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US expat tax and FBAR: Discussion thread (Ask your questions) Part Two

Please ask your questions here about US Expat tax and FBAR.

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NB: This discussion is a continuation of an older discussion that became to large for our software to handle well.  See US expat tax and FBAR: Discussion thread (Ask your questions) Part One.

3,618 thoughts on “US expat tax and FBAR: Discussion thread (Ask your questions) Part Two”

  3. Just a reminder for those thinking about FBARs. Short description of FBAR ‘reasonable cause’. Not sufficient in itself, but good to look over and think about. Big Caveat: Not tax advice, and Not an endorsement of the practitioner who posted this;
    See http://www.prweb.com/releases/2012/7/prweb9725498.htm

    ….”reasonable case exception under the FBAR Statute that that may eliminate the potential FBAR penalty. The authority for the “reasonable cause” exception is found in the IRS Manual IRM 4.26.16.4.3.1 (07-01-2008). This IRM approves of the “reasonable cause” guidance provided under 26 C.F.R. § 1.6664, Reasonable Cause and Good Faith Exception to the § 6662 penalties. IR-2012-65, June 26, 2012 offers a “new procedure” to go into effect September 1, 2012, that embraces the “reasonable cause” exception to the FBAR penalty, as articulated in IRS Fact Sheet FS-2011-13, December 2011.

    Whether a failure to file or failure to pay is due to “reasonable cause” is based on a consideration of the facts and circumstances. Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them. In determining whether you exercised ordinary business care and prudence, the IRS will consider all available information, including:

    * The reasons given for not meeting your tax obligations;
    * Your compliance history;
    * The length of time between your failure to meet your tax obligations and your subsequent compliance; and
    * Circumstances beyond your control.

    F-Bar reasonable cause may be established if you show that you were not aware of specific obligations to file returns or pay taxes, depending on the facts and circumstances. Among the facts and circumstances that will be considered are:

    * Your education;
    * Whether you have previously been subject to the tax;
    * Whether you have been penalized before;
    * Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; and
    * The level of complexity of a tax or compliance issue.
    * Reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account.
    * Evidence that the foreign account was established for a legitimate purpose.
    * Evidence that there was no effort to intentionally conceal the reporting of income or assets.
    * Evidence that there was no tax deficiency related to the unreported account.
    * There may be other factors in addition to those listed that may weigh in favor of a determination that the failure to file was due to reasonable cause.
    * Ignorance of the law, if reasonable along with a good faith effort to comply with the law if you could not reasonable be expected to know of the F-Bar requirement.
    * No single factor will determine “reasonable cause.” It is a “facts and circumstances test.” “….

  5. @Mark Twain,

    I should sue 1 university and 1 college, because after 6 years of post-secondary education, I had no clue I was a ‘US tax-payer’ until my husband and I rewrote our wills, and the lawyer, upon hearing where I was born, clued me in. Not only that, but I am also unemployed,

  6. @mark twain, except if you are a nominee for Treasury Secretary. Then you can have all the education, experience, etc. but still fail to file and pay your taxes properly – and get no penalty. For Geithner, it was an ‘understandable’ failure. For us, it is tax evasion and ‘not paying a fair share’, and ‘hiding’ money ‘offshore.

    If you are running for VP, you can forget to report thousands of an inheritance – and get no penalty.

    If you are a member of the Senate or Congress, likewise, you can get up to all sorts of things re offshore accounts, etc. but that is okay.

    Only ordinary duals and accidentals ‘abroad’ with local accounts are to be punished.

    @WhiteKat, guess we weren’t in line when the chip was implanted.

  7. I don’t believe I’ve read of any dual Canadian-US folks being overly penalized when catching up on their tax filings and FBARS (at least those that did NOT go thru OVDP). Is that actually the case – that *so far* the IRS has been reasonable on duals?

    TIA

  8. BTW, you might find this discussion on Linkedin with a CPA who had “no sympathy” for FBAR failures.
    http://lnkd.in/KtaZrt

    Also, this recent article on the Isle of Man subject to the UKs Son of FATCA. Compare their disclosure penalty regime to the US one. It is all based upon taxes owed, not high aggregate amount.

    http://on.ft.com/12L3vNY

  9. @tdott

    The simple answer is, we don’t know. They don’t publish stats and results of disclosures, other than in a Press release trumpeting revenues collected, totals entering program, and new threats to inspire your compliance. 🙂

  11. @tdott
    I am a dual from birth and last year I filed 3 years of income tax & FBARs. Born in the US & moved back to Canada as a child & the only thing American about me was my birth certificate. I wrote my explanation for my prior non-compliance for both the Income Tax & the FBARs. Fortunately I “owed” almost nothing. I did receive a letter advising me of a small penalty (pretty much just the interest owing from taxes) The tone did not sound scary or threatening to me. Never heard anything about the FBAR’s. My own feeling is they are probably just happy for now if people start filing. After all, maybe in the future someone will sell their house, inherit something, die or win the lottery! Why cause more waves now when they are trying to convince the world that FATCA is reasonable.

  14. @northof49

    That is exactly the way it should be, and let’s hope that as your results indicate low risk, that is the end of it. That is how it should proceed. What we will never know is how many that take your route, are then examined later. That is the unknown risk for many. Welcome back to compliance world. Your future for more form filing is bright!

  15. @Just me
    My future for form filling is going to be limited because I’m getting out as soon as I possibly can. Target date is January 2014 and it won’t come a minute too soon. It suddenly hit me the other day that renouncing US citizenship is the only thing on my bucket list! When I filed I had no intention of paying any bogus penalty they might dream up. This is a strategic game I’m in. It has cost me a fortune in professional fees and life units but I will have my satisfaction in formally renouncing & denouncing the US. I will never forgive the US for this overreach of me & my country.

  16. @northof49, re; …”but I will have my satisfaction in formally renouncing & denouncing the US. I will never forgive the US for this overreach of me & my country.”..

    Exactly.

  18. @Just Me, re http://isaacbrocksociety.ca/expat_tax/comment-page-1/#comment-194726 I read your Linked In exchange with that CPA, and admire your forbearance, patience, and persistence. His attitude ignores all of the realities of those that were recent immigrants to the US – with pre-existing accounts – who had no reason to research the history of the US tax code BEFORE they arrived in the US, and those born abroad – who did not apparently receive the chip implant that would download the US tax code, or those abroad who do not speak English, etc.

    And his argument about the existence of requirements going back decades ignores that even inside the US, the FBAR was considered obscure. It isn’t even directly related to assessing US tax. And there are lots of US laws that even practitioners don’t know about.

    If it was so obvious, well known and well understood, then why would we even need CPAs like him?

  19. @Just Me I also read that dialogue and liked how patient you were with that CPA. And like Badger points out, it is unfair how he completely overlooks recent immigrants and accidental American citizens born abroad or who moved abroad as children or even bonafide Expats who had gone native and were genuinely unaware.

    It seems that this CPA is blindly patriotic and that it wouldn’t occur to him that they are already paying taxes where they live. In fact, I know of some Americans who were surprised that I was even paying income taxes to the British and had assumed that as a U.S. citizen I’d only be filing and paying to the IRS. It’s as though they can’t even conceive paying any tribute to another country beside the U.S.

  20. http://taxattorneynews.moskowitzllp.com/post/2013/02/20/A-Closer-Look-at-the-Non-Willful-FBAR-Penalty.aspx

    ‘A Closer Look at the Non-Willful FBAR Penalty’
    by Moskowitz LLP 20. February 2013 12:54
    “We are honored that the California Tax Lawyer has published our article regarding the Non-Willful FBAR Penalty. The article can be found here. In it we not only define the legal obligations related to the Foreign Bank Account Report (FBAR) but also provide an analysis of the civil penalty structure and a detailed description of the non-willful penalty and potential defenses.”

    This is an excellent and very recent article about the NON-willful FBAR penalty

  21. northof49 writes: “After all, maybe in the future someone will sell their house, inherit something, die or win the lottery!”

    Are USC recipients of inheritance taxed on the money?

  22. @tdott, re US taxes levied on US citizens living ‘abroad’ who sell their house: USC living outside the US are liable to pay US taxes on the capital gains from selling their principal residence although there is an exclusion from some portion of the sale price.
    See:
    http://renounceuscitizenship.wordpress.com/tag/capital-gains-tax-principal-residence/
    http://isaacbrocksociety.ca/2012/03/08/taxing-your-primary-dwelling-another-reason-that-united-states-expats-must-relinquish-their-american-citizenship/
    http://uscrossbordertaxblog.com/us-federal-income-tax-gains-on-sale-of-your-home-part-1/

  23. @northof49
    I totally understand…

    @Badger and monalisa1776 Regarding my linked in comments. You should have seen them before I moderated them… LOL

  24. @Badger. Thanks for that link on the Non Willful FBAR penalty. I will read it and see if it should be added to my OVDI drudgery thread! although with your recommendation, I can probably put it there without further review! 🙂

  25. @tdott: You ask “Are USC recipients of inheritance taxed on the money?”

    It’s my understanding that an inheritance is not taxable BUT, BUT, BUT there are very stern penalties for not REPORTING the inheritance.

    The instructions for IRS Form 3520 throw some light on this….and the penalties appear to be in the same horrendous range as the fbar penalties… but do please look for yourself, as I’m only beginning this journey….

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