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US Expat in UK - Detailed Tax query - FBAR, Streamline, etc.

4K views 13 replies 5 participants last post by  underation 
#1 ·
Hello all,

I've been lurking around the tax forums for awhile, and now it seems I could use some assistance and was hoping you all might be able to help. I'll try to keep this as succinct as possible.

I moved to the UK in 2012 to take on a Master's course. At the time, I needed to pay for my tuition fees, as well as an advanced 6 months rental payment. As a result, I transferred quite a bit of money over from my US account in order to cover these costs. I did this twice. Once in September 2012, which was the equivalent of just over 10K, and once in September 2013, which was just over 12K. Both times, the transferred money did not stay long in my UK account, and the funds were used to pay off tuition and rent within the same banking month. This is Issue #1, which I'll come back to.

Issue #2

Whilst I was in school from the end of 2012 until January 2014, I worked in the UK, but didn't make enough to file a 2013 Tax return. However, I did file a 2012 Tax return, as I worked the majority of the year in US and was owed a refund. In March 2014, I got a job in the UK, and have been in the job ever since. I haven't been great when it comes to filing, but since I don't owe tax, I didn't think it would be an issue to file late. However, I did file my 2014 tax return to get into some sort of compliance, but have yet to file 2015 and 2016.

Although I filed 2014, for whatever reason, I don't think I filed a schedule B to indicate that I had a foreign bank account. I used an online software, but I can't seem to pull out if, in fact, I did file that Schedule B. I also notice that my income total on my 1040 showed as a negative. Though I haven't filed my 2015 return yet, I have rectified the issue that gives me a negative income instead of a "0" on my 1040 with credits factored in.

Throughout all of this scrambling to get up to date on my recent tax returns, I've just learned what an FBAR is, and what the threshold for filing entails. This is Issue #3.Aside from the two times in 2012 and 2013, I have not gone over the $10K threshold again, as it's taken me quite awhile to save up money since being here. Last year, I came close, but the dip in exchange rate kept me below $10K. Recently, this year, I did surpass the threshold and had been planning on filing my first FBAR in the next tax deadline. However, throughout this whole process of FBAR filing, I was looking at old statements and found Issue #1, and began worrying about what to do next.

That being said, I'm looking for advice because this has become a huge worry for me. I want to comply, and I honestly did not know about the FBAR requirements, but can understand why they are in place. I just want to get back up to speed and compliance now that my situation in the UK is a bit more stable than it has been over the past few years.

So, here are my questions:

1. What are my options? Should I get my 2015 and 2016 returns up to date with the Schedule B filled out properly? Answering Yes, I do have a Foreign Account, but No, I did not surpass the threshold? And then for my 2017 return, file my first FBAR as planned?

2. Should I file my 2013 tax return, solely for the purpose of filing a 2013 FBAR for that one instance that I went over the threshold?

3. Should I amend my 2012 tax return to include the late FBAR for the period in September 2012 that I surpassed the threshold?

4. Should I amend my 2014 tax return to reflect proper income as "0" in lieu of a negative amount?

5. Should I look into the Streamlined Process which would include an amended 2014, and new 2015 and 2016 tax returns, as well as two FBARS for 2012 and 2013? Could I also include my unfixed 2013 tax return even though I had little to no income? Or, should I wait until next year when I was planning to file my first FBAR.

I apologize for the long winded message, but I wanted to be as thorough and detailed as possible. This whole situation is starting to stress me out, and I would just rectify it as best as possible. As much as it was hard work to start a life anew in the UK, it frustrates me that there were many tax issues to contend with in the US. Honestly, had I not randomly come across the FBAR requirement, I would have probably continued unaware for a good, long while. Just seems crazy that the penalties for not filing would essentially wipe me out financially.

Thanks for taking the time to read this. Be well, everyone.
 
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#2 · (Edited)
Relax. Honestly, this is so not a problem.

I wouldn't worry about any of the old returns or FBARs. The IRS will be none the wiser. Obviously they haven't noticed yet.

I assume that your 2015 and 2016 earnings were well under the FEIE ($100k) so you would owe nothing. In that case you could submit returns for those years (with Schedule B) or just not bother. There's no penalty for late filing if you don't owe any money. If it makes you sleep better, send them in. If not, forget about it. No real need to deal with the whole streamlined program.

Otherwise just file a return and FBAR (when necessary) going forward.

If you are planning on staying permanently in the UK, tax compliance will become more difficult and expensive as your affairs grow more complicated. Certain forms of tax-protected retirement savings may not be recognized by the US, plus of course the old Boris Johnson problem, US tax on capital gains from the sale of a primary residence. You may also encounter difficulties with banking and investment services. In the long run, you might find it best to acquire UK citizenship and renounce US citizenship. Staying off the radar without the protections of UK citizenship could be risky, if your net worth increases in years to come.

(on edit) PS The IRS is almost completely incapable of collecting penalties outside of the US. So don't worry about being wiped out.
 
#3 ·
I pretty much second what Nononymous has already said. One little clarification for you, though: Income tax returns and FBARs are two entirely separate reporting systems. Just because you filed a tax return does not necessarily mean you should have filed an FBAR, and just because you filed an FBAR does not mean you must have filed an income tax return.

Yeah, technically speaking if you filed a tax return and had a foreign account, you probably should have included a Schedule B, even if only to report that you have foreign accounts but the balance never exceeded $10,000. However I have yet to hear of anyone being questioned over the absence of a Schedule B on their tax return.
Cheers,
Bev
 
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