FBAR Errors

Old Jan 2nd 2024, 11:36 pm
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Question FBAR Errors

Hello ,
I just registered as a member and therefore new to this forum. I need some urgent assistance with FBAR errors.

I worked in the UK for 21 years and 21 in USA and just retired. I have been submitting FBAR for over 10 years declaring amount in my UK Bank UK accunt, but now I realised
there were errors I made noted below -

1) I had couple of pensions in the UK that I never thought about entering in my FBAR submissions, primarily because there was no income from the pensions.
After retiring this year I received the 25% "Tax Free" distributions and realized that I should have entered the pension details in my previous FBARs.

2) I had 2 bank accounts (Savings and Checking), but I always declared one bank account that had 99% of the money in my FBAR submissions.

3) My FBAR for last three years had incorrect amounts declared.

4) In reviewing my FBARs for last 6 years, I discovered that in 2018 and 2019 there I forgot to add foreign earned interest totalling around $750.
submiited on my 1040s.

Should I resubmit my FBARs for the last 6 years with corrected information including the 1040s fpr 2018 and 2019? Am I likely to incur penalties and if so any throughts on the $ value?

I'm extremely concerend so any advice would be much appreciated. Thank you in advance.
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Old Jan 3rd 2024, 12:07 am
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Default Re: FBAR Errors

Originally Posted by mykee
Hello ,
I just registered as a member and therefore new to this forum. I need some urgent assistance with FBAR errors.

I worked in the UK for 21 years and 21 in USA and just retired. I have been submitting FBAR for over 10 years declaring amount in my UK Bank UK accunt, but now I realised
there were errors I made noted below -

1) I had couple of pensions in the UK that I never thought about entering in my FBAR submissions, primarily because there was no income from the pensions.
After retiring this year I received the 25% "Tax Free" distributions and realized that I should have entered the pension details in my previous FBARs.

2) I had 2 bank accounts (Savings and Checking), but I always declared one bank account that had 99% of the money in my FBAR submissions.

3) My FBAR for last three years had incorrect amounts declared.

4) In reviewing my FBARs for last 6 years, I discovered that in 2018 and 2019 there I forgot to add foreign earned interest totalling around $750.
submiited on my 1040s.


Should I resubmit my FBARs for the last 6 years with corrected information including the 1040s fpr 2018 and 2019? Am I likely to incur penalties and if so any throughts on the $ value?

I'm extremely concerend so any advice would be much appreciated. Thank you in advance.
where would you input interest?, it should be paid in to the account that earns it and then would be included in the “maximum balance” if that period was the high balance…
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Old Jan 3rd 2024, 12:41 am
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Default Re: FBAR Errors

That is a good question. The account in the UK had the interest for 2018 and 2019, but I needed to declare that amount somewhere on my 1040s and I was thinking of including that in Schedule B part 1 and resubmitting the 1040s
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Old Jan 3rd 2024, 1:15 am
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Default Re: FBAR Errors

I hope I am wrong in my interpretation of the situation which is that you failed to report foreign income on your 2018 and 2019 tax returns, which if true complicates things considerably because the option to correct FBARs with no penalty is only available to those that declared all foreign income and paid the relevant tax to the IRS. If that is the case then likely your best option will be to use the program that allows FBARs to be corrected with a 5% penalty applied to all unreported balances. It is too late to submit an amended return for 2018 and 2019, only the prior 3 years can be amended.

The 5% penalty will apply to the amount of each account that was under reported, and to the total balance of any accounts not reported. They will use the maximum of each of those amounts from any single year in the preceding 6 years to calculate the penalty. Whether or not your pension needed to be reported is dependent upon the type of pension. If it was a final salary pension for which you had no account in your name until retirement it can be argued that there is no need to report that pension provided you never received a statement identifying the absolute value of the pension (which is unusual for a final salary scheme). If you were ever provided a transfer value that puts you into a grey area on that one. On the other hand if it was a defined contribution, or a personal pension, or a SIPP (anything that has the funds in an account in your name) then that most definitely needed to be reported. Therefore the 5% penalty may or may not be significant depending upon what was not reported, what was under reported, and what type of pension account you had, but you can do a rough calculation to determine what it is with that information.

The 5% penalty option is only available if you contact the IRS to correct this before they contact you. If they contact you the penalties can become eye watering. If you do have unreported foreign income on your tax return then I recommend you consult with a professional well versed in dealing with this situation. There are a few good ones out there that have helped many others through this situation, and are not too expensive because they have been through the learning curve. Don't use someone who has not done this many times prior. In any case do not attempt to amend tax returns for 2018 and 2019, they will be rejected, and you just waived a red flag at the IRS highlighting your issues.

Hopefully you have complied with the requirement to file Form 8938 with your tax return if you meet the relevant threshold. If not, that is a whole other can of worms with very stiff penalties, and that should be addressed at the same time as your FBARs.

Last edited by Glasgow Girl; Jan 3rd 2024 at 1:25 am.
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Old Jan 3rd 2024, 12:00 pm
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Default Re: FBAR Errors

Most folks would use the official penalty-free IRS Streamlined Foreign Domestic Procedures (SDOP) as the lowest risk and lowest cost way of catching up.https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states
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Old Jan 3rd 2024, 3:49 pm
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Default Re: FBAR Errors

The Streamlined Foreign Offshore Procedure is indeed the best option for someone who has recently arrived, anyone who now lives outside of the US, and what they call Accidental Americans. The issue for the OP is that I believe he lives in the US and has done for quite some time, and if that is true that program is not available to them. If he does live outside of the US and meets the non residency criteria then most definitely he should go down that route.
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Old Jan 3rd 2024, 3:54 pm
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Default Re: FBAR Errors

Thanks for catching my small typo. I should have typed:
Most folks would use the official penalty-free IRS Streamlined Domestic Offshore Procedures (SDOP) as the lowest risk and lowest cost way of catching up.https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states.

The SDOP is routinely used by many thousands of US residents every year.
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Old Jan 3rd 2024, 4:00 pm
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Default Re: FBAR Errors

Originally Posted by Cook_County
Thanks for catching my small typo. I should have typed:
Most folks would use the official penalty-free IRS Streamlined Domestic Offshore Procedures (SDOP) as the lowest risk and lowest cost way of catching up.https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states.

The SDOP is routinely used by many thousands of US residents every year.
Yes, that is the program with a 5% penalty for non reported, or under reported assets, which is what I provided the OP details on. I think we are both stating that is his best option.
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Old Jan 3rd 2024, 4:11 pm
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Default Re: FBAR Errors

Yes I have been living in the US for quite some time and after reading Cook_County post, I was not sure if the Streamlined Procedure was available to me, but I hope there are other options.

As for my Pensions I just enquired about them. The first pension is a "Retirement Annuity Contract" section 226 that was a one time contribution in 1988.I was not aware of it's fund value until I took retirement. The other Pension started off as an Executive Pension Plan with my last contribution back in 90s,when I was living in UK. It was apparently converted to a "private pension" in 2017, unknown to me.

UK Pensions is not something that I thought about while working in the US, so it seems like hefty price to pay. I was not totally aware of Pensions that I had and still chasing after couple other organizations that merged or were acquired that I worked for in the 80s to determine any outstanding pensions. Maybe its not worth chasing them anymore.

Any help would be much appreciated.

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Old Jan 3rd 2024, 4:17 pm
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Default Re: FBAR Errors

Originally Posted by mykee
Yes I have been living in the US for quite some time and after reading Cook_County post, I was not sure if the Streamlined Procedure was available to me, but I hope there are other options.

As for my Pensions I just enquired about them. The first pension is a "Retirement Annuity Contract" section 226 that was a one time contribution in 1988.I was not aware of it's fund value until I took retirement. The other Pension started off as an Executive Pension Plan with my last contribution back in 90s,when I was living in UK. It was apparently converted to a "private pension" in 2017, unknown to me.

UK Pensions is not something that I thought about while working in the US, so it seems like hefty price to pay. I was not totally aware of Pensions that I had and still chasing after couple other organizations that merged or were acquired that I worked for in the 80s to determine any outstanding pensions. Maybe its not worth chasing them anymore.

Any help would be much appreciated.
The SDOP is a perfect solution for failing to file accurate US income tax and information returns in the circumstances described. The 5% penalty is tens of thousands of dollars below the statutory penalties that the IRS could charge. It also limits the number of years required to just 3 years of amended returns.
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Old Jan 3rd 2024, 5:00 pm
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Default Re: FBAR Errors

It is worth chasing any additional pensions because at the end of the day even with a 5% penalty you will come out well ahead. So don’t let that deter you.

US tax laws and penalties on foreign accounts are complex and (in my opinion) extremely unfair to immigrants. However they are what they are, and all we can do is ensure compliance with our first tax return, or correct any issues as soon as they are identified because the 5% penalty is minor when compared to the alternatives if the IRS recognizes the error first. In recent years the IRS has acknowledged that many people are unintentionally non compliant on reporting foreign assets for any number of reasons and that is why they introduced the penalty free program (only available if all foreign income is declared and tax paid) and the 5% penalty program if unreported foreign income exists. Both programs require that you contact the IRS before they contact you, and that you attest to the fact that the omission was non willful. For what it is worth several years ago the penalties were 25% for voluntary corrections, so 5% is a significant concession from the IRS and the most compassion you will get from them.

With regard to your pensions, I seriously doubt the IRS will waive the 5% fee because of the situations you describe (they will rigidly apply the rules as written) but if you work with one of the professionals who do this frequently then they will be able to advise further because they have seen numerous scenarios leading up to this issue and may be aware of any get out of jail free card (but I wouldn’t hold out much hope for that). I can’t recommend anyone from a personal perspective but I do know of several who have made use of such services and the fees were very reasonable, about $2K to $5K depending upon what was involved. At the end of the day they were very glad they put the issue behind them despite the fees and penalties because the alternative is significantly worse.

Unfortunately, there are few options to resolve this, and the 5% penalty is the best one available to you. Doing nothing puts you at risk of significantly higher penalties. You could also make use of this program without the use of a professional but you don’t want to make any mistakes on this, and you also want to be sure that you have covered any other possible omissions so the fee probably worth it. Make sure you make a professional aware of any other possible pensions and like I said use someone who has done this many times prior.





Last edited by Glasgow Girl; Jan 3rd 2024 at 5:06 pm.
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Old Jan 3rd 2024, 8:12 pm
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Default Re: FBAR Errors

Hi Glasgow Girl,

As for my Pensions I just enquired about them. The first pension is a "Retirement Annuity Contract section 226" that was a one time contribution in 1988.I was not aware of it's fund value until I took retirement. The other Pension started off as an Executive Pension Plan with my last contribution back in 90s,when I was living in UK. It was apparently converted to a "private pension" in 2017, unknown to me.

UK Pensions is not something that I thought about while working in the US, so it seems like hefty price to pay. I was not totally aware of Pensions that I had and still chasing after couple other organizations that merged or were acquired that I worked for in the 80s to determine any outstanding pensions. Maybe its not worth chasing them anymore.

Also, you In your earlier post you mentioned " I recommend you consult with a professional well versed in dealing with this situation. There are a few good ones out there that have helped many others through this situation, and are not too expensive because they have been through the learning curve". Please could you provide some consultants contacts either as a reply or email. I really appreciate your help so far on this complex topic for me.

Thank you
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Old Jan 4th 2024, 7:12 pm
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Default Re: FBAR Errors

When I was looking through some old emails to find you some contacts that could help you (which I will PM in the next few days) I recalled that there is another option that I forgot about which is the Delinquent International Information Return Procedure, DIIRSP. Using that program is a calculated risk with high stakes because the outcome could be that no fine is assessed at all, or anything between that and your entire foreign accounts (and then some) being wiped out in fines.https://www.irs.gov/individuals/inte...ion-procedures.

DIIRSP basically states that you may file the delinquent forms and pay back tax for the prior 3 years (with an explanation as to why you were delinquent). It is also sometimes referred to as a quiet disclosure (which also includes just submitting the correct forms going forward and not fixing the past). Sounds good, but the catch is that if you go ahead and do this then you have no protection from the statutory fines associated with failing to submit the relevant forms. It’s is a roll the dice approach, you submit the forms and if you are lucky no one looks at them, or if they do they choose to accept your explanation and let it go. However, the IRS has no obligation to even read your explanation, nor do they have to accept it. It is solely at the agents discretion as to what happens next, which could range from nothing other than the forms are filed with no penalty, to a $10,000 fine for each delinquent FBAR if they consider the situation to be non willful, to fines that could wipe out the entire account (and then some) if they consider that you were willful, to criminal prosecution (although that is generally saved for those with very large undisclosed amounts. Submitting the correct forms going forward without resubmitting prior forms, or correcting prior forms, is particularly risky because you just gave the IRS what they need to consider you willful since you clearly knew there was a problem but did not take the opportunity to fix it, which translates to willful non compliance, not a good position to be in.

DIIRSP is essentially the same as the 5% penalty program. The key difference is that the 5% penalty program gives you confidence that you can resolve the issue with a known cost and put it behind you, whereas the DIIRSP program puts you at risk of much higher fines with no recourse whatsoever. If you get an overzealous agent, you could be facing some serious financial penalties no matter how compelling your case. The statute of limitations on FBAR submissions is 6 years so they have that long to apply penalties. Could be a long 6 years.

So pick your poison, pay a 5% penalty and know the issue is behind you, or roll the dice and wait for up to 6 years before you know the outcome which could be excellent, or catastrophic. DIIRSP has worked for some, but not for others. So a calculated risk with potentially very high stakes.
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Old Jan 4th 2024, 7:15 pm
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Default Re: FBAR Errors

See my earlier post which I made a few minutes ago, but here are some other thoughts.

In your case it seems that you have 3 issues.
  1. Pension accounts that were not reported plus one other small unreported account.
  2. Under reporting of foreign account balances for the prior 3 years
  3. Non payment of tax due on foreign account interest in 2018 and 2019.
Had it not been for (3) you would have been eligible to use the no penalty program. However the 5% penalty is only applied to accounts in (3) for the prior 3 tax years. 2018 and 2019 are out of scope for that penalty. The pension accounts had no income (except for 2023 which can be handled correctly), therefore if the accounts in (3) are out of scope then it could perhaps be argued that you are eligible for the no penalty program, or perhaps you can take a hybrid approach and at least exclude the pension accounts from the penalties, but you really need a professionals view on that. This all assumes that there is no unreported foreign income in tax years 2020, 2021 and 2022 which are the years for which the accounts in (3) would count for penalties.

Another possible scenario is that there is no unpaid tax on the foreign income, which could be the case if you paid tax in the UK on your UK interest, because you generally get a credit for that with the IRS and that may wipe out any tax liability. If that is the case you would likely need a professional to look at that in more detail.

As you can see it all gets rather complicated with nuances everywhere. I hope this might help, it’s certainly worth reviewing with someone who does this for a living, and I will get you some contacts in a day or two and PM them.
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Old Jan 4th 2024, 8:53 pm
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Default Re: FBAR Errors

From the info you've provided, I'm not sure that the pensions were under-reported. The guidance I received here when I still had sufficient UK cash assets to require reporting, was that defined contribution pensions should be reported, since their total value is known, but defined benefit pensions are valued at zero unless you actually know the surrender value.
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