joylove

At what figure in GBP does it make sense to start looking at offshore banking for savings? These accounts usually have monthly fees.

JAJ

I'd also just say here - don't panic and don't make things more complicated than they need to be. Outside the voluntary disclosure program, and those who have been prosecuted criminally, those with undeclared Swiss accounts, etc, I have never heard of anyone being fined for not being compliant on these information returns. Really - I have to think there's a lot of well intentioned scaremongering out there.

It shouldn't be too hard to work out how much tax has been underpaid, it's probably not a lot of dollars, and probably only 2009, 2010 and 2011 are the years affected. If that's the case, is there really a need to do anything more than filing the amended tax returns for those years and filing the necessary FBAR forms now?

nun

This is where I worry. The amount of your pension pot is small, but you must also understand how it is treated by the IRS. Simply believing that it is not taxable is another example of "winging it". You need to understand why it is not taxable and that will require application of the tax treaty. Omission of gains from UK pensions on US tax returns is thought by some to constitute application of the tax treaty and some professionals believe that all UK pensions are covered by the treaty, but some don't, so pensions are an area that need careful consideration. The small size of your pension pot is not an excuse for not dealing with it correctly.

The FBAR is an informational form that you send to the Treasury Dept. I have no idea what will happen as fines are concerned, you might well fly under the radar, but you might not.

nun

I agree, I am doing some "well intentioned scaremongering". BritinOR has a steep learning curve and has investments in some tricky areas. The dollar amounts of any tax due are probably small, but I don't agree that it will be easy to come up with that amount. I would not want to do 3 years of 1040X forms that includes foreign trusts, PFIC and foreign stocks and also research the US tax status of my UK pension so that I could be sure of it's treaty status.

The unfortunate thing is the small amounts of money involved as even small foreign accounts can lead to disproportionately large tax headaches.

robin1234

Over the last few years I've had several accounts in the Isle of Man, current accounts & savings accounts, for pounds sterling savings. None of them have (or had) any monthly or annual fees. To me, it is not a question of any ££ threshold, but simply easier to deal with tax-wise. The IoM does not tax the interest income, so I simply have to pay tax in the US and do not have to deal with an additional tax jurisdiction and all the attendant complications. (I also file FBAR and new IRS Form 8938, of course.)

theOAP

Yep. scaremongering 'R' us.

I really don't know how to respond to this, other than to say I do not have the evidence that would allow me to honestly say to someone "Don't worry, just go ahead and file, it will be OK". The IRS has issued warnings that quiet disclosures will no longer be allowed without a certain amount of scrutiny and has hired (some say 200, some say 400) additional agents to perform these tasks associated with foreign accounts. It may seem disturbing to constantly warn of potential dangers, but I would find it equally disturbing to provide false assurances.

This isn't meant to be accusatory or argumentative, it's a straightforward question: Do you have the evidence that a person will have no problems with a quiet disclosure?

In reality, your opinions and mine are probably not that far apart. I've been surprised by the large number of professional advisers that have appeared on expat sites in the last month, touting their wares. With the new initiative by the IRS, they must see a large profit potential. I'm not against the pros putting bread on their table, but I am really offended by a system that promotes private enterprise in favour of (what should be) the needless financial and emotional expense of its citizens.

The posts on most expat sites in the last month concerning delinquent filing are suddenly growing enormously. The issue of FATCA has almost become hysterical (Australia has put up a page on its revenue site asking for the publics' opinion as to how it, as a government, should respond to FATCA. Reuters are reporting of a UK select committee proposing a FATCA programme to be initiated by and for the UK). In my opinion, much of the fear and misunderstanding of delinquent filing can be done away with IF the IRS handles its new programme in a fairhanded manner. Unfortunately, we won't know the answer to that for a least another year or two.

No, we don't intend to scaremonger. What we do intend is for people to read, investigate, and study about the situation they are in. Only with that knowledge can they reasonably proceed to a solution. It is possible for an individual to navigate the IRS waters successfully. No one on a public site, not even the pros, can accurately give advice to a posed question because each and every situation is unique. If the individual isn't capable, or can't be bothered to investigate, then professional help may be their best alternative. And yes, it does pain me every time I make this suggestion.

nun

For the regular tax payer when dealing with international taxation an "ounce of prevention is worth tons of cure". I get a bit frustrated when I see people getting into fairly complex and worrying situations by inaction and ignorance when a few simple changes to their finances before they moved would have made their tax life so much simpler. The situation is particularly difficult for people coming from the UK to the US as many will have never had to do their own taxes and so they get blind sided by owning things like shares ISAs and UK pensions. I also understand the reticence wrt FBAR, but you have to do it if you are a US resident or citizen unless you take steps to manage your accounts to avoid it. It pains me to say this, but for these people professional advice is often the best way out of a complex situation. A regular US tax service or CPA will probably not be good enough because they haven't had experience with UK taxation or the tax treaty. Expat forums are full of US CPAs getting international tax situations wrong. A suitable professional will specialize in international issues and should also look at your finances and suggest ways to simplify things.

nun

IMHO the GBP amount is not the issue. You have to have a practical reason to own a foreign account like payiing GBP bills and I would limit the account to basic chequeing and saving. Unless you are very sophisticated or have the money to pay for sophisticated advice I would not recommend other foreign investment accounts to a US resident.

JAJ

When I referred to "scaremongering" I deliberately referred to the wider world, rather than this forum. That said,

There is no such thing as a "quiet disclosure" as far as I am aware. ALL amended tax returns are subject to review by the IRS.

The only question is whether you want to make the disclosure through the standard process (amended tax returns) or through a voluntary disclosure program. In the latter case, you will probably be grouped with high-dollar criminal cases, and treated as such, so I'm not sure why anyone would suggest this for fixing relatively small dollar tax problems.


None! - as I am not a tax practitioner. But I would suggest the individual concerned do some due diligence - I've never heard of anyone being prosecuted for an under-declaration for a few hundred dollars of tax. Especially if amended returns were filed without IRS prompting.

I'm suggesting a sense of pragmatism. I don't see any real evidence out there that the IRS are out to get those who have under-declared a relatively small amount of money, as long as such persons file the amended returns accordingly. As distinct from large-scale tax evaders.

And it is quite clear that the voluntary disclosure program has imposed disproportionate (and probably unconstitutional) penalties on persons whose under-declaration of tax over the years was small, or even zero. People, who, in many cases, were scaremongered into joining the voluntary disclosure program when they should simply have filed amended tax returns.

All that means - be careful if a lawyer suggests that joining the voluntary disclosure program is the only way to fix a tax problem.


It is worth engaging a competent CPA to work through the amended returns and back-filed FBAR forms. But it's probably not worth spending thousands of dollars on a tax attorney ...

JAJ

It's not worth spending thousands of dollars on an attorney to work out whether tax due is $150 or $200. Especially when the typical IRS agent won't be able to work it out either. Probably much simpler to make a reasonable calculation, add something extra to cover potential for error (or make sure the most conservative assumptions are used). And then, as you suggest sell foreign investments to make life simpler. Making sure to declare capital gains taxes.

theOAP

Hi JAJ,

Just a quick response with little disagreement to your post. As I said earlier, our thinking on the matter is probably not that different.

Simply filing a 1040X with newly added items such as foreign accounts, foreign investments, or foreign pensions is known to the IRS as a 'quiet disclosure'. Filing delinquent FBARS without the inclusion of a letter of 'reasonable cause' is also known as a 'quiet disclosure' (IMHO). Filing a 1040X with a letter saying "oops, I didn't realise you might want this info also" or "oops, I guess this new info should have been included" is what is known as a 'noisy disclosure' (also IMHO).

In my opinion, the IRS (with its new initiative, supposedly aimed at the minnows, not the whales) has the intention of requiring/forcing anyone who is delinquent in declaring foreign accounts on either taxes or FBARS into some type of voluntary disclosure. As I said earlier, how they treat the minnows on the new programme will determine just how gracious they may be. As you know, the original voluntary disclosure programme did unfortunately punish the minnows. The new programme (for non-residents only) is supposed to provide a different result. My point is: we can no longer rely on what has happened in the past (were people penalised or not). If the IRS truly do not wish to punish those who made innocent mistakes, and who may owe little or no tax, the results of the new programme will bear that out. We'll just have to wait and see.

Again, my point is: I personally believe the days of just being able to quietly correct any past errors has gone away. If you've put the wrong figure on your return, and wish to correct it, then just a 1040X should suffice. If you've not included a number of foreign accounts, just 'quietly' filing the 1040X may no longer suffice. My guess is the IRS are now intending for all omissions to be declared through some sort of voluntary or noisy disclosure, and it's up to the individual or their adviser to decide which programme to enter, or how to make the noisy declaration. This is also why I become so incensed about the US 'forcing' taxpayers to use advisers.

EDIT:
In case anyone wonders what the Hell we're talking about concerning a new IRS programme, here's the details:
NOTE: IT IS FOR NON-RESIDENTS ONLY.
http://www.irs.gov/Individuals/Inter...U.S.-Taxpayers

Since it is a disclosure, it must be entered with a great deal of knowledge as to the risks and consequences. As for the US resident taxpayer, I agree with JAJ that entering the programmes available to them today should be done with extreme caution. It will be interesting to see if the IRS soon opens a similar new programme aimed at the US resident.

nun

I agree that spending big bucks to solve a potentially smaller dollar problem is annoying, but unless the issues are handled correctly they might compound over the years.

As an example what if a tax payer has considerably more than $10k in a foreign account.....we haven't even mentioned FATCA yet. What if the taxpayer has a UK SIPP, what about a NEST pension account or UK SS payments. What if the the UK person moves back to the UK and still has US based accounts, do they understand about HMRC reporting funds or how 403b, 401a, 401k or the rest of the US retirement alphabet soup are taxed when income is paid to a UK resident. Of course you could juts not bother with the trust and PFIC forms, and you might get lucky, that's the same attitude as many had with FBAR and not an approach I would take.

Errors can also lead to you paying far too much tax. International tax planning serves two purposes; it keeps you compliant with the law avoiding worry and potential fines; and it saves you money by arranging your finances sensibly from a tax perspective. When I move back to the UK I will arrange to have a substantial amount in US ROTH IRAs, the reason why is in the UK/US tax treaty. A good advisor would tell someone that. If a taxpayer does not take advantage of this they will end up with a larger tax bill and over the years that can add up to big bucks.....in all my time on these forums I've never heard of anyone else actively funding US ROTHs to limit their UK tax liability when they return to the UK.

A tax payer can certainly understand all these things, but it takes time an application and some effort to understand how UK accounts are treated by the IRS code. I'm not sure I'd want to file delinquent FBARs and then do a good faith effort at dealing with the foreign trusts and PFICs on my 1040X...IRS would surely be looking for retroactive mark-to-market calculations in such a case and would impose the draconian PFIC tax.

JAJ

Should a covering letter be attached to a 1040X? Perhaps - it is something that should be discussed with an experienced CPA. I'm open to correction but as far as I know the chances of manual scrutiny on a 1040X are much higher than for a standard 1040. In any case, assuming one shouldn't be in the voluntary disclosure program, there's no alternative to filing 1040X forms if you want to correct prior years tax returns.

The good news is that you normally only have to go back 3 years unless the amounts omitted are significant.

theOAP

Part III on 1040X is for "Explanation of Changes", and can be supported by attached pages. My use of the term "letter" was not meant to be literal. My apologies.

Yes, I agree there must be a way. Throughout this thread, logic would seem to dictate that there must be a lower area or level of tax due (or omission made) that does not incur the unbridled wrath of the IRS. Filing a 1040X and paying any tax due along with interest, in a kind world, should suffice if discussing low levels of omissions.

I've mentioned a new programme for nonresident (US) dual citizens who have not filed, or who may have omitted filing, any US returns or FBARs in the past. It classifies the filer as either 'low' or 'high' risk. It promised resolution for those with 'simple' returns (those with low risk), a bar of $1,500 in tax due, with payments reduced to tax and interest on unpaid tax, and no FBAR penalties. Whilst not of interest to most on this site, it does seem to indicate an overall IRS attitude to late filing where foreign accounts are involved. The final instructions have just been released.

Surprisingly (or unsurprisingly), there are now a number points that will move the filer from low risk to the high risk category (with late penalties, penalties for omission of information forms, consideration of the OVDI program, potential criminal prosecution, FBAR penalties, yada, yada, yada). One such point: any amended return will promote the filer into the high risk category.

It appears the IRS is unable to relax whenever the increasingly toxic word 'foreign' is used. Again, there should be a way to say 'didn't understand and got this wrong, here's the correction and tax due (if any)" for low level infractions. Of course, low level is subjective. It's becoming difficult to know where a reasonable level is located, and the more the IRS tries to unify its stance on foreign accounts, the more it is developing into a true conumdrum.

Not being alarmist, I'm just growing more uncertain of what options exist. File a quiet disclosure, but be prepared for the possible consequences if the wrong agent reviews it on a bad day?

nun

That's the situation if you are entirely dealing with US accounts. Pay the outstanding tax and the interest and the IRS is satisfied. The draconian threats and fines of FBAR are obviously an attempt to frighten people into declaring their foreign accounts and paying the correct tax on them. Unfortunately it does the opposite in some cases where the complexity of the filing required leads people to throw up their hands and stick their heads I the sand and just hope they are too small for the IRS to deal with. When the tax code is too complicated for people to comply wit it there is a systemic problem with the code itself.