[alwaysfriends_2004]

I have a question on FBAR process and what to expect.

I am a US naturalized citizen and have property in India, which was rented from 2018 onwards. We were told by an Indian accounting firm that the rental income is reported in India and not in the US as it is local income. So we did not report it on the US taxes. The account we are using is non-repatriable account where money can't be sent back to US account by rule. Since it was essentially a local account i did not report it on my FBAR when it crossed 10K (Once it was 13K and another times it was 14K). Later on while researching a tax topic I came to know that I am supposed to report the income and file FBAR for a local account in India. I immediately filed amended taxes and did not owe any taxes to the IRS for those years. The returns were accepted and in one case IRS owed me a refund, which I received.

Note: Indian financial year is from April to Feb so an example would be April-21 to Feb-22 - The taxes in India can be filed anytime till Dec-22 by which time the US is already in year 2022 and my Indian taxes only have partial income reported for 2022. I am working with CPA from India and US to see how this can be done properly. We are now filing Indian taxes for the rental income and plan to use those in US taxes but the reporting periods are different making it difficult to add them US taxes.

I want to be compliant with the law and file the previous FBAR but I am not sure if I can avail the benefit of delinquent FBAR as I had unreported income but I did not owe taxes. What are my options here and additional opinions would be helpful on volunteer disclosure. I am really nervous about the fines and what it may mean. So need help.

Thanks for taking time to reply. Much appreciated

 

[alwaysfriends_2004]

Any Advice or Help ? Thanks

 

[Moulard]

OK a few things to unpack.

As you have discovered as a US citizen you must report your global income to the IRS. You must report rental income from real property location in India to Indian tax authorities.
The tax treaty between the US and India addresses to some extent the double taxation that results.
Without reference to the text of the treaty, assuming it follows the standard model...
India will have the primary right to tax the income, and the US will allow you to take a credit for Indian taxes paid or accrued.

If Indian taxes paid on the rental income are higher then the US taxes owed, then the result will be no US tax liability as you have found with your amended returns.

Differences in tax years are not too difficult to overcome, so long as good records are kept. Cash Basis is clearly easier to manage through statements etc but it can be a bit problematic if there are significant swings in income between tax years, such that the income is in one year and the tax you have paid is in another year..

Now from what you state, it appears as if you have now reported the Indian income, through 1040-X and thus no longer have unreported income

This being the case, I would suggest just back filing FinCen Form 114 (aka the FBAR) and enter a bland and not too much detail one line answer to the question as to why it was filed late.

I would NOT enter any streamlined compliance program as there are real penalties for those physically in the US.

 

[alwaysfriends_2004]

OK a few things to unpack.

As you have discovered as a US citizen you must report your global income to the IRS. You must report rental income from real property location in India to Indian tax authorities.
The tax treaty between the US and India addresses to some extent the double taxation that results.
Without reference to the text of the treaty, assuming it follows the standard model...
India will have the primary right to tax the income, and the US will allow you to take a credit for Indian taxes paid or accrued.

If Indian taxes paid on the rental income are higher then the US taxes owed, then the result will be no US tax liability as you have found with your amended returns.

Differences in tax years are not too difficult to overcome, so long as good records are kept. Cash Basis is clearly easier to manage through statements etc but it can be a bit problematic if there are significant swings in income between tax years, such that the income is in one year and the tax you have paid is in another year..

Now from what you state, it appears as if you have now reported the Indian income, through 1040-X and thus no longer have unreported income

This being the case, I would suggest just back filing FinCen Form 114 (aka the FBAR) and enter a bland and not too much detail one line answer to the question as to why it was filed late.

I would NOT enter any streamlined compliance program as there are real penalties for those physically in the US.

Thanks so much for taking the time, reading and replying. It means a lot. I thought the streamline compliance program had 5% penalty which is not much in my case because the amount did not exceed 14K. Is that not true then? I will pull up the documentation on it and read it.

Thanks.

 

[Moulard]

It could be true. Not being onshore, I haven't looked at the onshore compliance program in a lot of detail. What you read on the IRS website will be correct. Onshore streamlined is a real problem for those with forieign pension plans etc... which is why I suggested caution the penalities are tied to potentially large retirement balances

If you are concerned only about the FBAR don't be overly concerned. Remember the FBAR is actually a Banking Act form not a Tax Form...

No one will look at it unless the IRS has other reasons to investigate you.. These days with no $$$ its a cost benefit ratio discussion as much as anything. On the FBAR side, I would just quiet comply and file them for any year you had an aggregate total in excess of $10k and be done with it.

From what you state, perhaps with the exclusion of 2018, you have filed an original return or an amended return for 2019-21 and can file correctly for 2022 this filing season.

If you havent filed correct returns, I might simply file 1040-X for 19, 20 and 21, attaching an updated Sched B, a form 8938 (but it sounds like it isn't necessary) report the additional income, and claim a tax credit for Indian taxes paid.

 

[alwaysfriends_2004]

Thank you so much for the reply. I have replied to what you had mentioned in your answer.

"From what you state, perhaps with the exclusion of 2018, you have filed an original return or an amended return for 2019-21 and can file correctly for 2022 this filing season."

2018 through 2020 - I have filed amended taxes including rental income with nothing due from me. So nothing outstanding.
2021- I had included all the income (domestic and offshore) and also filed FBAR properly. So 2021 is covered.
2022- Already filed taxes for 2022 in India and will use that to get credit on 2022 taxes. Will file 2022 FBAR as well.

Final Thought:- I am going to file FBAR for 2019 and 2020 and close the matter hopefully. 2018 Did not need one so I should be ok for that year.

Again thanks for your reply and doing the research.
Have a great day.

 

[Moulard]

I would submit one for 2018 too just for completeness, and perhaps peace of mind as it should take only a couple extra minutes so long as you have account balances handy its just a matter of cut and paste the new values into the old form so long as account details have not changed.

 

[alwaysfriends_2004]

I would submit one for 2018 too just for completeness, and perhaps peace of mind as it should take only a couple extra minutes so long as you have account balances handy its just a matter of cut and paste the new values into the old form so long as account details have not changed.

ok I will do that. Thanks for the suggestion. I will file them and then fingers crossed lol.

 

[alwaysfriends_2004]

I would submit one for 2018 too just for completeness, and perhaps peace of mind as it should take only a couple extra minutes so long as you have account balances handy its just a matter of cut and paste the new values into the old form so long as account details have not changed.

One last question, the form has a reason and I was wondering if there are repercussions if I say I forgot. We did forget and then in 2021 we rechecked all our previous docs and found we forgot.

 

[Moulard]

Not aware of filing requirement, Thought I did not have to file, etc..

Something true, but without any detail is what I would suggest...

It will never be read. Its all processed electronically and dumped into a DB and forgotten.

 

[alwaysfriends_2004]

Not aware of filing requirement, Thought I did not have to file, etc..

Something true, but without any detail is what I would suggest...

It will never be read. Its all processed electronically and dumped into a DB and forgotten.

Thanks and many thanks. Have a great weekend

 

[Expat97]

Guys, i am in kid of a similar situation. Received a FATCA email from an Indian bank and had been scrambling over the internet for best options.
Looks like, I had been required to file FBAR since 2019 but did not file any of them till now.
I had been filing my US tax returns with all the tax forms that i received.
Since i was not aware of the FBAR, i did not include any interest income from Indian fixed deposits on my tax returns so far.
I am looking for best solution.

1 - Streamlined Domestic offshore filing ?
2 - Just start filing FBARS from this year onward (Not sure if i will get into trouble since I have about 6 bank accounts in India which includes NRE, NRO, Regular and Fixed deposits) ?
3 - Delinquent FBAR filings since 2019?

Appreciate if someone could take some time and please advice.

Thank you

 

[Expat97]

Any advice please? Thank you