Didn't know - now worried!

Hi All,

First-time poster.  Basically hubby is American and came over on a spousal visa in Feb 2009. He now has IDR. We have been doing our own thing, happy about how our life is going here until I read a book that uncovered the fact that he should have been filing his taxes in the US since he's been here! We were completely unaware of this and are now panicking about the consequences, having read about the massive fines and that they can revoke your passport!!

In the time we have lived in the UK, we have paid off the outstanding Healthcare debt he had and are making the last payment on his student loan in the USA in Oct. We have kept up any and all obligations we thought we had but didn't know about the taxes.

We want to get this sorted ASAP but don't even really know where to start. I have also just given up my job due to health issues, so funds are tight but I'm going to have to go back to work to pay for this. He always paid for someone to do his taxes when he was in the States so he doesn't know what to do either. I understand that the streamlining procedure may be the best way forward. Is it possible to do this yourself and if so, what is the difficulty of it?  What do you need to supply them with i.e. would P45s be enough? Would you recommend getting a professional to do it for you and if so what companies have people who have gone through this, had good results with?

Has anyone who has been through this ever had it rejected? We don't really have much or own much (we have our own home - well mostly it's the banks but it's in both our names), he doesn't have a savings account and his current account never has anything more than his wages in (under the threshold  under the foreign earned income exclusion) we have no ISAs or investments etc and he will be filing as married but filing separately.

Really want to get this cleared up as don't want it hanging over our head and would appreciate any and all advice.

Thank you

Hi Dippy Egg, welcome to the forum. 

Yours is a very common situation to be in. Don't panic, when our experts check in they will be able to steer you in the right direction.

Hi Dippy Egg, welcome to the forum. 

Yours is a very common situation to be in. Don't panic, when our experts check in they will be able to steer you in the right direction.

Thank you so much. From having a look on the forum, it was nice to know it wasn't just us but the initial panic was intense. We're hoping that it's fairly simple to resolve as we don't have much in terms of assets or anything and I don't think we'll owe them anything in terms of that but we're really worried about all the late fees etc. Looking forward to hearing other people's experiences and if it has resulted in any lasting issues.

Thanks for replying.

As I understand it, it's easier than it used to be to get back into compliance and the fact that your financial affairs are uncomplicated is a definite advantage.

Has your husband considered applying for UK citizenship?  It's something we always highly recommend over on the visa forum. 

As I understand it, it's easier than it used to be to get back into compliance and the fact that your financial affairs are uncomplicated is a definite advantage.

Has your husband considered applying for UK citizenship?  It's something we always highly recommend over on the visa forum. 

We need to find out about state taxes as well as we've maintained an American account due to still making payments on things. We've also cashed in his 401K and have had some inheritance from relatives on at least two (we can't remember if it's two or three) occasions in the states that went into the US account. I don't know how that would complicate things as well. He was originally from Iowa.

UK Citizenship is something we've talked about but didn't know the pros and cons of doing this and hadn't given it that much consideration since he got his ILR as we thought the only real difference was that he could vote! Obviously there seems to be a lot more to it than that. I was only 20 when he came over on the spouse visa (just as the rules for sponsorship were changing to 21) and I feel there's a lot we didn't know about or perhaps didn't think to get the full facts on - such as taxes. You just assume that if you are living and working in a country and therefore paying taxes there, that that is all that matters. Rude awakening to find out that isn't the case.

Welcome to the site, hopefully one of the tax gurus will come along with some advice. Meanwhile you may want to have a look through the IRS streamlined procedures designed for overseas folks yourselves that are delinquent on tax filing through not knowing that you had to file but now want to get into compliance.

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

We need to find out about state taxes as well as we've maintained an American account due to still making payments on things. We've also cashed in his 401K and have had some inheritance from relatives on at least two (we can't remember if it's two or three) occasions in the states that went into the US account. I don't know how that would complicate things as well. He was originally from Iowa.

UK Citizenship is something we've talked about but didn't know the pros and cons of doing this and hadn't given it that much consideration since he got his ILR as we thought the only real difference was that he could vote! Obviously there seems to be a lot more to it than that. I was only 20 when he came over on the spouse visa (just as the rules for sponsorship were changing to 21) and I feel there's a lot we didn't know about or perhaps didn't think to get the full facts on - such as taxes. You just assume that if you are living and working in a country and therefore paying taxes there, that that is all that matters. Rude awakening to find out that isn't the case.

I don't want to derail your thread here too much but there are really no disadvantages to obtaining UK citizenship (as there are with US citizenship; citizenship based taxation being the prime example) with the exception being ultra high security clearance situations for certain jobs.

The main reason that we recommend it so highly is that if your husband left the UK for more than 2 years, his ILR would become void and he would have to start the process again from the very beginning. Visits back during this period don't count to reset the clock, he would have to be returning to settle during this period in order to be able to maintain it. And as you may know, the rules change frequently and it is now more expensive than ever.  We're recommending a budget of at least £10,000 to take someone starting the process now, all the way to citizenship.

While you might not think that you have any intention of leaving the UK, or any intention of moving back to the UK if you did leave, we have countless members on this forum who obtained ILR when it was incredibly cheap and easy and who are now faced with that huge expense and a 5+ year journey to get back to where they were... you just never know what the future has in store.

Anyway, just some more food for thought.. wait for the advice you get here regarding your tax situation then take it from there. 

Like everything, it also probably depends on your situation. I'm 62 (American) and don't have any plans to move back to the US. In another couple of years I would say there is zero chance of going back. The health care costs back there are prohibitive.....and if you don't start Medicare payments at 65 there would be penalties for late sign-up (if I remember that correctly). I've considered UK citizenship, but likely won't do it.....although NEVER SAY NEVER. Having citizenship can help in situations I guess.....for me it's just not enough to worry about. I also don't travel....haven't been further than 1.5 hour drive from Harrogate in 4.5 years when we moved back. I'm just about to start the paperwork for ILR...January will be 5 years from starting the visa process. I really need to get off my butt and look the info up.....I can't remember anything.

Welcome to the site, hopefully one of the tax gurus will come along with some advice. Meanwhile you may want to have a look through the IRS streamlined procedures designed for overseas folks yourselves that are delinquent on tax filing through not knowing that you had to file but now want to get into compliance.

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

Thank you for this. It looks like we do qualify for the streamline procedure. I'm just wondering if it would be better for us if we paid someone to deal with it for us as I'm so worried about getting it wrong because, from the looks of it, you get one shot!

Thank you for this. It looks like we do qualify for the streamline procedure. I'm just wondering if it would be better for us if we paid someone to deal with it for us as I'm so worried about getting it wrong because, from the looks of it, you get one shot!

It appears that the going rate for a US tax attorney to advise what forms you need to fill out and complete your FBARs is $500 per hour. Can take 6 hours.    And paying a US accountant to actually fill out those forms and do your returns costs $400 per year, and you may need 3 years.   I'd guess that your circumstances don't warrant such a level of costs, but I'm not qualified to give tax advice.  I just thought it might be helpful for you to know how much it might cost if you decide to pay somebody.    Good luck, and I feel your pain.

Thank you for this. It looks like we do qualify for the streamline procedure. I'm just wondering if it would be better for us if we paid someone to deal with it for us as I'm so worried about getting it wrong because, from the looks of it, you get one shot!

First, if you owe no US tax (likely in your case due to the offset of UK tax paid or the FEIE) there will be no penalties involved. It becomes a paper filing exercise, but, it must be done correctly. Many have done this themselves with no unpleasant consequences. It will all depend on your aptitude for filing US tax returns.

The instructions for filing the Offshore Streamlined Procedures can be found at the following:
https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states

The appropriate tax forms for each of the 3 years required can be downloaded from the IRS site. Use the appropriate forms for each of 2018, 2017, and 2016. The basic kit for a yearly return, in your case, would be form 1040, Schedule B, form 2555 (FEIE), and form 8965, provided your husbands income is below the FEIE threshold. If over the threshold, or by choice, the alternative is to use form 1116, Foreign (UK) Tax Credits. You'll need to assess your finances carefully to be sure these are the only forms required. (Husband is not self employed, has less than $200,000 in assets, pensions, etc.). Your husband would likely file MFS (Married Filing Separate). Doing so means your finances are not included in the returns.

As for FBAR, 6 years are required, but although you may not have the requisite amounts for filing, it may be wise to file the 6 anyway in order to make sure the three 1040 filings are accepted without delay. FBAR filings are made separately to the tax forms, and are made on the US Treasury FBAR site.
https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

The IRS have published acceptable exchange rates for each year for the tax forms. The FBARs use a different yearly rate, found on the Treasury site.

You will also have to file form 14653 with each filing. Read the instructions and compose your response carefully.

Once you have done the procedures, you must be sure to complete a US return every year from now forwards.

First, if you owe no US tax (likely in your case due to the offset of UK tax paid or the FEIE) there will be no penalties involved. It becomes a paper filing exercise, but, it must be done correctly. Many have done this themselves with no unpleasant consequences. It will all depend on your aptitude for filing US tax returns.

The instructions for filing the Offshore Streamlined Procedures can be found at the following:
https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states [nofollow]

The appropriate tax forms for each of the 3 years required can be downloaded from the IRS site. Use the appropriate forms for each of 2018, 2017, and 2016. The basic kit for a yearly return, in your case, would be form 1040, Schedule B, form 2555 (FEIE), and form 8965, provided your husbands income is below the FEIE threshold. If over the threshold, or by choice, the alternative is to use form 1116, Foreign (UK) Tax Credits. You'll need to assess your finances carefully to be sure these are the only forms required. (Husband is not self employed, has less than $200,000 in assets, pensions, etc.). Your husband would likely file MFS (Married Filing Separate). Doing so means your finances are not included in the returns.

As for FBAR, 6 years are required, but although you may not have the requisite amounts for filing, it may be wise to file the 6 anyway in order to make sure the three 1040 filings are accepted without delay. FBAR filings are made separately to the tax forms, and are made on the US Treasury FBAR site.
https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html [nofollow]

The IRS have published acceptable exchange rates for each year for the tax forms. The FBARs use a different yearly rate, found on the Treasury site.

You will also have to file form 14653 with each filing. Read the instructions and compose your response carefully.

Once you have done the procedures, you must be sure to complete a US return every year from now forwards.

Thank you so much for this detailed response. We're going to have a look at this and see if it's something that we feel comfortable doing ourselves through your guide. The fact that you've had many go through this themselves makes us feel slightly less worried as paying someone is an expense we could really do without. This is really appreciated. Thank you.

If you don't actually owe any taxes I don't think you need to use Streamlined. And if you did use offshore streamlined I believe there is a 5% penalty of the highest account value in any of the previous 3 years.

If I were you I would do the actual returns, and if you owe no tax just file the returns and then file delinquent FBARS.  If the value of your combined foreign  accounts are less than $10 K US you dont need to file FBARS. If you do need to, then follow the delinqquent FBAR submission and just select as the reason that you didn't know you had to file.

Read this:

https://www.forbes.com/sites/stephendunn/2014/07/20/all-you-need-to-do-is-file-your-delinquent-fbars/#83dd4df169aa

I sent you  PM here with my diredct email address if you want to chat. I have personal experience and paid to get advice when i was in a much more complicated situation than you and everything turned out fine with no penalties.

If you don't actually owe any taxes I don't think you need to use Streamlined. And if you did use offshore streamlined I believe there is a 5% penalty of the highest account value in any of the previous 3 years.

If I were you I would do the actual returns, and if you owe no tax just file the returns and then file delinquent FBARS.  If the value of your combined foreign  accounts are less than $10 K US you dont need to file FBARS. If you do need to, then follow the delinqquent FBAR submission and just select as the reason that you didn't know you had to file.

Read this:

https://www.forbes.com/sites/stephendunn/2014/07/20/all-you-need-to-do-is-file-your-delinquent-fbars/#83dd4df169aa [nofollow]

I sent you  PM here with my diredct email address if you want to chat. I have personal experience and paid to get advice when i was in a much more complicated situation than you and everything turned out fine with no penalties.

Thank you for your email and your PM. My understanding is that streamline is the right way for us to go because we are so far behind and that this will mean we only have to do the last three years and exclude any penalties because my husband meets the foreign residence test. It's the SDOP that has the 5% charge I believe. Your advice is appreciated though.

Can anyone advise that if we fill out the forms ourselves, is there a service where someone can check them over for us and confirm we have done it correctly? Sorry if that's a dumb question but I am completely new to all this. 

Ah yes I think you are correct RE the 5% penalty - I had it the wrong way around. If there is no penalty then why not do Streamlined? Seems like the right choice if you only have to do 3 years. I assume FBARs are not an issue?