Some final tax and FBAR questions

Hi all,

My USC wife is about to file her tax return and FBAR. I've been preparing it for her, and have some final questions I was wondering if somebody could help me with:

1. We're taking advantage of the automatic 2-month overseas extension for the tax return. Per publication 54 page 4, she needs to attach a statement explaining how she is qualified for the extension. Should this take the form of a letter?

2. On joint non-US bank accounts, do we split the interest 50/50 for tax purposes?

3. My wife's name was added to my current account in March 2009. Should we only declare the  interest for the period after she was added? (I'm an NRA.)

4. For the dreaded FBAR: On this same current account, the highest 2009 balance the account had was before March, in which month my wife's name was added to the account. Should we write on the form this pre-March amount, or only the highest amount while my wife's name was on the account? If nobody knows, is it worth trying to ask the IRS, either in the London embassy or in Detroit?

Thanks very much indeed for any help. Hopefully next year this process won't consume so many hours of my life :-)

Hello again Jenmaries,

1) You can write in the top border of the Form 1040 "Taxpayer Resident Abroad", and then mail the return. If you want to play it safely, which isn't always a bad thing to do, the statement would normally be in the form of a cover sheet. Write your spouses name in the upper left hand, and their Social Security number in the upper right hand, similar to any IRS form. Below that, title it "Automatic 2 month extension..... (wording of your choice)". Below that, your statement, "I was a permanent resident of the United Kingdom from......and outside of the US on April 15, 2010.....(again, your choice of words). For this year and in following years, separately on the cover sheet, include a reference to the unofficial exchange rates you used to calculate the taxes, and the source (IRS, US Embassy website advisory, etc.)

2) Yes, (I'm assuming you're referring to Schedule B.)

3) Technically, you could argue yes (for Sch. B). But I'll add a caveat here. In my amateurs opinion it may be just as expedient, since its March, to calculate the interest from the account as if your spouse owned half of it for the entire year, provided it has no/little impact on their final tax position (tax due).

4) Don't mess about here. In my totally naive brain, money laundering can occur in ways I can't even imagine. The FBAR requests the highest amount in the account during the tax (calendar) year. Put the highest amount the account had in it during the year (pre-March?), regardless of when your spouse was the owner and what the balance was at the time of her involvement. It's safest (in my opinion).

Hello again Jenmaries,

1) You can write in the top border of the Form 1040 "Taxpayer Resident Abroad", and then mail the return. If you want to play it safely, which isn't always a bad thing to do, the statement would normally be in the form of a cover sheet. Write your spouses name in the upper left hand, and their Social Security number in the upper right hand, similar to any IRS form. Below that, title it "Automatic 2 month extension..... (wording of your choice)". Below that, your statement, "I was a permanent resident of the United Kingdom from......and outside of the US on April 15, 2010.....(again, your choice of words). For this year and in following years, separately on the cover sheet, include a reference to the unofficial exchange rates you used to calculate the taxes, and the source (IRS, US Embassy website advisory, etc.)

I would disagree with this and I would never attach a cover letter.  I have never even seen that in all my years of doing this.

Additional information should be attached in the form of a statement following the body/forms of the return.  For the 2 month extension, you can just copy the wording directly from the publication that you have been looking at.

And I would never disclose exchange rates, in a cover sheet or otherwise. It isn't asked for and I certainly think with taxes, you should offer what is requested and that is it.

Obviously, an apology is due on my part. Written words on the page can oft times be misinterpreted. That’s why we have respected people who can interpret for us. I’m afraid I forgot that individual tax returns are different for each filer. I shall now withdraw to contemplate the error of my ways. But, before I go, may I ask one quick question?

And I would never disclose exchange rates, in a cover sheet or otherwise. It isn't asked for and I certainly think with taxes, you should offer what is requested and that is it.

I have no earned income. I therefore use Forms 1116 and 1116AMTFTC every year. It would appear that I am not alone in using this form, and that it’s use is increasing. As regards your first sentence above, could you clarify for me and anyone else that files this form (possibly the OP?) how we should respond to the instructions for Form 1116, specifically on page 2, the first paragraph under the heading “Foreign Currency Conversion”?

Thanking you in advance for your kind reply.

But, before I go, may I ask one quick question?

I have no earned income. I therefore use Forms 1116 and 1116AMTFTC every year. It would appear that I am not alone in using this form, and that it’s use is increasing. As regards your first sentence above, could you clarify for me and anyone else that files this form (possibly the OP?) how we should respond to the instructions for Form 1116, specifically on page 2, the first paragraph under the heading “Foreign Currency Conversion”?

Thanking you in advance for your kind reply.

Very bizarre.  I raise my hand and say that I haven't been aware of this or more likely, had forgotten about it. 

Still, I have never seen this in any of my years and I don't know of any major firm/software package used by those firms that does this.

That probably doesn't give a lot of comfort to an individual person, so if you intend to attach your conversions, do so in a statement following the forms.  As it relates to the 1116 itself, it is good practice to head it "statement to Form 1116."

Personally, I still wouldn't sweat it and I will be mailing my tax return today (yay!) without it.

Thanks for the replies - much appreciated.