TaxRookie

I'm glad I found this forum. I need a bit of advice.

I've been in the US for a few years and have always had my filing done by an accountant. I read this weekend that I'm supposed to be declaring income from my rented home in England and also I should be declaring assets in England.

Is this correct? I've been treating the two as separate. I pay taxes in England and in the US separately.

If this is correct, what do I do? Obviously if I owe tax I'll pay it but I'm kind of shocked I only just realised. Also how far back would I need to go? I heard 3 years?

Thanks for any advice

lansbury

If you are required to submit a tax return to the IRS it has to include your world wide income. If you have been paying tax in the UK that can be used to offset any tax owed in the US. You would be best to speak to your accountant.

As to assests if you have bank or financial accounts which have total assests of $10k or more , those accounts have to reported. This page at the IRS web site explains it. Report of Foreign Bank and Financial Accounts (FBAR)

MidAtlantic

You need to be talking to your accountant and probably firing him/her.

robin1234

Firing? Only if the U.S. accountant was made aware of the foreign assets and income....

nun

Sounds like you will have to file amended tax returns and get into FBAR/FATCA compliance. You should probably seek professional advice about how to do that in your particular circumstances.

The difficulty of your problem will depend on the assets you hold in the UK. If you have a stocks and shares ISA or any UK mutual funds things will be complicated.......if it's just a saving account it will be a lot simpler.

For the house you are actually right to be paying UK tax on it first. You must include your worldwide income on your US taxes and basically just UK source income on your UK taxes.....there are exceptions for things like SS and pensions.

As far as the other UK assets it depends on the the type of income and gains as to how they are specifically taxed as laid out in the tax treaty. Any UK tax that you pay can be claimed as a foreign tax credit on your US taxes.

TaxRookie

To cover the world wide income piece, I heard that I should go back 3 years. Is that correct?

theOAP

I'll reiterate what's already been said. You would best be advised to contact either your current tax advisor, or seek someone new who may be more knowledgeable in the correct way to handle your situation.

Generally, you have two choices: Quiet Disclosure or Streamlined DOMESTIC Offshore Procedures.

The quiet disclosure may be accomplished by filing a 1040X (nun's amended return) for each year you made an omission, plus the FBAR (FinCEN 114) filing. Be warned, the IRS has stated they will NOT look favourably on this type of disclosure. Whether that is true or not really isn't known.

The Streamlined Domestic Offshore Procedures is different from the Streamlined Foreign Offshore Procedures. The "Foreign" procedure generally comes with no penalties.

Since you are resident in the US, and have been for a time, you would have to use the "Domestic" procedure. From the IRS:

"The Title 26 miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years."


U.S. Taxpayers Residing in the United States

There is, of course, a third way, and that's to start filing a correct return for 2015 (file in 2016) onwards. That comes with risks as well.

TaxRookie

I do appreciate the replies, thank you. It's pretty terrifying and I'm struggling to understand all this. I'd never even heard of this until these past few days. It's difficult to imagine paying all these fines and penalties for something I was completely unaware of. My assets in the UK were there before I came to America, I haven't transferred any money out of America in to the UK. One account I've had since I was a student. I don't understand how I could have know I was supposed to declare this. Or am I misunderstanding something?

lansbury

Wasn't the law just changed to allow the IRS to audit back to 6 years without a reason, it was 3. That might change what you need to file.

Again I would strongly urge you to seek professional advice as a wrong decision, especially when it come to FACTA or FBAR, can be very costly.

ETA: The very costly part can be a fine of up to the higher of 50% of the financial accounts not disclosed or $100,000. You will see why those of us offering advice treat this very seriously.

TaxRookie

Yes thanks for the advice. I will get professional advice but I'm also seeking to understand from you extremely knowledgeable people.

theOAP

No one ever says the IRS is consistent. Who knows? If TaxRookie is using 1040X, then the assumption is (?????? 3 or 6).

The link in post #7 (details and instructions for filing Domestic) was last updated 25 Sept 2015, and it still says 3 years.

Steve_

You're a bit light on what your situation is, are you an LPR, US citizen, in a non-immigrant category.

But anyway Tax 101 - you file taxes in the country you are resident in on your WORLDWIDE income, it does say this in various IRS tax publications. You should have told HMRC you left on P85. File an R105 with your bank in the UK so they no longer withhold income tax in the UK.

If you've got an ISA get rid of it and open up a Roth IRA in the US.

Yes, various things need to be declared on FinCEN FBAR and also IRS form 8938. Yes, rental income is subject to taxes in both places so you'll need to file for a foreign tax credit on Form 1116.

You can adjust previous years returns on 1040X however it's tricky to go back and retroactively file for a foreign tax credit. I'd discuss the issue with someone knowledgeable before filing adjustments.

I'd suggest you have a read of IRS publication 519 which explains the US tax system for people from abroad. The first year you were in the US most likely you should have filed a dual-status return.

However as said you haven't said what your immigration status is, which has a bearing.

Really bad idea to pretend to be resident in the UK by the way for a number of reasons.

Not exactly a secret: http://www.irs.gov/pub/irs-pdf/p17.pdf

Page 5, under "gross income". Page 1 under "foreign source income". Page 6 under "resident alien".

TaxRookie

Thanks for the reply

Sorry I forgot to say I'm resident with a green card.

I don't remember if I used a P85 though I may have. I also haven't filed a R105 with my bank. I didn't know to do that. I do have an ISA but I'm not paying into it. There's no question of me pretending to be UK resident.

I can understand that I need to include world wide income in my filings. I wasn't aware earlier this week but I am now and I'll take steps to do this.

I wasn't aware of the FBAR thing. I don't understand how the IRS can fine me for not declaring a bank account I had before I came to America. Surely the point of all this is to stop folks taking untaxed money out of the US?

TaxRookie

I employed a tax guy and each year would take all my stuff to him. I felt that I was doing the right thing.

nun

If all the information you gave to your accountant included your UK account information then you should be compliant with US law, ie FBARs filed and US tax on UK income and assets paid. You need to ask your accountant what they did.

Is your ISA a cash or stocks and shares one? You also need to get the correct tax code with HMRC and stop tax being withheld at source so file R105 and P85