cross-posted from citizenshipsolutions.ca
by John Richardson
Introduction …
Most meetings with Mr. #FBAR take place in "The Twilight Zone" https://t.co/9UJw0GxGIf pic.twitter.com/uqjqYsKKtZ
— Citizenship Lawyer (@ExpatriationLaw) February 5, 2017
This post is one more of a collection of FBAR posts on this blog. The most recent FBAR posts are
here and here.
The “unfiled FBAR” continues to be a problem for certain Homeland Americans with “offshore accounts” and all Americans abroad, who continue to “commit personal finance abroad”.
Be careful what you "fix for"! What to do about the unfiled #FBAR https://t.co/sAh01HpWin via @ExpatriationLaw = "small steps = big results"
— Citizenship Lawyer (@ExpatriationLaw) February 5, 2017
The above tweet references a recent post which discussed how to “fix past compliance problems“. The introduction included:
This blog post will hopefully encourage those with U.S. tax issues to consider whether they can deal with minor/unintentional FBAR violations as a “stand alone single problem”. There may be no need to escalate and expand one single problem into a multi-dimensional full blown tax problem that may end up with unintended and unanticipated costly professional fees as well as undue time spent! Read on and learn why. Keeping a calm head is most important, even if it is most difficult
to do in the face of the scary situation of not being in compliance with the U.S. tax and regulatory regime.
Introducing Mr. and Mrs Kentara – When the innocent enter the “Twilight Zone” …
The facts (as reported by Virginia La Torre Jeker in her outstanding analysis) …
In Kentera v. United States, 2017 U.S. Dist. LEXIS 12450 (ED WI 2017), the US District Court dismissed a complaint filed by a husband and wife living in California. The Kentera’s were seeking review of FBAR nonwillful penalties asserted by the IRS. The nonwillful FBAR penalties were assessed pursuant to an audit after the couple withdrew from the IRS’ 2011 Offshore Voluntary Disclosure Initiative ( VDI).
The facts of the case are taken from the plaintiff’s complaint, which can be read here. In summary, they are as follows:
In 1984, after the death of his father, the plaintiff-husband, Milo Kentera, inherited a Swiss foreign bank account at Banque Cantonale de Geneve (Swiss Account). The account was automatically transferred to the plaintiff at the death of his father, so the plaintiff did not take any action in creating this account. Sometime soon afterwards, Milo added his wife’s name to the Swiss Account. The balance in the account was under USD10,000 through 2004 but increased somewhat in 2005-06 going over the USD10,000 FBAR filing threshold. The Swiss Account increased significantly in 2007 upon the sale of the plaintiff’s parents’ Montenegro real property. Some of the sales proceeds were distributed to plaintiff Milo and deposited in the Swiss Account, with the balance paid to Milo’s siblings.
Neither of the plaintiffs were well-versed in US tax matters. The husband was a pharmacist and his wife was a homemaker. Since 1984 when the account was inherited, the plaintiffs always disclosed the Swiss Account to their various accountants on tax organizers and always disclosed the account on their federal income tax returns (Schedule B). However, when the account first exceeded USD 10,000 in 2005, their first accountant failed to prepare or file an FBAR for the plaintiffs. Their second accountant continued this FBAR failure for a number of years despite the fact he clearly knew of the existence of the account from the prior tax returns given to him by the plaintiffs; he also failed to ask if any foreign interest was earned on the account, and consequently,interest income was omitted. In 2010, a third accountant acknowledged the existence of the Swiss Account on the plaintiffs’ return and included interest income from the Account, but she also failed to prepare or file an FBAR. Please note, certainly a tax professional should have been well aware of the FBAR filing rules by the time a 2010 FBAR should have been filed (i.e., June 30 2011). At this time the first IRS OVDI had been in full swing, having been initiated in 2009 and many professional and non-professional articles were written about the problems with FBAR.
Sometime in approximately September 2011, the plaintiffs entered the recently announced IRS 2011 OVDI program. They amended tax returns to include omitted interest income from the Swiss Account and filed completed FBARs for the 6 year period, 2005-2010. In August 2013, the IRS provided Plaintiffs with a Form 906, Closing Agreement assessing a miscellaneous penalty of $90,092. The complaint stated that plaintiffs “withdrew” from the OVDI program the following month. I believe the plaintiffs “opted out” of the program, but am not sure. They were soon the subject of examination by an IRS agent. The IRS agent recommended that plaintiffs be assessed non-willful FBAR penalties under the Bank Secrecy Act, and later proposed assessing the penalties as follows:
1) As to the husband, Milo Kentera: $500 for calendar year 2006; and
$10,000 per year for calendar years 2007, 2008, 2009, and 2010, for a
total penalty of $40,500.2) As to the wife, Lois Kentera: $500 for calendar year 2006; and $2,500
per year for calendar years 2007, 2008, 2009, and 2010, for a total
penalty of $10,500; andPlaintiffs protested the penalties at IRS conferences, but their protests fell on deaf ears and the IRS sent each of the plaintiffs a letter of an “appeals determination,” upholding the IRS’ proposed FBAR penalties against each of them. The plaintiffs then filed the complaint in District Court. In their complaint, plaintiffs asserted that the IRS incorrectly assessed the FBAR penalties. First, on grounds that the Bank Secrecy Act prohibits the imposition of an FBAR penalty if the violation was “due to reasonable cause.” 31 U.S.C. § 5321(a)(5)(B)(ii)(I). [I note here that the statute requires not only “reasonable cause” but also that “the amount of the transaction or the balance in the account at the time of the transaction was properly reported”.]
My initial thoughts …
The facts suggest that Mr. and Mrs. Kentera were people who believed in compliance with the law. The history of their tax filings suggests a conscious effort to comply with the applicable laws. They also (like everybody) were completely at the mercy of their tax advisers. The “offshore account” (which was not opened by them) was disclosed to their tax preparers. The tax preparers failed to advise Mr. and Mrs Kentera to file their FBAR (a requirement that few in 2011 knew about).
This series of events took place during the “2011 IRS Reign of FBAR Terror“. At this time many lawyers and accountants strongly recommended that people (1) correct their mistakes (the nonwillful ones that were the result of not knowing about Mr. FBAR) and (2) correct those mistakes by agreeing to the OVDP/OVDI penalty program (that is/was analagous to a form of “Civil Forfeiture“).
The evidence strongly suggests that Mr. and Mrs. Kentera were ordinary people, trying to do the “right thing”. They were victimized by advice to enter OVDI and then victimized by the IRS because they entered OVDI. (To get a sense of the context of how people were victimized by trying to do the “right thing”, read Phil Hodgen’s April 5, 2011 post here. There were many other posts written during this period. To see how Green Card holders were victimized by the OVDI program see here and here.)
How could the IRS possibly assess this kind of FBAR penalty?
All “armchair quarterbacks” must remember the context in which individual decisions were made. In 2011, there were NO streamlined compliance procedures. There were no delinquent FBAR submission procedures. There were no Delinquent Information Return Procedures.
That said, there was also NO requirement that people enter OVDI.
Tragically those who tried the hardest, and acted most quickly, to fix their non-compliance problems were the most harshly treated. (In fact, the history of the IRS assault on Americans abroad has shown that that those who did NOT rush to fix their problems fared much better. You may remember the “This is your last best chance to come into compliance” threats directed to those (including Americans abroad)with offshore non-U.S. bank accounts.)
To put it simply: The Kentera’s were victims of their desire to be in compliance with the law. It is regrettable that their law abiding sentiments coincided with the 2011 atmosphere of threats from the IRS and fear mongering from the compliance industry.
Why OVDP is extremely dangerous …
To enter OVDI or OVDP is to enter a program where you interact with the IRS outside the provisions of the Internal Revenue Code. You agree to interact with the IRS outside the framework of the existing laws. OVDP is appropriate for ONLY the very small group of people who may face serious penalties and (criminal) punishment.) OVDP is completely inappropriate for Americans abroad (where all of their assets are foreign and all assets are therefore subject to penalty assessment).
But, once you enter OVDP …
In my humble opinion, Mr. and Mrs. Kentera were subjected to this penalty because they entered OVDI. Because, they entered the program, there must have been a presumption that they somehow “deserved to be there”. As Virgina La Torre Jeker points out:
The point to be taken is the IRS’ apparent lack of sympathy with the taxpayers’ arguments concerning “reasonable cause”. It will be remembered that the IRS has discretion to assess FBAR penalties after taking into account all the facts and circumstances. See the IRS Manual regarding FBAR penalties here. Current IRS procedures state that an examiner may determine that the facts and circumstances of a particular case do not justify asserting a penalty and that instead an examiner should issue a warning letter. The IRS has established penalty mitigation guidelines, but examiners may determine that a penalty is not appropriate or that a lesser (or greater) penalty amount than the guidelines would otherwise provide is appropriate. Examiners are instructed to consider whether compliance objectives would be achievedby issuance of a warning letter; whether the person who committed the violation had been previously issued a warning letter or has been assessed the FBAR penalty; the nature of the violation and the amounts involved; and the cooperation of the taxpayer during the examination.
For more about FBAR penalties and the “FBAR Penalty Mitigation Guidelines”, see the discussion by Michael Deblis here.
What happened was that Mr. and Mrs. Kentera “signed up” to pay an FBAR penalty when there is a good chance that one would never have been imposed in the first place!
Incredible! What should/could have resulted in a “warning letter” resulted in a full blown FBAR penalty (plus the professional fees to attempt to reverse the penalties).
Why did people do it? Why did people enter OVDI in the first place?
The problem of people being “ushered into OVDI/OVDP” by their advisers has been the subject of much discussion. See the following discussion of Jack Townsend’s blog:
"Presumably, the couple entered OVDI on the advice of an attorney and, ultimately, were assessed…" — Stephen Kish https://t.co/XiPlOsz1GB
— Citizenship Lawyer (@ExpatriationLaw) February 4, 2017
"I'm a bit curious why there was omitted income, given that the account was (we are told…" — Michael J. Miller https://t.co/MEq0a4Wz9Y
— Citizenship Lawyer (@ExpatriationLaw) February 5, 2017
I’m a bit curious why there was omitted income, given that the account was (we are told) consistently disclosed on the taxpayers’ return, but mostly I’m curious why they were in OVDI in the first place.Presumably the taxpayers and their counsel could have predicted from the outset that they would need to opt out if they were unwilling to pay the 25% offshore penalty; and I generally see little merit in going into OVDP if you know (or should know) in advance that you’ll be opting out.
Obviously, the compete set of facts (most of which we don’t know) is critically important, so I’m certainly not purporting to reach any conclusions, but I think it’s fair to at least wonder if a non-program disclosure might have been more appropriate in this instance. I do vividly recall that some practitioners were vehemently opposed to the whole notion of a “quiet disclosure,” although I do not recall any coherent reason ever having been advanced for such opposition.
Conclusion: “Look Before You Leap …
To #OVDP or to NOT #OVDP – the greater the attempt to fix past compliance issues, the greater the punishment. https://t.co/HblKpihu0C
— Citizenship Lawyer (@ExpatriationLaw) February 5, 2017
I certainly agree with Virgina La Torre Jeker’s conclusion which states:
The IRS disposition of the case was disappointing, to say the least. One has to ask why, on these facts, the taxpayers joined OVDI in the first place? My guess is that the fear factor was ramped up significantly and they may not have been given full detailed advice by their tax advisor as to all of the possible options, risks with each one and so on. One must also remember that at the time the taxpayers joined OVDI, the Streamlined options did not exist. The case demonstrates that
one must be very careful in taking actions. Get a second or even third opinion.”
Yes, yes and yes!!
If you have FBAR problems …
Get a second or third opinion! Be careful what you fix for!
(For those who want further reading (including the details) see the following court documents:
United States Motion to Dismiss – here.
Memorandum in Support of United States Motion to Dismiss – here.
Mr. & Mrs. Kentera’s Brief in Opposition to United States Motion to Dismiss – here.
United States Reply to Mr. & Mrs. Kentera’s Opposition Brief – here)
John
Richardson
@andy05 and others,
For the record (as recall is incorrect) …
It was not a US border guard frightening me into registering the birth of my child, which I have never and will never do. In my *border incident*, the US guard told me at the end of an intimidating discussion, *I’ll let you across this time, but the next time it must be with a US passport.* Thus, the thing I would not do now if I had known is apply for that US passport, my one and only ever, now with holes punched into it and returned to me after my *official* renunciation of USC in 2012. (I had been advised (or more accurately – warned), along with my then-husband when we made our choice in 1975 to become Canadian citizens and raise our children in Canada, that I would lose my USC if I became a Canadian citizen. I’ve lived as my life in Canada as Canadian only, as the rest of my family here.
It was in the process of learning how to renounce, part of that with advice from US tax professionals in Calgary, I asked the US Consulate about renunciation for my son and learned that he could not renounce because of lack of his mental capacity and that a parent, a guardian or a trustee could not do so on such a person’s behalf. Such a person could also not have influence from anyone in making such an important (to them, not to this family) decision.
What I was told by DOS was in my search to find if there must be (for my son and others like him) a CLAIM for USC (given the facts of his birth in Canada to US parents), a CLAIM for USC never made and for which he would not be able to renounce. Such persons are entrapped into a US-deemed USC and all its consequences so the recourse, as in other discriminations in history, *don’t ask / don’t tell / don’t raise your voice in awareness of the entrapment*. No government, the Canadian or the US (or any other), have provided a common-sense solution.
@Calgary411 wrote:
i’m not sure what this means other than you being advised that “your son may be, from birth once the facts are established, a U.S. citizen”. The use of the word “claim” leads to ambiguity, but I can’t say I would have used different words during my two years as a relief vice consul (my actual job was something else, and besides issuing visas and renewing passports and signing ships’ manifests in the absence of the consul never had much exposure to citizens’ services).
As you must know, with few exceptions dealing with adoption, establishment of paternity and of course naturalisation, one is or is not a citizen at birth but the facts establishing that may be unknown, unknowable, or hidden by the individual (or if a child, his or her parent(s)). I have to say I was told that my grandson who is autistic (but not the point that he could not renounce at age 18 if he were a citizen) could be registered as a U.S. citizen if his grandparents (me, since I’m a widower) executed a (false, as a matter of fact, but never mind that) affidavit that his mother spent an uninterrupted 365 days in the USA as a baby and toddler. After nearly 50 years who could prove otherwise; and maybe the Department was trying to be nice to me as a retired employee, the facts be d–ned.
If I understand your statement correctly, your son was never documented as a citizen but is a citizen nonetheless. There are of course hundreds of thousands, perhaps a million, overseas-born American citizens whose status remains a secret, perhaps unknown even to them. And certainly unknown to their FFIs, the State Department and the IRS. Somehow your son’s situation became public property: I have read about it in the press and of course on this forum.
My daughter has renounced — the nature of my grandson’s disability trust made that necessary. But it wasn’t any UK or Swiss (she has both nationalities) financial institution that brought up the issue or ever asked her for a W-8BEN or W-9: she has never been asked for anything since her papers (other than her birth certificate which nobody sees) don’t suggest that she might have American parent(s). It was the filing of a form 3520 by me as settlor that created an untenable situation with IRS Ogden. My daughter’s passage through airport immigration several times with her son, she with a U.S. passport and he with a foreign one, raised no issue except for how long they planned to stay in the USA. Going to the ESTA Web site I was able to download his record of arrivals and departures.
FWIW I have been filing FBARs and 5471s since the 1970s. I know of other people’s horror stories but I don’t have any, at least none that cost me any money other than postage: only time and form-filling, sometimes repetitively. This well-known story hasn’t happened to anyone I know: https://www.telegraph.co.uk/finance/personalfinance/tax/11050777/British-families-billed-500-to-prevent-Americans-dodging-tax.html Not in the UK and not in Canada where our bank (of 40 years’ standing) hasn’t noticed the one item on the list of IGA “indicia” that ought to attract attention: the telephone number they have for the Canadian company is a Vonage number with a U.S. area code. Obviously a dumb criterion for U.S. Personhood, and as it happens our very tiny company now has less than 10% U.S. ownership. And fortunately no retained earnings: it’s hasn’t made a profit since the 1970s and is not intended to.
Your experience predates the FATCA débâcle: who knew what lay in store? But it never occurred to me that most Americans at home and abroad didn’t and don’t know about FBARs. My father read about it in the tax column of the WSJ in 1971 and told me. That can’t be the only place it was publicised, or was it? Ditto for 5471s. I guess most people’s eyes glaze over when they see the word “tax”. Even today, ignorance about the 2017 tax code changes and their implications for long-term distribution of wealth, the foreign exchange market and inflation is astounding. But it is the “gotcha” attitude of the IRS that is tragic for Americans, abroad especially. I wait to see which, if any, countries will offer laissez-passer documentation (Nansen passports, sort of: look that up) to long-term American residents whose passports are revoked by reason of accumulated unplayable tax penalties. Nothing wrong with a Nevis-St Kitts passport and for some that will be a better bet than keeping up with IRS demands. Another lesson from my father: never pay blackmail.
Calgary411:
“In my (and other) family’s own little piece of the whole abomination, I cringe at the reality that anyone — for there will be more than my son — cannot renounce (or their parents or guardian on their behalf).”
Thinking about this – there will be others in every country, including all the countries which have ratified the UN Convention on the Rights of Persons with Disabilities;
https://www.un.org/development/desa/disabilities/convention-on-the-rights-of-persons-with-disabilities/the-convention-in-brief.html
https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=IV-15&chapter=4&clang=_en
America, of course, has not ratified the Convention, but many IGA-partners have.
If a multinational group could be formed to focus concerns on this specific problem affecting certain disabled persons, might it not be possible for learned and compassionate experts to come up with a solution in accordance with nations’ responsibilities under the Comvention? A solution that would not rely on getting permission from America, but instead would focus only on the laws of the ratifying countries.
For instance, they could appoint a special protector for disabled citizens with US citizenship who are unable to renounce. The protector would be charged with making sure no harm came to the disabled person as a result of residence-country law interacting with US law, for instance through FATCA/IGA, or through estate law.
Should such a group come into existence, many many USCs and former USCs might be very ready to donate towards costs.
I said:
“disabled citizens with US citizenship who are unable to renounce”
I should have said:
“disabled citizens with US citizenship or at risk of being treated as having citizenship, who are unable to renounce”
@plaxy
Where would you even start? The USA is the bully on the block.
“Nobody knows, nobody cares” — the best observation made to me by several of those who know and do care. You are on your own: the value of this forum is to tell you there are others similarly situated. But most will hunker down and I cannot say, as someone who has read much or most of the literature, that this is wrong. “America First” doesn’t, as so many of its true believers suppose, “citizens first”. Not at all. It would be more true to go back to the origins of the slogan: Seven of them according to Wikipedia.
Extending Keith Redmond’s (by the way, more a patriot than those who exclaim their patriotism and then support … Putin) advice to not enter the US tax system: how many decades ago a U.S. emigrant to Germany told me that he bought a rubber stamp that said “deceased” and used it to return every letter that came to him with a U.S. postmark.
“@plaxy
Where would you even start? The USA is the bully on the block.”
I certainly wouldn’t start by ruminating endlessly about American tax law.
My suggestion to Calgary411 doesn’t concern American tax law.
@plaxy
No you wouldn’t. You are not a tax lawyer. One ruminates about what one knows, because that is all one has to offer with authority,
I look into this forum from time to time. I’ll maybe be back eventually: I wish everyone well.
https://www.un.org/development/desa/disabilities/convention-on-the-rights-of-persons-with-disabilities/frequently-asked-questions-regarding-the-convention-on-the-rights-of-persons-with-disabilities.html#sqc11
If “communications” on this issue could be sent from residents in many countries that have ratified the Convention, they would surely receive consideration – especially if all asked for a similar remedy.
@ Andy05,
Re:
Many USCs and others living outside the US classified by the US as “US persons” are not very (or at all) connected to the US and don’t read the WSJ or any US newspapers.
I was a keen subscriber/reader of my local city papers and the more nationally-oriented Globe and Mail for decades, with interest in the financial section of the papers, but don’t recall ever reading about FBAR in the pre-FATCA era.
Although a pretty well-read and pretty educated person, I didn’t even know that the US had citizenship-based taxation until a prof mentioned it as a casual comment in a tax course at university (in Canada). So, that’s how I found out that the US has citizenship-based taxation, but most USCs abroad (most people actually) never happen to take a tax course.
Hmmm… unfortunately it seems Canada has not ratified the “Optional Protocol” to the Convention on the Rights of Disabled Persons which allows for complaints to be made.
Quite a few countries have ratified both, but Canada has not.
I just checked my letters in New Zealand. I redirected all my letters to my NZ friend before I left NZ for US 7 years ago. my friend did receive a FATCA letter from my NZ bank in early 2017. I just had a chance to look at the letter. The bank setup a reference number and asked me to fill out a residency certification form. The bank suspected I am US resident since previously I put a US telephone number on my bank detail. They required me to return this form. Until they receive the residency certificate form from me saying I am not US resident, they will report my account to NZ tax office. The problem is I just came back and had a chance to have a look at this letter. It has been almost 2 years. I believe the NZ bank might already sent my bank information to NZ tax office twice July 2017 and July 2018. Now I have below 2 questions to ask,
1. what I am supposed to do for this fatca letter supposed to be received in early 2017. Shall I send signed form back saying I am not US resident or just do nothing. If I do nothing, the bank will send my account information to NZ tax office every year, NZ tax office will share it to irs. I did put I am NZ only resident online when the bank online asked me in early 2018 when I already departed US, online question has no self certificate form to be filled out, just simply ask me to update my residency. but I did not expect the bank sent me a fatca letter more than a year ago. Just keep on ignore this letter?
2. in early 2019 I will have to do US tax return for a few months I worked in US in 2018. Now I am not sure if irs knows my account or not, what am I supposed to do?
Eric Are we talking about a substantial account? Best advice is to let sleepover dogs lie. They can’t possibly follow up on the tens of thousands of these reports. Manafort hid millions. He only got caught as collateral damage.
400K, not very big, but quite a bit. So you think I should respond that fatca letter telling the NZ bank I am non US resident. I am scared later on irs may use this as evidence of willfulness. Thanks
If you were in the US for a few months and didn’t become a US resident, and your tax return will be 1040NR, then there’s a chance you might not be a US person for FBAR purposes.
183 days is days this year *1 plus days last year *1/3 plus days the year before last year*1/6, so I am still resident.
I am not sure in my case, if irs knows my account, will they file complaint to fine me? Will the NZ bank help to freeze my account if informed by irs.
Also not sure if I should fill out the form and send back to my bank claiming I am not US resident. Anyway I am back to my home country now. Please share your thoughts, thanks guys.
@Eric
With the ever increasing amount od data shared, your’s is a case that I do not wish to find myself in. Many, no doubt, will tell you not worry. A few will say that the fact that no one in your sutuation has yet been ‘caught’ as proof that you need not worry.
Persinally, hiven what I have learned about my own situation, I’d bet that the IRS does have information on you. What they will do with it, if anything, is not known but with looking at what they have been doing over the past few years would be the best way to get a feel for what they are likely to do in the future.
@Japan T, I might be not smart enough, Are you trying to tell me I am not in a good situation? Do you think they will fine a person who is outside US and previously a visa holder, not green card holder/citizen? Also can you be specific about “what they have been doing over the past few years” mean? thanks
@eric,
I have my personal beliefs about you situation and my own. I arrrived at them by digging into what changes had been made in recent years and why. FATCA, for one, the IGA’s another. The enhanced FBAR fines yet another. Relevant to myself but not to you, passport revocation yet another. Your situation is very different than mine, I am not going to know as much about it as my own, interested though I am.
First thing to do is, Do Not Panic. Whatever plays out in your case is not likely to be decided in the near term. The letter is already 2 years old. Unless there is a deadline coming up requiring you to take action based upon a descision you make about this, relax.
Finish reestablishing yourself in your homeland. Keep it in the back of your mind until ready to do some research. Then see what the current situation with reporting and action taken is, then where it was a year ago, then further back in time to see if it is moving towards you worst fears or away. Then you’ll have both more knowledge on what has transpired and a better feel for is most likely in the future.
“I believe the NZ bank might already sent my bank information to NZ tax office twice July 2017 and July 2018. ”
Could be.
“1. what I am supposed to do for this fatca letter supposed to be received in early 2017. Shall I send signed form back saying I am not US resident or just do nothing”
If you want to get it sorted out, send the tax-residence form back.
If there’s years when you were resident in the US and didn’t report the account, you can file amended returns for each year, including Schedule B and reporting any interest and paying any tax due. And also backfile an FBAR for each year, ticking the “Didn’t know I had to” option to explain why you’re filing the FBAR late. There is no penalty if no tax is outstanding.
“in early 2019 I will have to do US tax return for a few months I worked in US in 2018. Now I am not sure if irs knows my account or not, what am I supposed to do?”
File the return, including Schedule B and reporting any interest received from the account. File an FBAR.
Once you’re no longer US tax- resident, notify your bank.
Here’s the link to the Delinquent FBAR Submission info:
https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures
@eric
I don’t think this is a huge cause for concern, because you were living and filing in the US so are already in the system. It’s not like you are trying to prevent the IRS from discovering your existence.
First thing, I would call the bank, explain the situation and ask them what has been done. Have you been reported or not? Then tell them that you are no longer a US resident (or won’t be after a certain date according to some rule) so that all future reporting stops.
Then you have two options. Which route you take depends on your future relationship with the US, whether you plan to return or have assets there. One, do as plaxy suggests, file missing FBARs and amended returns. This might cost a bit of tax on interest income, but no penalties. Or two, forget this ever happened and assume that the IRS won’t dig through mountains of data then attempt to penalize a non-citizen who’s long since left the country.
PS The IRS has no power to compel your NZ bank to freeze accounts or do anything else, and also has no power to collect penalties from you in NZ. Hence their general lack of interest in chasing down non-resident non-citizens with non-US assets – very poor ROI. So don’t be concerned that anything bad will happen, this is just about peace of mind.
PPS Your bank may be unable or unwilling to tell you whether your account was reported over the past few years. If so, you still have the same basic choice: ignore or amend returns.
Nononymous:
“…Or two, forget this ever happened.”
Though if he does nothing, then if the bank is currently treating the account as reportable it will presumably continue doing so.
Do nothing as far as US taxes are concerned. First part of the prescription was to get things sorted with the bank, regardless of how what he does vis-à-vis taxes.