Foreign Bank Accounts - Tax Panic
Jan 27th 2016, 7:34 pm
#1
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Foreign Bank Accounts - Tax Panic
Hi,
I have just entered a complete state of panic about my tax situation here in the US. I have been here since 2009 and filled everything on time, blissfully unaware that I had to post interest earned on my bank accounts in the UK. I filled my FBAR for the 2015 tax year (turbo tax said I had too), then, when all was done, I discovered online about my duties to have filled earlier FBAR's, and the interest on the accounts. Roughly they add to approx $12,500 and in one account, interest ticks along to about 2 (British pounds a month). The UK government taxes me for this.
I am now in a complete state of panic, due to the horror stories I have read online about IRS tax penalties, and even prison, this is even more worrying since I had absolutely no idea. I have contacted a CPA accountant for advice and await his response. Has anyone dealt with this issue? What are my options? I know ignorance is not the best defense, but I was not even aware that the max in each account over one year goes towards the $10000 total.
Thank you, I am a bag of nerves at the moment.
I have just entered a complete state of panic about my tax situation here in the US. I have been here since 2009 and filled everything on time, blissfully unaware that I had to post interest earned on my bank accounts in the UK. I filled my FBAR for the 2015 tax year (turbo tax said I had too), then, when all was done, I discovered online about my duties to have filled earlier FBAR's, and the interest on the accounts. Roughly they add to approx $12,500 and in one account, interest ticks along to about 2 (British pounds a month). The UK government taxes me for this.
I am now in a complete state of panic, due to the horror stories I have read online about IRS tax penalties, and even prison, this is even more worrying since I had absolutely no idea. I have contacted a CPA accountant for advice and await his response. Has anyone dealt with this issue? What are my options? I know ignorance is not the best defense, but I was not even aware that the max in each account over one year goes towards the $10000 total.
Thank you, I am a bag of nerves at the moment.
Last edited by PetrifiedExPat; Jan 27th 2016 at 8:36 pm.
Jan 27th 2016, 8:26 pm
#2
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Location: Ohio
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Re: Foreign Bank Accounts - Tax Panic
*passes cup of soothing camomile tea*
It'll be ok, don't worry. The Internet is littered with people who've only recently discovered these obligations. There'll be some paperwork, no doubt - perhaps filing amended tax returns for the last three years. The route on FBARs appears to be either back filing with an explanatory 'just learned about this' note, or quietly starting them going forward from now and hoping nobody asks about the past. Either path could open you up to questions, so it depends on your sleep-at-night threshold.
Hopefully the CPA will be able to give you a good steer on what the best route is. But it's vanishingly unlikely to involve criminal proceedings; bit of back interest and late filing fines, perhaps. It'll all be eminently sortable.
Going forward, it'd be simpler if you reduce the UK accounts to below the threshold, and only use non-interest paying checking accounts to hold funds. Otherwise you can ask the bank to pay the interest gross, as you're declaring it here (they may say no - I know First Direct doesn't allow a non-resident tax declaration).
Do you have any other UK accounts to worry about - stock funds, pensions..?
It'll be ok, don't worry. The Internet is littered with people who've only recently discovered these obligations. There'll be some paperwork, no doubt - perhaps filing amended tax returns for the last three years. The route on FBARs appears to be either back filing with an explanatory 'just learned about this' note, or quietly starting them going forward from now and hoping nobody asks about the past. Either path could open you up to questions, so it depends on your sleep-at-night threshold.
Hopefully the CPA will be able to give you a good steer on what the best route is. But it's vanishingly unlikely to involve criminal proceedings; bit of back interest and late filing fines, perhaps. It'll all be eminently sortable.
Going forward, it'd be simpler if you reduce the UK accounts to below the threshold, and only use non-interest paying checking accounts to hold funds. Otherwise you can ask the bank to pay the interest gross, as you're declaring it here (they may say no - I know First Direct doesn't allow a non-resident tax declaration).
Do you have any other UK accounts to worry about - stock funds, pensions..?
Jan 27th 2016, 8:35 pm
#3
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Joined: Jan 2016
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Re: Foreign Bank Accounts - Tax Panic
*passes cup of soothing camomile tea*
It'll be ok, don't worry. The Internet is littered with people who've only recently discovered these obligations. There'll be some paperwork, no doubt - perhaps filing amended tax returns for the last three years. The route on FBARs appears to be either back filing with an explanatory 'just learned about this' note, or quietly starting them going forward from now and hoping nobody asks about the past. Either path could open you up to questions, so it depends on your sleep-at-night threshold.
Hopefully the CPA will be able to give you a good steer on what the best route is. But it's vanishingly unlikely to involve criminal proceedings; bit of back interest and late filing fines, perhaps. It'll all be eminently sortable.
Going forward, it'd be simpler if you reduce the UK accounts to below the threshold, and only use non-interest paying checking accounts to hold funds. Otherwise you can ask the bank to pay the interest gross, as you're declaring it here (they may say no - I know First Direct doesn't allow a non-resident tax declaration).
Do you have any other UK accounts to worry about - stock funds, pensions..?
It'll be ok, don't worry. The Internet is littered with people who've only recently discovered these obligations. There'll be some paperwork, no doubt - perhaps filing amended tax returns for the last three years. The route on FBARs appears to be either back filing with an explanatory 'just learned about this' note, or quietly starting them going forward from now and hoping nobody asks about the past. Either path could open you up to questions, so it depends on your sleep-at-night threshold.
Hopefully the CPA will be able to give you a good steer on what the best route is. But it's vanishingly unlikely to involve criminal proceedings; bit of back interest and late filing fines, perhaps. It'll all be eminently sortable.
Going forward, it'd be simpler if you reduce the UK accounts to below the threshold, and only use non-interest paying checking accounts to hold funds. Otherwise you can ask the bank to pay the interest gross, as you're declaring it here (they may say no - I know First Direct doesn't allow a non-resident tax declaration).
Do you have any other UK accounts to worry about - stock funds, pensions..?
I also do not mind keeping my accounts in the UK 'as is', and just filing as I should each year from now. I think it would likely be best to file the 1080x for 2015, 14 and 13, then make sure the FBAR is sent off every year from now on like clockwork. I do not make any money abroad, other than the small interest on the one account, and, my work is fully based in the US, so that is likely not to change.
I have seen a lot of similar posts and it feels good that I was not the only one to get confused/ completely lost. Im drinking tea right now, in order to try and calm down...
Jan 27th 2016, 8:36 pm
#4
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 9,965
Re: Foreign Bank Accounts - Tax Panic
The instructions from the IRS are here https://www.irs.gov/Individuals/Inte...ion-Procedures. They say file the delinquent forms. However they also say the problem is when you haven't paid tax as well. See what the CPA suggests.
Jan 27th 2016, 8:39 pm
#5
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Re: Foreign Bank Accounts - Tax Panic
The instructions from the IRS are here https://www.irs.gov/Individuals/Inte...ion-Procedures. They say file the delinquent forms. However they also say the problem is when you haven't paid tax as well. See what the CPA suggests.
Jan 27th 2016, 9:53 pm
#6
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Re: Foreign Bank Accounts - Tax Panic
The delinquent FBARS can be filed and then you will be all up to date. Believe me, there are folks in far worse situations than yours. make sure you get your UK interest paid gross from now on.....
Jan 27th 2016, 10:13 pm
#7
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 9,965
Re: Foreign Bank Accounts - Tax Panic
The amount of tax you paid on it in the UK hopefully can be used as a credit against any US taxed owed and in fact might mean you don't owe any back taxes. Make sure you know the full amount of interest you received and the UK tax paid and ask the CPA about foreign tax credits. I'm not sure with the small amounts involved how they come into play in your situation.
For US tax any money you receive as salary/pension, interest, investment gains etc from anywhere in the world should be declared for US taxes. If in doubt seek advice.
Last edited by lansbury; Jan 27th 2016 at 10:18 pm.
Jan 27th 2016, 10:19 pm
#8
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Re: Foreign Bank Accounts - Tax Panic
Lots of good advice above, but while correcting the errors and getting it right going forwards is certainly important, the focus of the IRS is not on people with £12,500 in a high street bank in the UK. I certainly wouldn't lose any sleep over your omissions.
