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.
Input needed
@meadea fleecestealer
@iamquincy and others that can assist?
Now I am at the stage of writing letters to accompany Fbars . Any suggestions as to how to word these letters which apparently have to accompany all Fbars filed previous to 2012?
Thank you for any advice –
Sorry, allou, I can’t help at present. I’m waiting for my tax preparer to send me back the FBAR’s for final signature along with the letter of explanation. If I get is soon I’ll try and post it for reference.
@Allou
First and foremost, I would imagine that you would want to be able to demonstrate in so far as you can with facts relevant to your circumstances that you were previously unaware of your FBAR filing requirement which you’ve only recently discovered and that you have taken immediate steps to rectify the situation upon discovery. You might want to address how you found out about your obligation and what steps you took if they are supportive. If there is a significant time difference between discovery and filing you might want to address this. It could be the result of the number of years being filed, incomplete personal records that had to be supplemented by information requested from your banks, limited time available to dedicate to a very time-consuming task etc. You might want to stress how long it has been since you last lived in the US (if at all) since the resurrection of FBAR is a relatively recent phenomenon. You might want to state that all of your accounts were established for legitimate means of receiving or investing after-tax income in your country of residence and were established in your own name (as opposed to entities). You might want to state that you have timely complied with all relevant tax filing obligations in your country of residence. If you have a large number of accounts or opened and closed accounts frequently you might want to address the reason for this. In the UK ,for instance, “teaser” rates are common and are usually only valid for 6 or 12 months so if you are a “rate tart” and are seeking the highest interest rate you would have lots of account openings and closings.
The below could be used as potential boiler plate for the closing of your letter to make sure that you are referencing the appropriate keywords and relevant code and IRM sections:
“I respectfully request you consider this as my statement of reasonable cause in connection with the assessment of penalties under 31 USC Section 5321 for failing to file FBARs by the filing deadline and I have signed this statement under penalties of perjury.
As stated above, until very recently, I was unaware of my requirement to file FBARs to report all
of my non-US financial accounts. At no time have I sought to avoid my obligations to file the necessary forms. I can confirm that my failure to disclose my non-US financial accounts was not caused from wilful neglect; rather on fully understanding my obligations I immediately started the process of collating the necessary information required to prepare these forms. I have exercised ordinary business care and prudence and was not wilfully negligent in relation to my FBAR filings for these years.
Summary
I believe that it would be wholly inappropriate for penalties to be assessed. I should be grateful if you would consider the following IRS policy when reviewing any proposed penalties. The Internal Revenue Manual (‘IRM’) at IRM 4.26.16.4 sets out that ‘penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements’. Under IRM 4.26.16.4.4, the non-wilful penalty “should not be imposed if:
a) The violation was due to reasonable cause, and
b) The balance in the account was properly reported on an FBAR.”
Declaration
Under penalties of perjury, I declare that this statement and the facts contained herein, are to
the best of my knowledge and belief, true, correct and complete.
Yours sincerely,”
@allou
At the time I learned about FATCA etc, I had heard of no one that had actually received a CLN. I had no proof that CLNs would be backdated. I also had a simple enough tax situation that I could do it all myself without spending lots of money.Given what I know now I wouldn’t have applied for a SSN nor filed any tax returns etc. Nevertheless, I did it and here is my letter:
Please find enclosed my FBAR reports for 2006-2010..
I recently became aware through media reports that I am required to file US taxes and FBAR reports due to my birth in the United States. I have therefore prepared the required reports. As I am fulfilling my reporting obligations, expeditiously upon recognizing them, I trust that I will be treated accordingly, as per the examples given in IRS notice FS-2011-13 “Information for US citizens or Dual Citizens Residing Outside the US”. I believe I meet the definition of reasonable cause and am requesting the waiver of any potential penalties for the following reasons:
• My family moved to Canada when I was a child (in 1973) and I became a Canadian citizen in 1990.
• I believed that I had relinquished my US citizenship in 1990, when I obtained Canadian citizenship.
• I have been completely compliant with the Canadian Revenue Agency (CRA) and have properly reported all of my income to the CRA.
• To enable me to be compliant with IRS, I have recently obtained a Social Security Number and have filed tax returns for years 2006-2010, reporting all income and resulting in no tax owing.
• All of my bank accounts in Canada have been for legitimate purposes and not for concealing income.
• In December 2011, I appeared before the Vice Consul of the American Consulate in Toronto and formally relinquished my US citizenship. I am now awaiting my Certificate of Loss of Nationality from the State Department.
I hope that this submission, together with my soon to be filed 2011 return and FBAR, satisfies my obligations to the US as I seek to conclude any residual tax/financial reporting obligations.
@heidi
@iamquincy@medea
Thank you so much – would the accompanying letter to for the IRS forms have to be as “official”? If you have any suggestions as to wording, that would be very helpful. I have described the circumstances but am not up to the legalese.
Please do post anything you may have as I have to get these off tomorrow for someone. Very very grateful!
@edelweiss
You have no idea how helpful this is- thank you so much
@allou, I’m not sure what you are asking. That letter I posted is exactly what I sent. I don’t think it comes across as very “official” or full of legalese. I used a similar one for the 1040’s, just made small adjustments so it made sense. (by the way, I have over 20 accounts and had some very large balances at times due to things like the sale of a property and never offered any explanation) I never heard back about the FBARs and when i called about the 1040’s, they were all processed with no penalties or tax owing. That was almost a year and a half ago. Seems the explanation was good enough.
@iamquincy
Were your filings to amend past 1040s with FBAR reporting, or were they first time 1040s and FBARs?
If the latter, something I believe both allou and myself would appreciate knowing is how many 1040s you filed in becoming compliant. We’d both like to renounce and so would like to do at least 5 years at once. However, the Streamlined Program specifies only 3 years. So knowing what you’d done would be helpful (I realize the SP probably did not exit when you filed).
@allou, if you already know the answer, or at least know what you’re going to do, I’d appreciate it if you could let us (really me) know.
TIA
@tdott
I believe 6 years is the “norm” for IRS and fbars – I had already started on the 6 yrs before I heard of streamlined. Am not yet certain which route I will choose. I have been at this for 1,5 months now – the major part has been to gather all the info personal for accoiunts, wages etc. and forms and then figure out what goes where (doing this for several)
If your situation ios not complicated with shares etc. you may be able to DIY. It is a major challenge and at times I have been very upset-angry but am also very stubborn so I keep plodding along and learn more each time. You can essentially only do your best – the frightening thing is the more you discover the more complicated it can seem. I have had ” aha” insights, but also discovered legal terms that seem to conflict depending on the source. Even the tax treaties have lots of savings clauses as they too are essentially written from the perspective of US persons who either live in the US but have foreign investments, or US persons who are temporarily abroad but plan to return to the “Homeland”. For US persons who are permanently abroad the treaties are less useful (IMHO). Basically it seems that US persons who do not plan to return are no very interesting to the Homeland – so we have to consider what is best for us. I should have say bye-bye decades ago, but didn’t because I am a dual – now I am suffering the consequences of not making the right decision- but then life is full of challenges – good luck and be happy you have found IBS persons – they are so helpful!
The “Streamlined” option is for those, for whatever reason, not in compliance with US citizenship-based tax requirements and retain their US citizenship.
To renounce US citizenship because one is never going back to the US (they have made their lives in other countries), five years plus the partial year in the year renounced of tax returns is necessary to state in Form 8854 that one has complied with five years of US tax returns and reporting.
Not according to my tax preparer. “Preparation of FBAR streamlined questionnaire & disclosure letter for taxation years – if applicable.” That’s in his estimate of costs and he knows I’ve already renounced. We met with him a few weeks after I’d done the deed. The impression I got after talking with him was that you could go the streamlined route and take a chance on not getting penalised, or go the OVDI route and definitely have penalties. No indication that streamlined was only to be used if you wanted to keep your citizenship intact. Still, I could be wrong; until I get the paperwork back I don’t know.
Must check with him on Tuesday that he doesn’t need any info for the disclosure letter. I assumed they have standard type one, but I don’t want things held up because he’s waiting for something from me that I wasn’t expecting to have to send him. Double-check, double-check. Holiday here Monday so a lost day as it were for chasing things up.
@Medea,
How will a renunciant get around the requirements of Form 8854 if compliance is only for three years? http://www.irs.gov/instructions/i8854/ar01.html. I must really have missed something.
http://hodgen.com/how-expatriation-works/
Regarding “disclosure letter” are your referring to a personal statement for reasonable cause that you did not previously file FBARs / tax returns / 3520’s, etc.?
http://isaacbrocksociety.ca/2012/09/01/new-filing-compliance-procedures-for-non-resident-u-s-taxpayers-effective-september-1-2012-a-preliminary-analysis/
@tdott, I had never filed before. I sent in 5 years of 1040’s and FBARs and then the partial year for the year of renunciation with the 8854. I used turbotax to do them all. I was able to buy old versions of Turbotax online that i downloaded. I did all of this before the streamlined program was announced.
I don’t know calgary411. My tax preparer wanted FBAR info right back to 2006 and as far as I know I’ll file the FBAR and 8854 form next year for the partial 2013. He may be just preparing a straight back filing without streamlining or OVDI, given all the years he wanted.
Something else – when one has filed 5-6 years what sort of confirmation is there that the returns and Fbars have been processed? I assume if there are questions one would hear from the IRS/Treasury within some time frame? What would happen if a person renounced, filed the last partial year and the 8854 checking the 5 year box -I do recall some IBS persons have done this What happens if, say 2 years down the road one receives a letter from the IRS? Just asking???
@allou,
Each year I’ve sent my FBARs by registered mail that needed signature (at an additional cost) and received receipts back indicating those were received. Regarding the status of all of your returns, here is what the IRS says: http://isaacbrocksociety.ca/expat_tax/comment-page-4/#comment-201852
@medea,
You have lots of time before everything has to be filed correctly since your renunciation took place in 2013. Likely one of the most important will be the 8854 so as NOT to be deemed a “covered expatriate” after all the other work.
@allou, I called the IRS after about 8 weeks and was able to confirm that all of the 1040’s were processed and no tax or penalties owing. I mailed everything by courier so i also had a signature. Technically, I believe the IRS could audit you after you renounce but I think it is highly unlikely. I sure don’t worry about it. I’m sure they have bigger fish to fry than me.
@calgary411, sort of but the back FBAR’s have to be in by the end of June this year for 2006 to 2012 so just over a month. At least that’s my understanding.
You are correct, Medea, and no extension for the FBARs. Will they be filed electronically to make sure they are to the correct destination on time? They are easy enough that even I was able to do on my own (although I mailed mine by registered mail — and have that receipt back for 2012).
The rest of my US IRS compliance is not “easy enough” for me to confidently do on my own.
I would think as the letter has to go with them (I presume) it’ll be by snail mail rather than e-filing. FBAR’s are supposed to be changing to e-filing only this year anyway iirc, end of June? Don’t know how that’s going to affect filing for expats; some have trouble getting their ordinary forms accepted by the system without adding the FBAR’s into the mix.
@Medea,
FBAR FAQ
Q. When is the FBAR due? (SO, MAIL FOR IT TO GET THERE IN TIME — THEN AMEND, IF NECESSARY LATER.)
A. The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date. See also Notice 2010-23.
If a filer does not have all the available information to file the return by June 30, they should file as complete a return as they can and amend the document when the additional or new information becomes available.
Q. What happens if an account holder is required to file an FBAR and fails to do so?
A. Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties or both. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. Keep copies of what you send for your records.
My FBAR’s are simple, only two accounts listed for some years, only one for others, so I’m hoping the tax guy will turn them around quickly for me so I can get them in the post.
The IRS making it soooo simple for you now to be tax compliant with the international requirements. A new tax map for you..
http://taxmap.ntis.gov/taxmap/internationalindex.htm
Nice to see TAS is listed there.