OVDP/Streamlined and FBAR - Confused and scared!

Hi,

First and foremost, I appreciate that I have not, as yet, contributed anything to this forum, so have no right to ask you guys any questions - however, I'm rather concerned and worried about my tax situation and obligations, and would really appreciate some advice. I don't really know where to turn.

I'm a UK/US dual citizen, and have lived in the UK for my entire life. I started working (after school and university etc) in 2009, and have never earned a significant amount (well below the threshold for paying US tax, although above the filing threshold).

A couple of years ago, it was mentioned to me that I ought to have been filing tax returns, and I joined the OVDP, filing my delinquent tax returns etc. However, I did not file an FBAR, as I was unaware of them - from the reading I had done, I thought that you only needed to disclose accounts worth over $10k, rather than disclose if you had accounts (even at different banks) which sum to more than $10k.

As seems to be the way with these things, this rumbled on for a while, so about a year ago I phoned the IRS and spoke to somebody helpful who suggested that, in fact, I ought to have applied to the Streamlined program, rather than the OVDP. I sent in the questionnaire and a letter explaining my situation, and thought that that was the last of it.

Then, tonight, a man from the IRS called. He said that he had been assigned to my OVDP case, and was calling to touch base and ask where some of my documents, such as my FBAR forms, were. He was very helpful, and talked me through the issues, and suggested that most people in my situation were better off in the Streamlined program.

I would have gone away happy, and written him a letter asking him to move me (again) into Streamlined, but then got reading and, of course, realised that an FBAR had to be filed if you hit a sum of $10k in your accounts. In 2011, my accounts totalled about $14k, and therefore I have one outstanding FBAR.

Long story short, I now really don't know what to do. Should I stick with OVDP? The potential "penalties" under that seem pretty high still (27.5% of $14k is still almost $4k!). Should I move into Streamlined and file the 2011 FBAR delinquently? Aside from my mistake with the FBAR, I fall into every category for Streamlined, and am surely low risk. But then, that could leave me liable for the $10k delinquent filing penalty for the FBAR along with criminal sanctions.

One further (possible?) complication is that the only reason that my bank accounts went over $10k is that I received a grant from a future employer to help me get through law school. I don't know whether it makes any difference, but the bulk of that money was not income or inheritance, etc.

Apologies for the long read, and huge thanks to anyone who can look through it and offer me some guidance. I'm really quite scared, and still somewhat confused about this whole process.

Thank you again!

You want to solve this problem at minimum cost. Standard advice would be to lawyer up but that's going to be expensive relative to the costs you are exposed to. One option would be to stay in the OVDP - worst case is $4k but this may not happen. The alternative is the streamlined which will likely cost you nothing but theoretically could expose you to more. It depends on your level of risk aversion but I'd go for the streamlined. I don't think you can just file the FBAR now that they know about you - it's best to ask them what they want you to do about that.

Unless you want to live in the USA, you would be best off renouncing US citizenship to avoid future risks to your financial health.

Sadly it's water under the bridge for you, but for other UK-based readers, OVDP is almost always the wrong choice.

Every single person on this forum was new at one time. You have every right to ask a question, and just vent and get some reassurance as appropriate.

First, deep breath - I'm just an ordinary dumb USC taxpayer, so this is not professional advice, but it's likely not as bad as it may first seem.

The IRS don't normally deal with FBAR forms, and they are not filed with your tax return. Those forms go to the Treasury Department. They used to be mailed, but now are filed electronically. In your case, because you started with OVDP, the person reviewing your filings automatically looks for FBAR forms, simply because the nature of OVDP - as the name suggests - implies that you have unreported income from offshore accounts and you now want to 'come clean'. (See item 4 in the instructions: http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers).

The FBAR form doesn't ask where the money came from; you only acknowledge that you had the assets. As I understand it, you can file delinquent reports with an attachment indicating the reason for the late filing. You could be assessed a penalty for not filing in 2011, but the likelihood isn't all that great because you were not willfully trying to hide assets and income. I would call the FBAR info number for more information on how to file the delinquent form and explain your situation.

FBAR does cover more than bank accounts; other financial accounts also have to be reported. Start here and follow the links for more information: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR. There was a decent explanation of types of accounts which had to be reported in the Federal Register a few months back, but I can't seem to find the link. For most of us, it's just 'normal' bank accounts and investment accounts (assuming you are lucky enough to have one) that are reported.

Good luck.

It's unfortunate you where told to join the OVDP , you don't appear to belong on this programme. You are not alone in this respect; a number of individuals were incorrectly advised to join this programme, and a change in the rules by the IRS once the programme was up and running also didn't help. It has resulted in the critical comments from the IRS's own Taxpayer Advocate for the last 3 years.

I am not qualified in any way, so everything that follows is worth nothing. I can only relate hearsay, and that's always dangerous.

Comments seem to indicate the IRS has realised the original programme was unfair to many who joined it. As a result, it is being reported that a number of people like yourself who incorrectly joined the programme are being re-assigned to the Streamlined programme. Therefore, what is happening to you appears not to be unusual.

There are other approaches for those who were wrongly entered, such as the 'opt out' procedure. I would strongly suggest to not do anything unusual without conferring with a trusted advisor first. To reiterate; what you are being asked to do by the IRS appears to be a common move today.

As for the FBAR, you may pay some penalty, or you may not (has the interest been declared in your 1040 filings?). I doubt (and I have no right to say this) the penalty will be as high as $10,000.

You might find that the US tax payable on the grant income is above the guideline $1,500 so this may potentially exclude you from the streamlined program.

This should not stop you from opting out from the OVDP and arguing a reasonable cause defence from all tax and/or FBAR penalties should any be assessed.

Thanks for the advice and kind words everyone. So in short, getting out of OVDP seems pretty unanimous, and calling up to ask about the FBAR would be wise.

Regarding the 2011 1040, I declared some interest, but to be honest the number was so low (under $10!) that I didn't calculate it too thoroughly.

Once I get out of the OVDP, what is the process then? Do I send all my returns to someone else for Streamlined? I'm just wondering whether I should "come clean" with my OVDP case manager, or whether once I extract myself from OVDP he will become irrelevant to this anyway...

Please don't be scared. You had $14k in bank accounts and $10 interest. That is NOTHING to the IRS.

I would ask the IRS how best to resolve your situation.

That's kind of what I thought/hoped, but this has been going on for over two years now...I just want it sorted out. The longer it takes, the more I feel like I'm in the wrong.

You also said:
1. You received grant income; which doubtless you declared; and
2. You went to "law school" which is a factor that might weigh against reasonable cause because this might be interpreted by an IRS agent as implying that your background and education indicating that you should have known of the reporting requirements.

It was your (quite unusual) choice to go into the OVDP and doubtless you had to wait up to 12 months to have an agent selected to handle the case. Finalising the OVDP and getting to a closing agreement in under 2 years would be remarkable. The wait time you mention is not.

If you opt out you will need to weigh up the risks - you will already have calculated the statutory penalties and compared these to the OVDP penalties before you entered the program. How do these compare?

Thanks for the reply.

The grant income falls under Example 2 on this page: http://www.irs.gov/publications/p970/ch01.html. [nofollow] In that case, it comes under regular income as payment for services, which is what I declared it as, so I'm pretty sure I'm OK there.

I would hope that an IRS agent would realise that they don't teach English law students about tax requirements for US citizens, but I take your point.

From everything I can tell, the civil penalties outside the OVDP (ie in Streamlined or normal filing) are based on a percentage of the amount you owe, and interest. If that's the case, given that I owe nothing, I should receive no civil penalties. Am I right in thinking this? I appreciate that I may still be liable for criminal penalties.

Another option from a layman (but a layman who went through the streamlined process last year).

Not knowing anything else about your situation other than what you've said and I've quickly read, and assuming you meet the criteria for the streamlined program and transfer over to it, I'm not sure why you are worried about the delinquent FBAR. By that I mean, the whole point of the streamlined program is dealing with those who have been living abroad and have not filed taxes and FBARs while living abroad for several years (or a lifetime in your case), and the instructions clearly say how you need to go about submitting the FBAR along with the streamlined submission:

http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers [nofollow]

Just for reference on my story, I'm a dual US/UK citizen, moved away from the US in 2008 and lived in various places in Europe since then (UK currently) - all the while completely ignoring any taxes. I then got an inheritance from a death in the US in 2011, which prompted me to file my taxes, which led me to hours of searching online and going through your same agony. Eventually I filed in the streamlined program spring last year following the instructions exactly, so the submission included 1040 returns from 2009/10/11, and FBARS from 2011 (the only year I had more than cumulative $10k). My wife did it at the same time (also dual citizen, but has lived inUK all her life) and had to file 2009/10/11 1040 returns plus 6 years of FBARs. Have had no problems since, I owed some tax for one year and got a normal letter from the IRS about that, and got a refund for another year because of the inheritance tax which got wrongly witheld.

This is NOT to advice as I have no idea about your situation - but if you are planning to do the streamlined, just a helpful comment to say don't be so deathly worried, just follow the instructions exactly if that's the route you plan to go.


ps, obviously also the other forms to go along with the 1040 were filed at the same time: 2555 foreign income exclusion, Schedule B for interest, etc.

Thanks for your help everyone. I've been speaking to them, and they're after a couple of documents from me, but once that's all sorted I ought to be in the Streamlined program and, hopefully, done with this