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Tax return advice and costs

Tax return advice and costs

Old Jan 24th 2014, 8:38 pm
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Default Re: Tax return advice and costs

We have never submitted these forms as we were ignorant of this situation, we intend to start this current tax year, we did have minimal interest from some 4 years prior (adds up to under 400.00) Do we just look back and convert the funds at the rates for those years and send them off with a FBAR form for each year?
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Old Jan 25th 2014, 2:00 am
  #32  
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Default Re: Tax return advice and costs

Originally Posted by Westham View Post
We have never submitted these forms as we were ignorant of this situation, we intend to start this current tax year, we did have minimal interest from some 4 years prior (adds up to under 400.00) Do we just look back and convert the funds at the rates for those years and send them off with a FBAR form for each year?
Are you telling us you under-reported your income? Not sure what you were thinking, since it's always been fairly clear that as far as U.S. citizens and residents are concerned, worldwide income is taxable in the United States. HOWEVER, if you're saying you genuinely believed your tax return was true when you signed it, and any errors are minor, then there is no legal obligation to amend your tax returns. The tax year 2009 is already outside the statute of limitations and 2010 will be soon, assuming you filed on time.

Going forward, you absolutely have to get your tax return correct by including all worldwide income (U.S. definition), whether brought to the U.S. or not. And FBAR, if you are liable to file you must as a minimum start filing for 2012, that's due by June 30 and now must be filed eletronically. There has been some discussion, with no clear consensus, as to whether FBAR should be filed for outstanding years (up to 6 years back). Some do back-file, others just file going forward.

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Old Jan 25th 2014, 4:52 pm
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Default Re: Tax return advice and costs

Originally Posted by JAJ View Post
Are you telling us you under-reported your income? Not sure what you were thinking, since it's always been fairly clear that as far as U.S. citizens and residents are concerned, worldwide income is taxable in the United States. HOWEVER, if you're saying you genuinely believed your tax return was true when you signed it, and any errors are minor, then there is no legal obligation to amend your tax returns. The tax year 2009 is already outside the statute of limitations and 2010 will be soon, assuming you filed on time.

Going forward, you absolutely have to get your tax return correct by including all worldwide income (U.S. definition), whether brought to the U.S. or not. And FBAR, if you are liable to file you must as a minimum start filing for 2012, that's due by June 30 and now must be filed eletronically. There has been some discussion, with no clear consensus, as to whether FBAR should be filed for outstanding years (up to 6 years back). Some do back-file, others just file going forward.
Hi and thanks for your response, yes I (married filing jointly) have always filed on time every year, but have never filed a FBAR or declared the small amount of income from the UK, we at the time understood that my private pension I received starting in 2012 had a 25% tax free withdrawal and the remainder would be taxed at source, I have since found out that the remainder was not taxed at source, however the interest from my wife's inheritance was taxed along with my UK account interest at source by the UK bank, so we thought we were in the clear and doing everything correctly.
Reading your response are you saying that we need to file a FBAR for the years 2011, 2012 and of course the current year? We have applied to be tax free in the UK and therefore now understand we are duty bound to declare all income, shall we file a FBAR for 2011 and 20112, 20113 and see what the IRS response is? What would you do?
Thanks.
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Old Jan 25th 2014, 5:26 pm
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Default Re: Tax return advice and costs

Originally Posted by Westham View Post
Hi and thanks for your response, yes I (married filing jointly) have always filed on time every year, but have never filed a FBAR or declared the small amount of income from the UK, we at the time understood that my private pension I received starting in 2012 had a 25% tax free withdrawal and the remainder would be taxed at source, I have since found out that the remainder was not taxed at source, however the interest from my wife's inheritance was taxed along with my UK account interest at source by the UK bank, so we thought we were in the clear and doing everything correctly.
Reading your response are you saying that we need to file a FBAR for the years 2011, 2012 and of course the current year? We have applied to be tax free in the UK and therefore now understand we are duty bound to declare all income, shall we file a FBAR for 2011 and 20112, 20113 and see what the IRS response is? What would you do?
.
I wouldn't be posting details on a public forum.
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Old Jan 25th 2014, 6:03 pm
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Default Re: Tax return advice and costs

Originally Posted by Westham View Post
Hi and thanks for your response, yes I (married filing jointly) have always filed on time every year, but have never filed a FBAR or declared the small amount of income from the UK, we at the time understood that my private pension I received starting in 2012 had a 25% tax free withdrawal and the remainder would be taxed at source, I have since found out that the remainder was not taxed at source, however the interest from my wife's inheritance was taxed along with my UK account interest at source by the UK bank, so we thought we were in the clear and doing everything correctly.
Reading your response are you saying that we need to file a FBAR for the years 2011, 2012 and of course the current year? We have applied to be tax free in the UK and therefore now understand we are duty bound to declare all income, shall we file a FBAR for 2011 and 20112, 20113 and see what the IRS response is? What would you do?
Thanks.
Not clear how you could have come to the conclusion that the United States didn't care about your U.K. income.

You need to find an experienced tax practitioner CPA to re-calculate your 2010, 2011 and 2012 tax returns, this time including everything. Since you've now mentioned a pension as well, then I'd suggest you probably need to amend your returns since the underpayment will be more substantial. Note that all your "tax free" lump sum is taxable as income in the U.S. You'll also probably need to amend your California tax returns. You may be able to claim a foreign tax credit for U.K. interest, although the expectation could be that you instead reclaim it from the U.K.

And you need to get your 2013 returns correct before you file. You may need to extend your filing deadline if you have not resolved your prior year issues.

You don't necessarily need an offshore tax professional and you should avoid anyone who says you need to make a voluntary disclosure to the IRS.

There should be plenty of competent/experienced tax CPAs in Los Angeles. Select one who has been in business for a long time and preferably already has clients with foreign income/assets. Be aware that many practitioners will not take on new clients until after April 15.

Also sounds like you need to file outstanding FBARs, at least back to 2010, and if your wife's inheritance exceeded $100k then there may be a form 3520 to file. You're not going to work all of this out on a public forum.

Be prepared to pay a reasonable sum of money to sort all this out, between what a CPA will charge and the penalties/interest that the IRS (and California) will levy.
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Old Jan 25th 2014, 6:34 pm
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Default Re: Tax return advice and costs

Everybody's situation is different. They need to research and decide what is best for them as far as filing a voluntary disclosure. I happen to know someone who amended their returns and finally filed FBARS. or what is called a "quiet disclosure" They felt like their situation didn't warrant filing a voluntary disclosure. I won't go into details but lets just say they're in a pretty bad situation right now with the IRS.
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Old Jan 25th 2014, 7:38 pm
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Default Re: Tax return advice and costs

Originally Posted by penguinbar View Post
Everybody's situation is different. They need to research and decide what is best for them as far as filing a voluntary disclosure. I happen to know someone who amended their returns and finally filed FBARS. or what is called a "quiet disclosure" They felt like their situation didn't warrant filing a voluntary disclosure. I won't go into details but lets just say they're in a pretty bad situation right now with the IRS.
Most situations don't warrant a voluntary disclosure. Are you telling us he is being prosecuted for tax fraud? That's quite unusual.

There are only THREE ways to correct a past tax problem:

1. File correctly going forward, as long as you're not audited then the statute of limitations will take effect, normally after 3 or 6 years. Usually the best option for minor omissions.
2. Amend tax returns on open years. This is called a "quiet disclosure" but really doesn't deserve that term, since every amended return is examined and any under payment of tax will cause interest and penalties.
3. Voluntary disclosure program. The penalties are severe, the main benefit is immunity from criminal prosecution, however unless you are dealing with hundreds of thousands of dollars, and/or bank accounts in tax havens (Switzerland etc), the risk of criminal prosecution is low.

Thousands of people have been scaremongered into option 3 over the last few years when options 1 or 2 would have been more appropriate.

If someone wants a legal consultation on the different options, one option is Phil Hodgen. http://www.hodgen.com
Without any personal recommendation, however his postings suggest that he gives considered advice on all three options and won't necessarily recommend voluntary disclosure as default in the way many others do. His advice won't be cheap, but may be worthwhile. Certainly get considered advice from an attorney before entering the voluntary disclosure program.
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Old Jan 26th 2014, 2:18 am
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Default Re: Tax return advice and costs

Many thanks to you JAJ, Penguinbar & Jerseygirl for your responses.
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Old Jan 26th 2014, 2:30 am
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Originally Posted by Westham View Post
Many thanks to you JAJ, Penguinbar & Jerseygirl for your responses.
Good luck.
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Old Jan 26th 2014, 4:15 am
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Default Re: Tax return advice and costs

Originally Posted by JAJ View Post
Most situations don't warrant a voluntary disclosure. Are you telling us he is being prosecuted for tax fraud? That's quite unusual.

There are only THREE ways to correct a past tax problem:

1. File correctly going forward, as long as you're not audited then the statute of limitations will take effect, normally after 3 or 6 years. Usually the best option for minor omissions.
2. Amend tax returns on open years. This is called a "quiet disclosure" but really doesn't deserve that term, since every amended return is examined and any under payment of tax will cause interest and penalties.
3. Voluntary disclosure program. The penalties are severe, the main benefit is immunity from criminal prosecution, however unless you are dealing with hundreds of thousands of dollars, and/or bank accounts in tax havens (Switzerland etc), the risk of criminal prosecution is low.

Thousands of people have been scaremongered into option 3 over the last few years when options 1 or 2 would have been more appropriate.

If someone wants a legal consultation on the different options, one option is Phil Hodgen. http://www.hodgen.com
Without any personal recommendation, however his postings suggest that he gives considered advice on all three options and won't necessarily recommend voluntary disclosure as default in the way many others do. His advice won't be cheap, but may be worthwhile. Certainly get considered advice from an attorney before entering the voluntary disclosure program.
It's not me so I don't want to go into details. They didn't have six figures to declare and basically they were told that since they knew that they had accounts overseas that had x amount in them and had interest they should have known to declare them. The " We just found out and so we amended them" didn't fly. They have legal counsel who is helping them and have a rough road ahead of them. It's not juts the big fishes that they are going after. I'm not suggesting to do a disclosure or not do one to anybody but this is just a situation where it was an honest mistake of not knowing, amending returns and having it backfire.
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Old Jan 26th 2014, 4:16 am
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Default Re: Tax return advice and costs

Originally Posted by Westham View Post
Many thanks to you JAJ, Penguinbar & Jerseygirl for your responses.
Best of luck to you.
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Old Jan 26th 2014, 6:50 am
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Thanks for your good luck wishes, seems like I will need them. :-(
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Old Jan 26th 2014, 3:32 pm
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Default Re: Tax return advice and costs

Originally Posted by penguinbar View Post
It's not me so I don't want to go into details. They didn't have six figures to declare and basically they were told that since they knew that they had accounts overseas that had x amount in them and had interest they should have known to declare them. The " We just found out and so we amended them" didn't fly. They have legal counsel who is helping them and have a rough road ahead of them. It's not juts the big fishes that they are going after. I'm not suggesting to do a disclosure or not do one to anybody but this is just a situation where it was an honest mistake of not knowing, amending returns and having it backfire.
You've still not told us if that person is being prosecuted for tax fraud. Absent a successful prosecution, there are practical limits to what penalties the IRS can impose, over and above the norm (under-payment of tax, accuracy related penalty and interest). They should certainly not admit to anything wilful. But their legal counsel should advise them further. It's heavily fact dependent.

The worst thing about the voluntary disclosure program is that it involves a de-facto guilty plea to tax fraud. So there's no administrative recourse against excessive penalties, such as the internal IRS appeals mechanism, Taxpayer Ombudsman or even the office of a Congressman or Senator.

Based on the above, for the original poster I would recommend a legal consultation. Mr Hodgen, as noted above, may be one option. But if any attorney advises the voluntary disclosure program it should only be in the context of detailed advice about the other two options, what the IRS could in theory do, what in practice they're likely to do, and defenses available.

A reflection. It seems that a significant number of migrants to the U.S. from the United Kingdom (and probably elsewhere) don't understand at arrival that their offshore income is still taxable in the United States.

Last edited by JAJ; Jan 26th 2014 at 3:34 pm.
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Old Jan 27th 2014, 12:03 am
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Default Re: Tax return advice and costs

It's not a good situation. My point was that if you amend your returns it doesn't necessarily put you in the clear. I'll leave it at that.
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