CoachMB

Edit - sorry, title should say years, not year!

Hi all, i am hoping for some advice here, as I'm somewhat stressed about this at the moment and looking for the best way to set it straight, ideally without costing me thousands of $s.

I have been in the US pretty much since 2010. I say pretty much as the first 2 years were H2B visas where I was in the country maybe 8-9 months of the year. Since then I've been on longer term non-immigrant visas.

I have filed my taxes each year (through turbo tax) but just recently became aware of the FBAR requirements. There are likely therefore multiple years where I am currently not compliant.

Stupid on my part to let that slip, but I feel it was an honest mistake to not file as i wasn't aware of the requirements, and to be totally honest, genuinely didn't really consider the account in particular that puts me over the $10k threshold. My UK bank account has always been well under $10k each year, which i know is a question that comes up, and so i've been able to answer "no" to, but it looks likely that this year it will go over that, so was looking into what was needed a bit more which is what's led me to this point.

The real offending account (I'm aware the $10k is a cumulative figure, I am just referring to the one that really takes me over the threshold) is a cash ISA, that while in my name has basically been managed and contributed to by my parents over the years. I wasnt even aware as to what the amount in there was until I started reading up on this recently and thought of that account. Turns out there is currently about 11k (GBP) in there, so i'm in the process of looking into exactly which years I have been in non compliance, but I would guess its probably 5 (as i don't think i was in the country enough in 2010).

So my question is, has anyone had experience with this themselves? how did you resolve it? I've looked around online and seen various sources and options/recommendations. Of course the sites/blogs written by lawyers/law firms champion doing everything through them with a handy "get in touch now" at the bottom of the article.

I see there are some programs available, most of which come with penalties. Ideally of course I want to avoid that as it seems unfair on my parents who have been setting the money aside in good faith, only to have the interest, and tax savings of the ISA and more wiped out. That said i'm aware the IRS doesnt give 2 shits about that.

I am in the process of looking into the amounts of interest, and i'm expecting it to be pretty small. My own bank had about 4k (GBP) or so or lower each year, and interest was around 20 quid a year. So I'm am guessing between the 2 accounts its probably less than 100 quid unreported each year, and unlikely to have an impact on how much tax was paid in those years, yet technically i should still have paid my usual % on the that 100 quid or whatever it was.

Is it therefore an option to just file the FBARs now? I've read if you don't owe taxes then that is possible. Or do i need to go through a process of submitted amended returns for the sake of the 50-100 pound a year unreported income?

Would appreciate any advice here, its somewhat stressful discovering such hard penalties are a possibility for something that I didnt know about/made an honest oversight with. I realize its my responsibility to keep on top of this stuff, but my pathway to where i am wasn't a typical move over here with a decent job, etc. I was here short term initial getting paid peanuts and living with random families and its gradually turned into something more stable. No excuse i know, i just wasnt wise enough at the time to consider all the tax implications of coming over.

Owen778

So, there are two separate issues here:

1. Under-reporting of income, because you didn't report the UK bank interest, both in the bank account and the cash ISA.

2. Non-reporting of foreign accounts for FBAR. FBAR is about total amounts in accounts, not about interest earned.

It's not clear to me from your post why you didn't previously report the UK bank interest from the normal UK bank account on your US tax return. That said, it's quite likely that if you didn't tell your UK bank that you don't owe UK tax, they would have been removing tax from your interest payments by more than the IRS would. If you invoke the dual tax treaty, you could argue that you don't owe the IRS any extra, though doing this may be debatable, since you should have been being taxed by the IRS not the UK.

Given the ISA is untaxed in the UK, you can't do this with the ISA income, but you can at least claim that you didn't file fraudulently, because you didn't know that you had that income.

I'd argue that something similar applies to the FBAR. If you do not know how much is in a foreign account, the IRS expect you to use your best estimate. In your position, I would argue that my best estimate meant that I was under the FBAR reporting requirement, and therefore didn't have to file. That is until, I found out how much was actually there, when the filing requirement starts. Two caveats to that: firstly, personally, I would have made sure I found out how much was in that account when I did my first US tax return, and secondly, I suspect others here will disagree with me, some of them much more knowledgeable.

I'm tempted to say I would file a correct FBAR going forward, so for the 2016 return onward. Exactly how safe that is, I don't know.

The other thing to bear in mind is the statute of limitations. This means that for non-fraudulent tax returns, no action can be taken beyond three years since filing or the due date (whichever is later). Providing you filed on time, and can argue your returns were accurate to the best of your knowledge, then the return for 2013 and earlier would be excluded.

The FBAR statute of limitations, however, is six years from the return due date.

CoachMB

Thanks for the response. I hold my hands up, I was pretty immature and negligent in how i handled my foreign accounts. I was over her initially on an H2B, and for most of the time i've been here its not been particularly stable. I submitted taxes via turbo tax, but in hindsight i was naive to it and evidently missed stuff.

Again not particularly an excuse, but i didnt know worldwide income was an issue for somebody in my position. Even this article Immigration and Taxes: Who has to Pay U.S. Taxes? - FindLaw that i found in my recent research gives somewhat conflicting advice. Saying tax residents pay on worldwide income, then later stating "nonimmigrant visa holders do not have to pay taxes on earnings made outside of the United States."

It gets worse.. I've been looking over my accounts again, and i also have additional income from 2010, and 2011, and a small amount in 2012. I was on H2b Visas so spent good chunks of the year at home and did some temp work. So there is also more unreported income beyond just interest. Certainly not deliberate, i just did not know as a carefree 25/26 year old what my responsibilities truly were at the time. Again, no excuse i realize.

So im not really sure my best way to proceed. I was half thinking given it was just interest income of probably less than 100 pound a year, that i could maybe file the FBARs and given that its such a small amount and limited impact on what my taxes should be then i'd probably be very small fry and ok given that I've made the attempt to comply now. ( could be me talking BS here too, but have read of people doing similar.

However this other income throws that in doubt as well. 2010 i spent three months in the US not working/earning, before i returned on an H2b from Mid August to end of November. Seems slightly unfair that id be taxed on UK income when i only worked in the US that short amount of time. The amount of income was probably about $6-7k of for that year.

2011 i spent longer in the US, but still had a period at home with about $5k of income.

2012 same again, but a much shorter period in the UK and income was less than $1k.

As of 2013 I've been here and its only been the interest income until this year which i planned to file.

Would appreciate any suggestions or ideas on my best way to proceed. Im aware i've messed up, but want to get in compliance, ideally without my parents forfeiting a chunk of what they've been trying to put away for me.

CoachMB

To follow up on this part - does that mean my returns i filed from 2010, 11 and 12 essentially can't get me into trouble or be held against me?

For 2013, 14 and 15 my only income has been small amounts of interest. Probably 50-100 per year.

That being said, could the fact it seems like i misreported in those initial years (didnt know i had to include that income) be grounds for calling them fraudulent if i now bring attention to them with FBARs?

To clarify, does the quote above mean the income from those early 3 years potentially couldn't be held against me, but i would still have to file the FBARs for all 6 years?

If so would you think the minimal interest amounts would mean i can just file them without needed to go into one of the other programs that invoke penalties?

Owen778

So, that last quote is wrong. It is only correct for non-resident aliens, which means people who receive income from the US when they do not count as tax resident.

Let's check you actually pass the substantial presence test. How many days were you in the US, for each year from 2008 onwards?

CoachMB

I definitely do from 2011 onwards. 2010 i spent 3 months here but not earning, before returning for mid august-end of November when i worked (around 100 days, but about 200 total including the first part, which i assume still counts as i was physically present regardless of what i was doing).

2011 was here start of april through december.

from march 2012 I've basically been here full time.

So yes i believe i pass it for all years. 2010 I'm not 100% how that works, but pretty sure.

I've now got some more info on my accounts since my original post.

I haven't delved in detail, but the ISA started in 2008 with 3k added for the next 3 years. So it stood at 9k+ interest in 2010 when i was first in the US. The interest since 2010 is approx 1500 (including this year, which i will obviously report correctly in my 2016 return). so maybe 2-250 pound each year on average in addition to the 20-30 in my other account.

All of the earned income was previous to the last 3 years if that makes a difference. Is it the case that they can't go after me for that since its been three years? or is my negligence enough for them to call fraud/evasion?

celticgrid

Does the financial institution which has the ISA know that you are resident in the US?

hungryhorace

If it was me, i'd forget about it and file correct FBARs going forward. The reality is until FATCA was implemented this year the US had no clue about the money you had earned in accounts outside the US, so you telling them (over irrelevant amounts of money to them) despite a genuine mistake is just going to make your life more complicated.

hungryhorace

What difference does it make?

CoachMB

Thanks for the further responses. None of the accounts in the UK are aware of my US connection currently.

Isn't the point of FATCA that the US does get clued in on which Americans or people with US connections have accounts with the foreign banks?

It might be the case that they currently don't know of my US connection, but surely once i file my first FBAR thats no longer the case, and i could at least theoretically get called out on the previous years more easily.

Similarly, if i file my first FBAR next year and ignore the previous, then while i agree its not large amounts of money and chances are they'd not chase it... IF they ever did, the fact I've started to file an FBAR now makes my past failures now willful.. which is a whole different game.

celticgrid

To essentially the same point you made, as to whether the US is informed about the interest. If associated with a US resident'flag' the interest has likely been advised. If the institution thinks the OP is in the UK then notification to the US is probably not happening.

hungryhorace

You're stressing yourself out. Willful tax evasion has a seriously high bar to prosecution. Just do it correctly going forward.

hungryhorace

Even if they were a US resident, was the data even being sent to HMRC? I don't believe it was, not until Cameron sold us out to the Americans.

celticgrid

Remember that the FBAR goes to the Treasury, not the IRS, and is a reporting mechanism. I am sure people 'pop up' filing FBARs for the first time all the time, as account balances increase and they suddenly meet the reporting threshold. I think it is highly unlikely that and chasing will take place. With your numbers you are only just above the threshold...

Orangepants

For FATCA reporting ie what your UK bank will be sharing with the IRS, the lower threshold is $50k. Has your bank been in touch with you to update your KYC and validate your tax residency? They should have by now, deadline was June 30,16 but if they haven't, they have probably, made a presumption of UK tax residency. They can rely on data on file for lower value accounts unless there is US indicia to suggest otherwise. This points towards you not having a US reportable account for FATCA. First year of filing was for 2014.

I cant speak to the FBAR filing, I missed my first year and refiled tax return, submitted 2011 and 12 FBAR concurrently. I was aware that FACTA had been signed in to law 2010 and wanted to get it right from the start as I knew I was US reportable from where I had lived previously (tax free island).

I'd dump the ISA, keep your overseas accounts below 10K if you dont want to bother with FBAR, inform your bank of your US address and file correctly from now on. There are many people just finding out about FBARs lately - not an excuse but bigger fish to fry than your 100 pounds!