If you haven’t been keeping up with the travails of IJ, on Jack Townsend’s blog, you have missed a remarkable story.
IJ is a Chinese immigrant to America who came to our shores via Canada. He got caught up in the OVDI, and after a long struggle decided to “Opt Out”. He was prepared to fight in the Court of Appeals, if necessary! But, thankfully, reason at the IRS’s Opt Out management review committee did prevail, and he was finally released from this lengthy OVDI torture with just a FBAR warning letter. Frankly, that was all that was ever necessary to obtain a compliance objective. It was the correct decision. You can read more of IJ’s story, at this post.
what is known is that about 380,000 FBARS were filed in 2008, whereas 7 million US Citizens lived overseas, and 10’s of millions duals such as yourself.
Arguing that various categories of taxpayers are treated unfairly would be a complete waste of energy. File your fubars going forward. Full stop.
Thanks for the inputs / comments.
We moved out of state so it seems pretty difficult to go back and complain. We went there because we wanted to make sure everything would be done correctly for the first joint return. ah!ah! what a joke.
Regarding the argument about taxation unfairness among taxpayers, I didn’t intend to write this in my letter. However I think that lawyers or representatives could use this argument. After all, doesn’t it make sense? How was the relief act decided for US citizens leaving abroad? Was it due to some lobbying / influence? I am curious. I wonder if contacting a representative about this matter could help.
Just file the FBARs with a reasonable cause letter. The quicker you fix it the better off you will be.
as well as an amended tax return for 2011? I hesitate between GF and QD
I was even thinking I could send the amended return with the 2012 tax return, as we will most likely have some tax return. This way, the money we owe to the IRS will balance the money IRS owes us. Bad idea?
any sample of reasonable cause letter ? i.e format to follow, or should I just explain the situation as it is?
thanks for your inputs!
I actually have only 1 FBAR due (2011), since before that I was a non-resident alien under J-1 visa….exempt from substantial presence test, therefore not considered as a US resident for tax purposes I read this info on different sources, anybody to confirm / infirm?
I keep posting…Does anybody had any experience with Taxpayer Advocate? I just found that info on the IRS website. The website states that they are “Your Voice at IRS”, but I am not sure what the deal is there!
” I am thinking of amending a return and add a letter of explanation, as well as filling FBAR for 2011.”
Sounds perfectly reasonable. Just tell them what happened. They get zillions of these things. Geithner filed an amended return for income he ‘forgot’ No penalty.
The taxpayer advocate won’t get involved in a small case like this unless you were to be completely screwed . and then only after the fact. Either GF or QD are reasonable courses of action.
Thanks for your response KalC!
I had a free consultation with a lawyer over the phone, and he told me 1) to file an amended return 2) to file FBAR for 2011 3) to send an administrative waiver for penalties. I am not just about the latter: if it is in regards to FBAR penalties or / and tax penalty for unreported income. I don’t think I will work with the lawyer to do that: fee of $400 to file an amended return (looks pretty simple to me) and fee of $1500 to write this “administrative waiver”. i will be looking for some sample letters online, as I am pretty sure, that despite what the lawyer said (“it has to be a legal document, it’s not the same if you write a simple letter” this doesn’t sound like a very convincing argument to me), I can write it myself (what makes a document legal anyway?) If you have any suggestions on where to find such sample letters, please let me know.
Thanks again for all your comments, it is much appreciated.
First, let me say, I am not a lawyer, and you should not take my advice just because I am responding on a blog! 🙂
KalC’s and USCitizenAbroad approach seems reasonable to me.
If I understand your facts correctly, and if it were me, I would simply be compliant now going forward, as you have already decided to do. File your 2012 1040 with schedule B correct. File your FATCA form 8938 with your return, and then file the FBAR as required to the Detroit office. (The FBAR is not filed with your taxes. I assume you know that, but just to be sure.)
As for 2011, if it were me, I would probably just amend the return with a simple explanation you were now reporting missed interest income that your past Tax Practitioner did not tell you was required. Pay the taxes due, and wait for their response. I am pretty sure they will hit you for interest penalty. In all likelihood, that is the last you will ever hear from them, but understand you still have some minor risk for an examination. But that is really little to fear, IMHO, if yours was just a simple mistake.
However, there is a case to be made for just a Go Forward compliance without Quiet Disclosure amending, but like I said, if it were me, I probably would amend.
Separately, file the 2011 FBAR with a reasonable cause letter as to why it is late. As a new immigrant to America, facing the most complicated tax code in the world, and with a Tax practitioner who did not advise you correctly, I would say that should be enough of a reason. Just be brief and succinct. You can probably use some portions of Moby’s reasonable cause language, if you like.
Then wait and see if that will trigger any response. Probably not. Considering the sums involved and your recent new immigrant status, you should be treated just like a ‘low risk’ American abroad, if any reason and justice prevails at the IRS. Although, I can not guarantee it, it does seem to me this is the most rationale approach, or at least the one I would take based upon the experience I have gained through the years.
I don’t know what this ‘administrative waiver letter’ is that the Attorney is trying to make some money on, but frankly it sounds like a simple “reasonable cause” letter, and I think a statement in your own words from you is probably preferable to something written by an attorney with legalese in it.
As to your question about the TAS, yes, they can and do help out when you are at an impasse with some ‘loony tunes’ examiner, on a power trip and being unreasonable, but at this stage of the game, there is really nothing they have to offer you, other than advice to become compliant.
Now, again, I would not take my advice, KalC or USCitizenabroad without doing your due diligence, and NEVER act solely upon advice from a stranger on a blog.
If you want to try to get an answer out of an attorney who occasionally offers advice to minnows, you could try reading some of Jack Townsend’s blogs… I maintain a long list of them here…
But maybe you could start with this one, it is over a year old now, but it might provide some help by just reading some of the questions and answers he has provided for others.
Good luck, and welcome to the “Tax, Form and Penalty Club”. You are in good company! 🙂
What ever you do, don’t let some attorney talk you into spending a bunch of money on them by offering to enter you in the OVDI/OVDP programs. If that is the advice, Run away!
Great advice from Just Me. The only reason I would suggest amending 2011 is because if you should have filed 8938 and didn’t, the statute of limitations become suspended. You could also in theory be hit with at least a $10,000 penalty for not having filed 8938 if you were meant to.
….I don’t know what this ‘administrative waiver letter’ is that the Attorney is trying to make some money on, but frankly it sounds like a simple “reasonable cause” letter…..
Yes it is just the famous “reasonable cause letter“ and this $1,500 price tag sounds very familiar.
you guys rock! Thanks so much Just Me for your thorough response.
I will read the posts you referred to, and I also plan on asking for legal advice.
a few more questions:
1) for the 2011 amended return, should I also file and attach the 8938 form (I met the criteria for 2011 – another possible $10 000 penalty for not filing??? ) ?
2) when I write about the missing interest income, should I specify that it comes from a Foreign Account, or just mention that is it missing interest income?
3) Regarding the interest penalty (for back taxes), do you think I should already include that in the payment (4% per year if I understood correctly), or just wait for a response.
Yes, regarding the lawyer I talked to, although he did give me some useful info (that my case didn’t need to go to the OVDI/OVDP programs, and that it was a pretty straight forward case), the letter fee sounded suspicious to me, especially when he also told me about the $400 fee to amend a return.
Good to read your comments on that, and it confirms that I can totally write the letter myself, despite the fact that I am a foreigner:)
Thanks again for your input!
2. I don’t know that it is necessary in your 1040x explanation to use the world ‘Foreign’ It will be obvious from your Schedule B filing that this will be what it is, and you will be checking the box that the funds came from overseas. Also, remember, that if you have paid taxes on the interest on the funds in the foreign account, you can get credit for them on form 1116. That form is not for the faint of heart and complicated. It may be, if your tax is only a small amount you can take it directly on the 1040 without having to file the form 1116. It has taken me a while to learn to do it correctly,
3. You can estimate the penalty if you want and include it with the taxes due. That helps stop the clock on penalties due, as it does take them a while to generate their automatic letter to you asking for the interest payments.
Just recalled another link that might be helpful for you in constructing your reasonable cause letter…
Awesome! Thanks so much.
I’ve been reading Moby’s letters (thanks for the link!) and this will help me a lot to write mine. It’s great of him to have shared this valuable information.
Got it for the interest penalty (I also got from Moby’s letter that is a 20% accuracy related penalty + I am guessing the 4% interest calculated on the total).
Thanks for the tip on form 1116.
Also, I read your article on “The OVDI drudgery for minnows”. It is great!
I am hoping that the relief act that applies to US citizens living abroad will very soon extend to US citizens / residents living in the US. It would make so much sense (but not as much money! or maybe it will if more people would comply and pay possible back taxes and accuracy related penalties).
I actually posted this suggestion on the Taxpayer Advocate website:)
I just can’t understand the FBAR penalties as they are right now (for honest taxpayers). I wish those who paid high penalties could file an abatement request retroactively, because it seems like extortion to me.
Thanks again for your help.
One other point you should keep in mind. As you know the FBAR goes to a separate address. Make sure that all your taxes are paid up prior to sending the FBAR and writing a reasonable cause letter. This is the order: 1. Pay any tax owing (obviously especially on an undisclosed account) 2. File the FBAR and include in your reasonable cause letter the fact that there are no taxes owing.
This point is also made here:
Thanks for the info; I was going to do it in this order:)
Do you think I should wait for the check to clear to send the FBAR?
Otherwise, after reading the IRS notice 746, I think I shouldn’t have to pay an accuracy related penalty (40% for Foreign Assets -IRC 6662 (j)), due to the reasonable cause. I will pay the amount owe + the 3% interest and ask for this penalty not to be assessed. And we’ll see how it goes. I want to be consistent in defending my case.
Yes, do all of this quickly enough so that you have a check that is cleared and you are able to file the 2011 FBAR before the 2012 FBAR is due (which will obviously be filed on or before June 30). Also, try to avoid filing the FBARs online. I have “heard” unverified rumors that some online filers with past unfiled FBARs have been automatically assessed FBAR penalties. Now, I don’t have “first hand” information on this, but (assuming you can file the 2012 FBAR by mail) I would do it that way.
Thanks for this other tip!