Tax Questions: Schedule B, 8854 and more......

Penalties?!  I can't pay penalties!!!  The omission of my Schedule B last year was a mistake.  I was only going by what others had told me to do, and nobody mentioned that I had to mention interest on any account I had.

If I do decide to file a 1040X for last year, am I going to have to pay penalties for not filing it at the time??  My husband and I are practically bankrupt.

I took the foreign income exclusion last year.  You mention standard deductions and all that mess - I'm now wondering if I even filed last year's correctly.

This is so confusing.  I'm going to have to call the IRS here in London and find out myself.

Hmmmm.....not exactly the high note I hoped for.

and nobody mentioned that I had to mention interest on any account I had.

If I do decide to file a 1040X for last year, am I going to have to pay penalties for not filing it at the time??

OK, so I can take it that you didn't declare the interest earned in 2008. You may not have to pay any penalties if you declare this to the IRS, since your likely tax liability (according to the info you've supplied) would still be $0, but no one may be able to say for sure in the current environment except the IRS. Perhaps those with much greater expertise can indicate their opinions. If there is no response, then the best advice would be to contact the IRS if you intend to declare it now.

As regards "standard deductions and all that mess", these are to your advantage. They're good to have, and you're entitled to them.     

I doubt that a US court would regard as open forum such as this or a 'phone call to an IRS Agent as "substantial authority".  If you wish to check if you have might have reasonable cause just on the off chance that you are penalised you should seek a written opinion from a US qualified professional.

In practice to quote our most famous Admiral  'I really do not see the signal!' (google that phrase if you are not familiar with the British historic event).

No, I didn't declare the interest from 2008 because I was told all I needed to do was file a 1040 and a 2555.  I had no reason to think I needed to do anything else.  Nobody mentioned a Schedule B or an FBAR.  As for the FBAR, I don't think I have to file one since I haven't had anything close to the pound equivalent to $10000 (with any exchange rate) in my account at any point while living in the UK.

Guya, I would be calling the IRS office in London in the UK.  They might hold more weight than just an agent.

Guya, I would be calling the IRS office in London in the UK.  They might hold more weight than just an agent.

It won't.  The point guya was making is that the IRS holds YOU responsible for your taxes.  Unfortunately, not being informed isn't an excuse (with some exceptions for reasonably relying on professional advice).  I don't say this to scare you but because it is true. 

No one may have mentioned Schedule B because people on a forum cannot understand your personal circumstances.  As a rule of thumb, you always must assume that ANY money you receive is subject to tax in the US.  So while you are fixing your interest error, you really need to think about any other sources of income -- from any source.

You may also really want to consider having someone else look over your taxes. 

I didn't get the info for last year from a forum.  I can't remember where I got it, but it wasn't from posting on here or anywhere else.

I cannot afford to take my taxes to a "tax professional" since they will charge me to look at them, and my husband and I have little to no money as it is.  He's been out of work since November, and I make £7.10 an hour at a part-time job.  We have had to move back in with family.  And if the IRS were to hut me with penalties over piddly interest on an account I've only had for two years, it would bankrupt us.

I don't tell all of you this thinking the IRS will care; I'm asking if anyone knows somebody who would be willing to help me sort this out for free (or at least dirt cheap).

Given your financial situation, I wasn't suggesting a tax professional -- which is why I wrote "someone."  At this point, I would ask your mom or a friend or anyone to have a glance at your return, to give you a sense check.

Don't stress out so much over this, I don't think anyone here thinks that you owe any money to the IRS, either in back taxes or in penalties. Like theOAP said, the only reason that no one can say for certain is because things are in constant change with the IRS, and no one wants to make a definitive statement. Let's just say that it's *highly unlikely* that you do.

Supposedly (there's another indefinite statement ), you will only ever have to pay a penalty on unfiled/reported back taxes if you actually owe any money. Since you've made it clear that you earned less income (salary + interest) than the $87k limit for foreign income exclusion in 2008, then there is no indication that you can't just file a modified 1040x along with the missing Schedule B for 2008 and be done with it.

If you're confident that you never exceeded $10,000 at any time your combined accounts, taking the varying exchange rate into account, you don't have to worry about the FBAR. The instructions on the back of Schedule B explicitly say:

Exceptions. Check the “No” box if any of the
following applies to you.
• The combined value of the accounts was $10,000
or less during the whole year.

and the instructions for the FBAR say:

Who Must File this Report. Each United States person who
has a financial interest in or signature or other authority over
any foreign financial accounts, including bank, securities, or
other types of financial accounts, in a foreign country, if the
aggregate value of these financial accounts exceeds $10,000
at any time during the calendar year, must report that
relationship each calendar year by filing this report with the
Department of the Treasury on or before June 30, of the
succeeding year.

Many people file an FBAR anyway, just to be safe (the penalties for not doing so when required are horrendous), but if you are confident that you don't meet the requirements, it's not something to stress about.

Don't freak out! It's unreasonably complicated, I know, but you're going to be fine.

I found out where I got my info:  I emailed the IRS in London last year about my taxes asking them what I needed to do.  They told me about the 1040 and the 2555.  They mentioned nothing about foreign accounts, interest, or a Schedule B.  I still have the email.

Here's the sitch with the interest:  in looking at my bank statements, I have found out that for the tax year here, which runs from April to April, I gained a whopping £0.03 in interest for the tax year of 6 April 2008 to the 6 April 2009.  That's after a tax deduction of zero.  In multiplying by 1.25, that equates to a staggering 4 cents in interest for that period.  I opened my current account in March of 2008 and had only £20.00 in it from 14 March 2008 (when I opened it) to 6 April 2008, so I had no interest during that time period.  So the most interest I could have had for 2008 is 4 cents considering the UK's tax year doesn't fall from January to December like the US.

I'm not sure about 2009 yet as I do not have a statement that lists it, but I'm going to run to my bank and find out.  I can also finalise the interest for 2008.

Also, what about any money that family has given me over the two years, such as $100 here, $200 there, to keep my account affloat either between paychecks or while my husband and I have been in financial straits?  It didn't put me over the $10000 threshold for the FBAR or the threshold for the foreign income exclusion, but would it be considered separate income that I would have to declare?  I have no other income other than the regular jobs I had since I've been here, have never gotten close to the foreign exclusion amount or the $10000 for the FBAR, have no stocks, dividends, bonds, or any of that stuff, or anything else that would be considered monetary gain outside of normal work.  Honestly, would I need to declare my Christmas gifts or the money my mother wired to me for airplane tickets?

Another question:  in putting the interest from Schedule B into 8a on my 1040, is it included in the foreign exclusion or is that purely for employment income?  On my 1040 on line 21, the instructions say to put my excluded amount ($10,899) in with parentheses around it and to note ''Form 2555EZ'' as the type.  This means that I have actual income noted of $0.04.  I'm not sure how to complete the form now.

I'm sorry, guys, but money stresses me out more than anything in the world.

First, I’ll apologize for all the 1), 2)s, and 3)s here, but it’s probably the easiest way for me to do this. In this post, let’s concentrate on interest in 2008.

1) A general statement to start with. You do need all of your UK statements for Mar. 2008 to Dec. 2009, but try not to let the UK tax year vs. the US tax year complicate this. We’re doing this for good old Uncle Sam, so it is tax year equals 1 Jan. to 31 Dec.

2) So let’s start by concentrating on interest earned for 1 Jan. 2008 to 31 Dec. 2008. According to the info you show at the bottom of your posts, you arrived in the UK on 13 Mar. 2008. You need to review what interest you may have received from 1 Jan. 2008 to 13 Mar. 2008 on any US accounts, and if you left bank accounts (other than your 401K) any additional interest from 13 Mar. to 31 Dec. 2008.

3) Next, you need to calculate the gross interest earned in the UK from 13 Mar. to 31 Dec. 2008.

4) You then add item 2) and item 3) together. Technically, the IRS operates on a “rounding to whole numbers” principle. If the sum of 2) and 3) is less than 50 cents ($0.50), then you did not “technically” receive any interest in 2008. You therefore wouldn’t have been required to declare any interest on line 8a of the 2008 form 1040.

5) If it is over 50 cents, then you would be obligated to file a 1040X.

6) Thus far, I’ve carefully avoided Sch. B. If the interest is below 50 cents, then the only reason to file a 2008 Sch. B would be for information purposes only (Part III, the NO box on line 7a), in other words, to inform them that you did have a Foreign Bank Account, but that account had an aggregate value of less than $10,000, hence no FBAR required. It would not be required for Part I since you “technically” had no interest and no penalty would be due for the error of not reporting unearned income.  

7) If the result in item 4) is over 50 cents, then you will be filing a Sch. B with your 1040X.

Two other things concern me:
You are worried about the correctness of how you prepared your 2008 return. If there had been a problem in how you prepared it, the IRS would have informed you by mail. Since you’ve moved twice, if a letter had been sent, it may not have found you. Please send the IRS the change of address form for your new address as soon as you are able. If you’re confident that your mail has been forwarded, and you haven’t received anything from the IRS, then that’s good news. Secondly, as Sara so rightly pointed out, be confident that you declared ALL of your income, including any benefits in either the US or UK. This of course includes anything in the 3 months you were still in the States in 2008. We can see from your info that you were granted ILR in 2010, so for 2008, you will already be certain of your situation. We don’t need any details, but just be confident of your situation for 2008.

All of the above exercises apply for 2009, so once you’ve sorted 2008, you can begin to assess 2009. You still have over a month before that is due. And again, as Sara mentioned, try to think of anyone (friend or family) that may be able to assist you with the returns, and keep looking for very affordable professional advice. Your info says you’re in Oxfordshire. There are many Americans in Oxford. Maybe someone there could check things for you.

I’ve just noticed your last edit. Let me post this and someone will get back on the edit.    

Okay, I'll use your 1), 2), and 3)s to comment.  

1)  Yes, I have all of those from the first one I got after opening my account to the most recent that I received just today.  (I have contacted my bank who are going to send me the interest information from 1 January to 31 December 2008 and 1 January to 31 December 2009.  It will take some time for this to get to me, however, but I've been assured that it won't take long and is being handled as urgent.)

2)  I had an account in the United States that I had used before I moved over here, but it was a checking account.  I didn't work from January to March when I was in the States.  (My savings account was closed years before, in 2005, I believe.)  I don't believe that the checking account was an interest-bearing one, though.  I don't ever remembering getting interest notices from my bank on my checking account, only the savings account I had.

3)  What I've gotten from my bank statements here, it's no more than $0.04 (after multiplying the £0.03 by 1.25.) for the period of April 2008 to April 2009.  Like I said earlier, my bank here is going to be sending me the interest earned breakdown per month for each year, so that should give me a more basic understanding of the interest earned.

4)  Well, I honestly don't think it's even 50 cents total.

5)  Okay.

6)  Would it behove me to file the Sch B for 2008 and 2009 both just for information purposes (to show that I have an account, have less than the aggregate value of $10000 in it, have no need to file a FBAR for either year, and am not hiding any money?

7)  Okay.

I filed my 2008 return before the 15 April 2008 due date and did not move from the address from where I filed until August 2009.  How long would it take for them to notify me if there was something wrong with the return?  Would it be possible for me to contact the IRS here and find out if there was anything wrong with my 2008 tax return, then?

Secondly, as Sara so rightly pointed out, be confident that you declared ALL of your income, including any benefits in either the US or UK. This of course includes anything in the 3 months you were still in the States in 2008. We can see from your info that you were granted ILR in 2010, so for 2008, you will already be certain of your situation. We don’t need any details, but just be confident of your situation for 2008.

What do you mean benefits?  Work benefits?  I don't know what you mean by being certain of my situation for 2008.

As per your edit to your previous post.
Your UK family are able to give you money as a gift.  It is nontaxable income (for the purpose of line 21, 1040). But if it is over $14,139 (roughly £9,000) in any one tax year (01 Jan. to 31 Dec.), you have to file form 3520. Any reasonably smaller gift amounts from the States, like your ticket or Christmas presents, is also nontaxable. This is according to the instructions for line 21, 1040, so there may be some detail on this that I am missing, since I haven't investigated it fully.

Your interest is unearned income, and is not included on 2555(EZ). It sounds to me as if you completed line 21 correctly (remember the "rounding to whole numbers").

We'll soon look at your latest post.

As per your edit to your previous post.
Your UK family are able to give you money as a gift.  It is nontaxable income (for the purpose of line 21, 1040). But if it is over $14,139 (roughly £9,000) in any one tax year (01 Jan. to 31 Dec.), you have to file form 3520. Any reasonably smaller gift amounts from the States, like your ticket or Christmas presents, is also nontaxable. This is according to the instructions for line 21, 1040, so there may be some detail on this that I am missing, since I haven't investigated it fully.

Your interest is unearned income, and is not included on 2555(EZ). It sounds to me as if you completed line 21 correctly (remember the "rounding to whole numbers").

We'll soon look at your latest post.

No, nothing anyone has sent me as been that much.  But does that mean I have to declare it on Line 21?  So anything that I got from my family in the UK or my mother in the US would be added together and noted on Line 21?

Is my interest included on the 1040?

I'm sorry for so many questions.  I'm an educated, intelligent person, but taxes I just don't get.

What do you mean benefits?  Work benefits?  I don't know what you mean by being certain of my situation for 2008.

Sara, Guya, dboone, and I just want you to be sure for yourself that you have thought of every possible source of income you may have had. As Sara said, you must be certain of all income you declare, or legally don't declare, since the IRS will hold you responsible for your return, and no one else.

No, nothing anyone has sent me as been that much.  But does that mean I have to declare it on Line 21?  So anything that I got from my family in the UK or my mother in the US would be added together and noted on Line 21?

No. Nontaxable income means the IRS agrees that you do not have to declare it on line 21.

Is my interest included on the 1040?

Yes. Taxable interest is declared on line 8a, 1040. If you file Sch. B, it's the result you have on Sch. B, line 4 (Part I). You copy that result to 1040, line 8a.

6)  Would it behove me to file the Sch B for 2008 and 2009 both just for information purposes (to show that I have an account, have less than the aggregate value of $10000 in it, have no need to file a FBAR for either year, and am not hiding any money?

I think you should consider doing it for 2009. I’ll leave the choice to do it for 2008 up to you.

I'm sorry, guys, but money stresses me out more than anything in the world.

This is a tax forum. Whether they care to admit it or not, everyone who posts here is somewhat stressed about money, but maybe not more than anything.

It appears to me that you have solved this worry. You seem very confident of your figures, and you're beginning to talk about lines and forms like a pro. I suggest you grab hubby, open a bottle of wine or crack open a Bud (your choice) and enjoy the evening. If there are any more comments from anyone (I may not have everything right), you can deal with those as they come.

Thanks theOAP.  One last question:  if I file a Sch B for 2008, I will have to file an amended 1040 (1040X), yes?  If that's the case, then I might be calling on you guys again to make sure I have it correct.

I will definitely be filing a Sch B for 2009, just to cover all my bases for that filing.  I will wreck my brain for any other possible source of income just in case, though.  I think my best bet is to go through my bank statements (since most of my financial activity goes through my check card/checking account) and make sure of everything that's come through it.  To the best of my ability, I simply cannot think of anything else that would be considered taxable income.

I may, however, file an FBAR even though the notes in the instructions for it quote simply that I am not required to file one if the total of any/all my accounts I hold has been under $10,000.  I might go ahead and do it anyway.  I've pretty much got everything already filled out as it is - there's no reason not to include it.

Oh,..speaking of that, another question has popped up:  if I file a Sch B AND the FBAR for 2008, do I only have to file the amended 1040 with them?

Thanks for everyone's help.  It's nice to know at least a little about what I'm doing and not feel as lost as I did.