Streamlined or Delinquent International Info Procedure?

Hello all,

Thanks for reading.

I need some advice.

I am a British citizen, resident in the US on an L1 visa and have been resident for tax purposes since 2014. Like many other people on the forum, I knew nothing of the reporting requirements for U.K. income on my US tax return. However, I engaged a local CPA, who told me he was an international expert, and had him prepare my returns. As you can imagine, things didn't go well...

1. He did not complete schedule B and never asked me about U.K. accounts. I left my life and savings in the U.K. as I am in the US temporarily and plan to head home in the coming years. I am over the required thresholds.
3. I did not declare the accounts on my tax return for 2014 or 2015.
4. I did not declare associated interest ($1500 total per year) in the US and therefore did not pay assocaiated tax.
5. I did not put account information on form 8938 and did not complete FBAR for either year.
6. The CPA also told me that there was no requirement to declare U.K. rental income on US tax return. Tax liability of about $3k per year for two years.

At this stage I am obviously panicking and not sleeping. From what I can gather, I have a couple of options;

1. The streamlined process. This seems like the most conservative option but comes with a penalty of 5% ($20k) to me. This would be in addition to the $10k back taxes and interest.
2. Delinquent international information procedure. This process does not carry an immediate penalty and needs to be accompanied by a reasonable cause statement. I think I have a strong case due to CPA not providing me with accurate information but if the IRS disagree I could be hit with big penalties.

Given the circumstances, what is your view on the best option to take. Has anyone completed a delinquent international information submission like this? If so, what was the outcome?

Thanks in advance for your help.

Simon

I'm going to take a guess here and say I believe I've been following your situation on the BritishExpats site.

The guidance you have received on that site is solid. You have income which was not declared, and should have been, and information forms which were not filed. IMHO, the Streamlined Procedures are the best for you, even with the 5% penalty. As has been noted there, you do need to assert your position as to the bad advice you received, both with the IRS (they will want to know) and compensation from the 'expert' advisor you used (who should have insurance to cover such situations). As was noted on BE, did you have a contract? If the advisor continues to refuse to acknowledge a mistake was made,........(I'll leave that up to our local experts to comment on as to how to proceed).

EDIT to add: There is another method, but it is risky. You could file FBARS late and note as a reason "I didn't know". You would then file accurate amended forms 1040X for the years where the income and information (for 1040 purposes) was not included. As a result, you may get by OK, or you may find the situation worse.     

Good spot. You are correct, I did post on BE. The updated part is the fact that I found the Delinquent International Information procedure and it looks like it could work. However, my concern is the uncertainty of the process and the fact that the penalties could end up being a lot worse than the $20k of the streamlined process.

I absolutely did not know about these requirements so that is true. However, the potential exposure of submitting the FBAR's late (2 per year for both my wife and I equals $40k non-willfull) and the exposure to potential penalties on the 1040X submission seems really high.

I'm just trying to convince myself one way or the other and if I go the streamlined process I need to just pay the fine and let it go. That's not easy when you feel let down by a professional.

I am meeting the old CPA today and will be investigating the contract, etc.

Thanks for the reply.

However, the potential exposure of submitting the FBAR's late (2 per year for both my wife and I equals $40k non-willfull) ......

No one can rightly tell you not to worry, but generally, it appears late filed FBARs have been accepted without further problems, although how and when you file them might depend on the action you take concerning the late 1040s.

Good luck with your meeting.

If I was not going to enter a disclosure program I would definitely start by submitting both 1040x's with a reasonable cause statement. I would pay outstanding tax and interest on tax and then submit FBAR's stating 'I did not know' and that I had paid all associated tax.

Would that work?

If I was not going to enter a disclosure program I would definitely start by submitting both 1040x's with a reasonable cause statement. I would pay outstanding tax and interest on tax and then submit FBAR's stating 'I did not know' and that I had paid all associated tax.

Would that work?

That could possibly work, or it may not; or you could do nothing regards the past and file/report accurately going forward (a qualified CPA cannot legally offer this option if there is an obvious delinquency). You could do the Streamlined, or you could do the delinquent international information procedure. You may seek professional guidance, or you may take your chances on your own. No matter which you chose, there will be varying potential risks with varying potential costs. In the end, only you can decide.

From your comments, you do not belong on the brutal OVDP option.