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Discussion Starter · #1 ·
Hi there!

I am a Swedish citizen with a Green Card since a few years back. My aggregate account balances in my home country have been between $30k to $100k in the last 6 years, with negligible income and capital gains (on average $200 per year, with no more than $1000 in any year, which has been fully taxed in Sweden with no taxes due in the US).

The accounts are still open, and FATCA reporting to the US has already begun with some Swedish banks, but will be in full force in Sweden later this year.

The problem: I have never filed an FBAR, nor have I included the income from my foreign accounts on my US tax return. I simply either did not know, or did not care enough to find out. I will confess that last year I checked the ?Yes? box on the Schedule B (the first time I saw it), but then I started reading about FBAR?s, freaked out, and ended up not failing by the June 30 deadline. Which takes me up to today..

I have spoken to three lawyers about my situation (and have retained one of them, Lawyer 1), and each of them have said different things, and now I?m confused about what to do.

Lawyer 1) Go with Streamlined Domestic, and assume the non-willful certification will work with 90% chance, and simply pay the $5,000 (which is the estimated penalty).

Lawyer 2) Follow the Delinquent FBAR procedures since there are no taxes owed.

Lawyer 3) Amend 3 tax returns, and back-file 6 FBARs. Don?t do the Streamlined as I don?t owe the IRS any money. It?s unclear if we would attach a reasonable cause letter with the FBARs / tax returns (did not get that level of information).

Looking for some advice here. Can anyone please chime in with which approach might be better for me, or if there is a different approach that I haven?t thought about?

I don?t think I would mind too much paying the $5,000 if I go with Lawyer 1 / Streamlined, but it is the non-willful certification that scares me. $100,000 in fine if found willful? Since I checked ?Yes? on Schedule B, it?s kind of hard to argue why I wouldn?t be willful? also I?m not sure I want to be at the mercy of the IRS like that. Just my two cents.

Thank you so much in advance if anyone here has time to give me some tips!

Ran
 

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Step 1 is to file FinCEN Form 114 for the 6 prior years plus the current year. File them truthfully, including selection of the reason you're filing late. ("I didn't know" is popular.) We are not currently hearing of the U.S. Treasury assessing any penalties for truthful, voluntary, unprompted late filing, so now is a very good time to tidy that up.

Step 2 is either the Streamlined Program or ordinary amended tax returns... perhaps. Start with re-running the tax calculations to determine whether you would have owed additional U.S. tax. There are at least three factors that'll influence your tax simulations. First, you'll be able to take advantage of the Foreign Tax Credit (IRS Form 1116) for Swedish income tax paid. Second, you may have help from the U.S.-Sweden tax treaty. Third, you may have PFIC complications (IRS Form 8621) that you'll want to clean up. Add that all together and see what happens to the bottom line. One of three things will happen:

(a) You owe "a lot" of tax. In that case, the Streamlined Program may be a good choice. I don't think this is very likely from your description.

(b) You owe "a little" tax (and interest and penalties). In that case, ordinary amended tax returns (IRS Form 1040X) would be just fine, and you settle the outstanding bill ordinarily.

(c) You have excess Foreign Tax Credits. In that case, you may be able to file amended tax returns to accumulate those excess Foreign Tax Credits and even possibly claim tax refunds (would you believe). That would happen if your Swedish income tax rate was higher on that passive income and you had/have some other passive income that could benefit from the excess Foreign Tax Credits.

Anyway, start with Step 1 since that step is common to the rest. FinCEN Form 114 for 2014 is due June 30, 2015, so you can clean up your FBARs now.
 

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Step 1 Fire the lawyer(s)
Step 2 File the FBARs truthfully as BBC says
Step 3 Do nothing more
If they want more they will contact you.
 

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Step 3 Do nothing more
If they want more they will contact you.
I disagree for the reason I illustrated in my Step 2 possibility (c). There is a distinct possibility here that Ranbjornelid will qualify for tax refunds when cleaning up the tax side of this oversight. There is a deadline to claim tax refunds, so "do nothing" would mean lost money in that case.

See what the tax calculation shows, after Step 1 (or Diharv's Step 2), i.e. getting caught up on the FinCEN Form 114s.
 

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I agree that the first thing to do would be to file FBAR's for the last six or seven years (seven years if you file before tomorrow, six years if you file after the 30th). You can mark on the FBAR submission that you "did not know you needed to file", and that is a legitimate excuse-there are lot's of people out there who did not know they had to file an FBAR.

Fortunately we have yet to see anyone get a penalty for voluntarily coming forward with their FBAR details. You do not need a lawyer to file these, it would be cheaper to use an accountant, or even cheaper to file on your own. All options work.

After that I would recommend reviewing your tax returns and amending as need be.

I hope this helps and good luck!
 

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Discussion Starter · #6 ·
Hello all,

And thank you BBCWatcher, diharv and DavidMcKeegan for your thoughtful responses. As you recommended, I went ahead and filed my 2014 FBAR yesterday. I will go ahead and file the remaining 5 FBARs today.

The point where the opinions above seem to (potentially) diverge is whether or not to file amended tax returns. My personal opinion is that I'm still not quite sure what to do here, but that there are two prominent facts that I will use to guide me in this situation:

1) I've run the numbers, and there are no taxes owed (the IRS might possibly even end up owing me a few hundred dollars, but I don't think it's worth it to go down that path for such little money)

2) The capital gains / interest incomes not reported were de minimis (a few hundred dollars per year). Given the workload of the IRS and what's practical, it just seems it's simply not worth it to amend for this reason, and also, it would just attract unnecessary interest.

I could be wrong here, but I'm leaning towards not amending... I would however appreciate to hear any final thoughts you have regarding this!

Kind regards,

Ran
 

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Am tempted to say that, having consulted 3 lawyers, you're lucky you only had to deal with 3 different opinions. Normally, 3 lawyers can be expected to generate at least 4 to 5 possible alternatives.

If you have already filed for the years in question and your potential "exposure" (i.e. possibility of owing anything more) is 0 or less, you may just want to let sleeping dogs lie. I have yet to see anyone questioned on their tax returns based on something from their FBARs. (OK, I run with a rather modest income/fortune crowd at the best of times.) On the off chance that your past returns are questioned, it will be a question, not a summons, and you'll have ample time to explain the situation before any charges are filed or accusations of wilful evasion of taxes is filed.
Cheers,
Bev
 

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Discussion Starter · #8 ·
Hello Bev,

Funny! Yes, I suppose I am lucky that I was only the recipient of a handful of opinions. Sadly, I chose to retain the lawyer with -- possibly -- the worst solution (streamlined). I suppose that the IRS / lawyer scare tactics had me for a while. I will have to see if I can get my money back there as I will be taking another path than what she proposed.

As for my tax returns: I have filed for every year, and my exposure is indeed $0 or less.

If I do get some kind of question regarding the returns at some point in the future, I will be sure to post it back here for others to be aware of. Hopefully that will not happen though.

Thanks for your response!

Cheers,

Ran
 

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1) I've run the numbers, and there are no taxes owed (the IRS might possibly even end up owing me a few hundred dollars, but I don't think it's worth it to go down that path for such little money)
It's up to you, but a few hundred dollars would be worth my time, for a relatively simple, straightforward amendment anyway.

....it's simply not worth it to amend for this reason, and also, it would just attract unnecessary interest.
Unnecessary interest? If you're legally owed a refund you're legally owed a refund. Nothing whatsoever wrong with that. Moreover, with cross-border account reporting these days, the failure to report the accounts is potentially more "interesting." Or having a discrepancy between FinCEN Form 114 and your tax return -- that's potentially "interesting."

Claiming Foreign Tax Credits is among the most popular reasons to file an amended tax return. A perfectly neat, tidy, and matching tax return is the least "interesting" to tax authorities everywhere.
 

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Hi Everyone,

I just discovered and read this thread with great interest, as my situation is almost identical to Ranbjornelid's; just substitute German in place of Swedish.
My aggregate foreign accounts were 60k, I filed returns, but never reported income or checked 'yes' to foreign accounts on schedule B. I have completed (but not yet not filed) 3 years of amended returns with approx. $200 of foreign income each year, but I owe zero tax (IRS actually owes me $5!!!)
I filed my 2014 FBAR on time.

I am a bit concerned about how to move forward and have questions about the following:

1. If I simply file the 6 late FBARs and check the box "didn't know" as suggested, wouldn't this, and my first-time 2014 FBAR filing, raise a red flag and trigger an audit? Wouldn't there be a significant risk of IRS non-willful FBAR penalties?

2. If I do not file amended returns, wouldn't the IRS cross-reference the late FBARs with the corresponding returns to see if income from the foreign accounts was reported and taxes paid?

3. What about the option of simply complying going forward? In some ways this seems less risky?

Like the original poster, entering the Streamlined Domestic program doesn't sit too well with me.
However, I am concerned about being audited and having to spend a disproportionate amount of time, effort and money to prove non-willfulness, etc. to waive penalties.
Any comments or insights you have would be greatly welcomed.

Cheers to All.
 

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OK, this is my take on your situation. You will get other points of view.

1. If I simply file the 6 late FBARs and check the box "didn't know" as suggested, wouldn't this, and my first-time 2014 FBAR filing, raise a red flag and trigger an audit? Wouldn't there be a significant risk of IRS non-willful FBAR penalties?
With a whopping $60K in total foreign accounts, frankly, no. You're really small potatoes as far as the IRS is concerned. It's very possible to have $60K in foreign accounts and not make enough income to even have to file. It shouldn't trigger an audit, unless something way more significant has come to the IRS' attention.
2. If I do not file amended returns, wouldn't the IRS cross-reference the late FBARs with the corresponding returns to see if income from the foreign accounts was reported and taxes paid?
Again, they probably won't bother cross referencing unless something much more incriminating comes to light.

3. What about the option of simply complying going forward? In some ways this seems less risky?
Up to you. Given that this is the first year that Treasury is getting the FATCA data from the foreign banks (if your foreign bank has you i.d.'d as a US person and has your SS number) this could be the ideal time to just start complying going forward. But the risk either way is yours to take or not.
Cheers,
Bev
 

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We have not heard of anyone getting penalized for filing late FBARs that are voluntary, unprompted, truthful, and with an adequate (and truthful) explanation (e.g. "I didn't know"). As Bev alludes to, that happy situation may end with FATCA data sharing kicking in.
 

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Thank you both so much for your quick responses - much appreciated!

I guess my fear is the IRS's continuing threat they are going after "quiet disclosures". Although small, 50k seems to be some kind of threshold.
 

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The $50K figure is a "threshold" mentioned in several of the bilateral agreements on the amounts the banks are supposed to be reporting. But there is no particular reason to think that this is a significant figure when it comes to investigating those who have or haven't reported accounts in the past.
Cheers,
Bev
 
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