 8938 (if required).
3) TURN OVER EVERY STONE (Foreign pensions, life insurance, investments, shareholdings - don't think it's invisible to the IRS).
4) CHECK AND RE-CHECK EVERYTHING YOURSELF. Ultimately you are responsible.

The absurdity of all this defies belief.

Cook_County

I do not think your new accountant is:
1. Giving you all of the alternatives, and
2. Qualified to do so.


He is also rather pricey too...

hungryhorace

It's a myth that the IRS knows all about your assets. The US is #3 on the list of tax havens. Forget Panama: it's easier to hide your money in the US than almost anywhere | US news | The Guardian

Pulaski

Did you have income and gains that you did not declare? That is not the same thing as not completing FBAR and 8938.

Pension funds do not generate taxable gains and income, and so, as long as you declared, and paid US taxes on, your foreign interest, dividends and gains, the damage is relatively minor.

Scotsman In Texas

Yes, to the best of my knowledge everything was declared - however I do not have a lot of confidence in my previous accountant. What is missing is all the informational returns. 8938's, FBAR's, 5471's etc.

Do share an alternative if you have one. The OVDP, streamlined filing, or delinquent submissions process are the only three processes that I am aware of. The last two are my options it seems.

Report of Foreign Bank and Financial Accounts (FBAR)

Cook_County

You might want a lawyer who is familiar with the concept of reasonable cause. Others have already mentioned that in this thread.

Scotsman In Texas

So still trying to close out this disasterous business. Turns out that I have a bunch of investments in UK funds which I hadn't realised were PFIC's (now all sold). A re-calculation of tax owed over the last 3 years shows a fair amount owing (because of PFIC gains being treated as income at the highest rate), as well as a plethora of missing forms (my tax return is now 155 pages). Forms 8938, 5471, and 8961 were all missing.

In 2012 I had 24 PFIC's. Some life insurance, an investment in a FTSE100 ETF etc. Accountancy fees for filling these in is a whole other absurdity. Not good.

Delinquent submission of the last 3 years with reasonable cause statements and a payment of excess tax would be the cheapest avenue, however there seems to be risk that my reasonable cause statements may be rejected, and/or penalties owing to the incorrectly reported income. But nobody can tell me how big that risk is.

Streamlined filing is the safest with no penalties, however the 5% charge on the max value of offshore accounts in my case is very expensive. Most of my assets are abroad.

My accountants are good but won't stick their heads out to give me a true assessment of risk of just re-filing the last 3 years of returns with reasonable cause statements. Everything I read online seems designed to scare you, and it is true that I have substantial exposure to non-willfull penalties.

I believe that I am ultimately a small fish here, and the IRS genuinely just wants people to comply moving forward. But the real question is what is price of peace of mind? The last thing I want to be doing is fighting with the IRS for the next few years.

Cook_County

Given the circumstances I concur that the safest thing is likely to be streamlined, including you declaring to the IRS that your previous accountant was useless. Why have not asked your previous accountant to pay all of the tax and penalties if they failed to advise and ask the right questions each year. Have you asked?


Do bear in mind that the compensation would be taxable, so would need grossing up. You need a lawyer with a Kovel letter to advise your accountant.

Scotsman In Texas

It is sadly not uncommon that the average mom and pop tax preparer has no idea about foreign asset reporting. It was my fault for using him ultimately. Suing him is not an option unfortunately for personal reasons. The 'miscellaneous offshore penalty' for me under streamline filing is over $100k. Plus the collapse of the £ makes accessing funds to cover this even more painful.

In 2012 I lived in Australia but didn't quite meet the 330day rule (by 4 days) - which would have meant that I would avoid the offshore penalty. So frustrating.

Steve_

I wouldn't worry about anything prior to the 2013 tax year. IRS rarely goes back more than three years and if they were going to come after you for 2012 you would have heard from them by now.

Bear in mind the IRS hasn't got a clue about how to report a lot of foreign assets. I've been chasing them for a proper written explanation of how to report ISAs for ages, they even wrote me a letter, then wrote me another one saying that letter was wrong, write to this dept., then wrote me another letter saying they got that letter and would reply in due course... months ago....

Difficult to say what your best course of action is without more detail of what has been going on for the 2013-2015 tax years.

You should have a read of the UK FATCA agreement as this gives you an idea of how the IRS thinks about these things. How they come to the conclusion they're going to audit you is a secret, which is why accountants sit on the fence, but the FATCA agreement does shed some light on how they do it.

But in a nutshell, the smaller the amount, the less likely they are to come after you.

As I've pointed out on here before though, they came after my uncle after he moved back to the UK (because he didn't give up his LPR status and didn't file), and they came after Boris Johnson as well.

Also, if it makes you feel better, look up Mitt Romney's 2011 return: http://images.politico.com/global/20...2011_1040.html

If you look at page 315 of the PDF, it shows $2,722 income on his 5471 and PWC (yes, that PWC) seem to have forgotten to include it on his 1040.

How many people have looked at that?

Asg123

Interesting, on the tax return, the tax rate, if I'm reading correctly (line 61/line 22) is only 14%.

To OP: a lot of people didn't know that they had to file, so hopefully they won't be too strict.

To readers: Reminder: Only 2 more days to file FBAR. You must file if you had foreign accounts totalling over $10,000 in 2015.