mimiaswell

I’ve looked at previous threads and still unsure so I apologise if these questions have been asked before.
I’m wanting to go back to the uk permanently. I’ve been the USA for almost ten years and have always filed my taxes correctly or so I thought. now I’m reading about FBAR requirements. I didn’t close my uk accounts before i left so i have various accounts including saving account, premium bonds and a stock ISA which i haven’t been paying attention to until recently and has grown to nearly £18,000. In total i have £25,000.

is it too late to file a FBAR and will i be penalised the maximum amount.
do I also have file an amended tax return with a 8938 for all three years?
I don’t have that much wealth, would it be better if i hire a CPA to take care of this as I understand stock and share ISAs are complicated. And if so are there recommendations?

Cook_County

If the ISA is invested in PFICs, you have possibly overlooked annual PFIC reporting. The official SDOP will most likely be the lowest cost method of catching up.

robin1234

It sounds like you have been below the limit for form 8938. If I remember correctly, if your foreign accounts are less than $100,000, you don’t need to file 8938.

Owen778

This is important, but I can't imagine the OP understands what you wrote.

Mimi - what investments are in the ISA? Is it just individual shares, or are there things like unit trusts in there too? The first is relatively simple to deal with, but the latter may count as PFICs and require a lot of reporting and maybe extra tax payment.

mimiaswell

I think they are in unit trusts. I would have to check.
would I still have to report it if the value of the ISA is below $25,000? I haven’t taken any money out. Any gains I get are just reinvested. Does that make a difference?

Olly_

Even if it was below the limit for FBAR/8938 reporting you should still have reported and paid tax on any dividends - the ISA doesn't shield it from US taxation.

Glasgow Girl

Form 8938 has to be filed if the total value of your assets exceed $50,000 on Dec 31st of each calendar year, or if they exceeded $75,000 at any point during the calendar year (double those amounts if married). From what you have said you did not exceed those amounts so there is no issue with Form 8938.

The FBAR threshold is $10,000 (total of all assets) therefore you are delinquent on FBARs. If you have paid ALL tax due to the IRS (not even a $1 outstanding) on your foreign investments then you can backfile FBARs (and Form 8938) without penalty, using the Delinquent International Informational Return Process, DIIRP, but if you have not paid all tax due on your foreign investments then you do not qualify for that program and your best option is the Streamlined Offshore Program which will apply a penalty of 5% on all of your unreported foreign assets, and require that the delinquent tax on those investments is paid plus a 20% penalty on the total interest owed.

The IRS will tax all foreign income including any interest or dividends received from within an ISA. They do not recognize ISAs. The fact that you reinvested those proceeds does not make any difference, the IRS will still tax any such proceeds. Sometimes even though tax has not been paid to the IRS on foreign investments it is possible that tax paid to the UK is more than that due to the IRS, and because you get credit for the UK tax paid you actually do not owe the IRS any further tax. If that is the case then you are lucky and can enter the DIIRPs program because there is no tax due. However In your case because the investments were in an ISA it is unlikely that you paid any tax to the UK and therefore have nothing to offset the IRS tax due.

If your investments are Unit Trusts, then those are considered to be PFICs, and there are very complex rules for the tax due on such investments. You must fill in Form 8621 every calendar year and calculate the tax due on income. It gets even more complex when you sell such investments and the tax rate will be the highest published marginal tax rate of 37%, plus they will pro rata the profit across your entire holding period and calculate the tax due in each year you held the funds and add compound interest to each year at published IRS interest rates which average out about 4% for the recent past. They will then add state tax, making it very easy to exceed 50% and higher tax rates on the profit.

I would definitely consult a professional and get this taken care of. If the IRS contacts you the financial penalties are quite severe and much worse than what is outlined above.

Finally, lots of people find accidentally themselves in this unfortunate situation. You won’t be treated like a criminal, and it is best just to bite the bullet, pay the penalty and move on with your life.