Streamlined Process Help

Hi all - I'm a long time reader - First time poster!

It has recently come to my attention that the advice I was given regarding filing requirements while working abroad was incorrect! Basically I was told (by a CPA) that no filing was required for overseas income.

Due to this I have failed to file taxes for the 2015 and 2016 tax years.

I have done extensive research here and on the IRS website but still have some questions that I'm hoping someone with experience will be able to assist me with.

I have forms 1040 and 2555-EZ for each of the years and due to my mid level salary I will be able to take the foreign earned income exclusion.

I don't have any property interests in the USA or the UK and haven't had any amounts above $10k in the bank over here so presumably I don't need to file the FBARs.

Further reading into the streamline process all the forms and info suggest I would need to file 3 years of 1040's and 2555's.

I guess my main question is can I qualify for the streamlined process if I only have 2 years taxes outstanding?

The other question is in the absence of a W-2 would I need to send copies of all my pay stubs with each return?

Thanks in advance for any help anyone can give!

You have the right theory, but are missing a few forms. I'd not clear why you are electing to claim the foreign earned income exclusion. To proceed, you'll also want to file 2017 to be the third tax year.

You have the right theory, but are missing a few forms. I'd not clear why you are electing to claim the foreign earned income exclusion. To proceed, you'll also want to file 2017 to be the third tax year.

Thanks Guya!

Primary reason for taking the FEIE is for ease of computation - any tax benefits otherwise would be small given my current situation.

What other forms would you suggest that will need to accompany the 1040 and 2555?





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Do you actually owe taxes on that income or was it just not reported? If you don't owe taxes then do you really need streamlined? Can't you just file your returns late? I don't believe there are penalties if you don't owe anything.

If you are US resident isn't there  a 10% penalty to use the streamlined procedure?

A

Thanks A

No there is no taxes due as currently earning well below the Foreign Income Exclusion.

Just need to get the filing up to date as will be applying for my partner to move back with me in a couple of years.

So you’re saying just file the forms late and there should be no action if taxes are not due?


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https://www.irs.gov/newsroom/irs-offers-tips-for-taxpayers-who-missed-the-tax-deadline

https://www.irs.gov/newsroom/eight-facts-about-penalties-for-filing-and-paying-late

I'm not an accountant or a tax attorney. But I've read a lot RE this and my understanding (which is supported by the two above references) is if you don't owe any money, or you are due a refund, there are no fees or penalties - just file them.

Streamlined details here:

https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures

<<The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with
a streamlined procedure for fling amended or delinquent returns, and
terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and terms for resolving their tax and penalty obligations.>>

That's not you is it? You didn't need to file FBARS and you don't need to pay any tax.

I had a more complex situation where I should have filed FBARS. I still didn't use streamlined as I owed no tax and had declared the income. I just filed 3 years of returns (2013 through 2015). All returns accepted and I even got a refund (with interest) for one year and no questions asked.

The IRS is on record as saying as recently as 4 weeks ago that "All quiet disclosures will be reviewed and will be subject to civil or criminal penalties as determined under existing law." https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers

Not to be taken as legal advise, but Steamlined is more for long term residents overseas that were unaware that they needed to file so it is a way for non willful tax payers to get back into the system and file the 3 years and go forward like that and having the clock stopped for prior years. You have no prior years under the two years. You can just back file the missing years. There are no rules that say you need to use streamlined. You just need to file.

There is nothing to suggest that the IRS is "coming after" anyone overseas simply for "failure to file". They are short of resources and would only waste their time if a significant balance of back taxes (and the associated interest and penalties) could be recovered. This is not you.

Your forms would most likely be Form 1040, Form 2555, Schedule B (to check the boxes on the bottom of the form as to whether or not you have foreign accounts) and a form 8965 ( health coverage exemption) and possibly Form 8833 to take a treaty claim under Article 18 if you are part of an employer pension scheme.

Guya,

I see you post here a lot and obviously you have much more experience and knowledge than I have.

I don't understand your comment above. OP said he didn't have to file FBARs so no non-compliance there. He's just behind on filing paperwork, on which he owes no tax, and on which there will be no penalty. Is it your opinion he should still use the streamlined process? If so, for what reason? I'm sure others reading this would be interested in your opinion as well.

Information on the streamlined on the IRS site says this:

<<The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with a streamlined procedure for fling amended or delinquent returns, and
terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
terms for resolving their tax and penalty obligations.>>
He had no foreign assets to report, and no tax or penalty to pay. Even if he had foreign assets to report on his FBAR as he owed no tax surely he could have used the delinquent FBAR submission procedure.

The link to which you referred us (https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers) says this RE the streamlined process:

<<The Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. The IRS encourages taxpayers who have offshore compliance issues and meet all of the qualifications of the Streamlined Filing Compliance Procedures to use these procedures while they are available.  >>
I don't think the OP has any offshore compliance issue. And is says this RE delinquent FBARs:

<<The delinquent FBAR procedures and the delinquent international information return procedures will remain available for eligible taxpayers after September 28, 2018. Both procedures are for taxpayers that have information reporting failures but no tax noncompliance.>>
This must be a common issue; isn't there consensus on how to handle this?

Thanks

A

Art - I would typically expect a UK pension plan; making FBARs delinquent as well. Would that change your answer...just possibly?

Well I don't feel qualified to have a real opinion - that's why I'm asking someone like you who has much more experience that me. Am not picking an argument - I'm just interested in the opinion of anyone who is as or more qualified than me (seeing as I have 0 legal / accountancy qualifications that's not very difficult. But I have spent a good chunk of money on people qualified to advise so have tried to educate myself.

Form what I have read, and quoted above, even if he had a pension assets that made his total > 10K (and he didn't mention that - he said he had no need to file FBARs), I still don't understand why he would need to use streamlined as he has no tax liability and could just file delinquent FBARs. I don't believe he even needs to report undistributed pension profits on 8833:

https://www.irs.gov/individuals/international-taxpayers/claiming-tax-treaty-benefits

says

<<Exceptions

You do not have to file Form 8833 for any of the following situations:
...
2) You claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.>>
I have filed 8833s for undistributed pension profits but was advised, per this reference, that I don't need to, and I didn't for 2017.

If OP was your client can you tell us how you would advise him?

A

There is never going to be a straight forward answer to any of this. We all know how illogical these laws are. That is why so many people are in this situation. If the laws were logical, people would already have known they needed to file. It is because there is no logic to it that once people leave the USA they assume they don't need to file to a place where they don't live or have income. Some have never lived in the USA to start with. Education has been non existent. Why should any normal person even conceive of such a thing to report to a place they don't live and don't have income?

The decision on how to go forward depends how you interpret things, who you engage with or not engage with and how you handle stress. In the OP shoes, I would try to back file myself, possibly using the forms that I suggested, whatever applies. Then go forward in compliance. I would even just start filing from this year if there wasn't the issue of possibly going back to the USA in the near future and bringing a partner. Streamlined is for those that I describe in the first paragraph. Many years outside the system, a chance for those who didn't have a clue that want to be in compliance to get in compliance, go forth like that, and stop the clock prior to the 3 years. and avoid penalties on missing forms and fbars. None of this appears to apply to the OP. it's two missed years, no tax, no fbars. People have been catching up just back filing for decades with no consequence.

Thanks All

Appreciate the advice, and understand how confusing and divisive this subject is amongst the expat community.

Obviously plenty of us are in this same situation and the laws and rules surrounding taxes are completely all over the place.

My situation is that I need to file these taxes to be able to petition for me and my wife to move back home in the next couple of years. I don’t owe any taxes as I don’t earn enough and the FEIE will more than cover me.

Going forward I’m going to file the two outstanding years alongside this years (which will require the FBAR, lucky me). It doesn’t sound as though the streamlined process fits with my situation, as confusing as it is, so I am going to just submit the forms.

At the end of the day if I don’t owe any tax I don’t foresee a circumstance that would warrant and penalties from the IRS, and all I am doing ultimately is bringing my record up to date.

Again thank you for your help, and others from across this community, I will keep y’all up to date with my progress!


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