IRS Streamlined (SFOP) Questions

I am looking at submitting my taxes through the SFOP and have a few questions.  I live in the UK (British, American) and it has been almost 18 years since I last filed a tax return in the US (I moved to the UK 18 years ago) and recently I was told about the requirement to file by another expat (who had herself just found out). 

Fortunately, I have never owed any tax and my financial affairs are simple - no property/investments - though my accounts are around $200k, so I'm a bit worried about FBAR - I've worked very hard over the years and can't afford to see my retirement savings wiped out.

So far, I've done the legwork and filled out the forms.  For me, they are:

1040
1040 Schedule B (interest)
8965 (Health care exemption)
8938 (200k >)
2555-EZ (exemption)
14653 (SFOP form)
US Treasury Currency Tables

The questions I have are:

- I notice that you can specify different start/end dates for the forms ("For the year Jan. 1–Dec. 31, 2016, or other tax year beginning").  Can I specify the UK tax year dates instead; as this would make it much easier to total up income (P60s), etc.
 
- Is it better to put a higher amount if not sure? For example, with bank interest, the totals will be very close, but I was thinking of increasing it just to make sure.

- If I'm entering SFOP for this year, am I correct in saying that I would submit 2016 as per normal and then 2015, 2014, 2013 along with this year's FBAR, along with the previous 6 years of FBARS?

- Bona fide vs physical? I know I qualify for bona fide as I haven't been to the US in years and carry British citizenship, but which makes more sense in the long-term (in case I did have to return to care for relatives, etc).

- I'd like to do the right thing and get caught up, but do have to ask how risky a move it is.  I've read some horror stories online about "minnows" getting penalties, etc.  Has anyone here been through the process?

I would appreciate any assistance anyone can provide.  For the past few months, I've had many sleepless nights.  I have never had problems with the law (either in the US or UK) and had I been better informed those many moons ago, I would've been filing all this time.  I guess it never really struck me as HMRC has always done my taxes and I never heard a peep. 

From speaking with other Americans here, I do find it amazing how many of them seem to be in the same boat.

Thank you! :-)

You've done a good job on the ground work. I'll offer my comments; others may have some additional comments as well.

1040
1040 Schedule B (interest)
8965 (Health care exemption)
8938 (200k >)
2555-EZ (exemption)
14653 (SFOP form)
US Treasury Currency Tables

1040 - Yes
1040 Sch. B - Yes (Part III is important)
8965 - Yes
8938 - Yes, and don't forget any pensions you may have. Use the 31 Dec. Treasury rate for each year.
2555-EZ - Are you sure you can use 2555-EZ for SFOP? 2555 would be OK. (I don't know about the EZ version, and I'm too lazy to look it up right now.) You might wish to do a form 1116 instead. With the UK tax rate being higher, a 1116 generally gives you some excess carryover credits which are good for 10 years. They can come in handy as an offset if a future year results in some tax due.
14653 - Yes
US Treasury Currency Tables - 31 Dec. Treasury rates for FBAR and 8938 for each year. The separate unofficial IRS rate for the £/$ for all other forms for each year.
 

- I notice that you can specify different start/end dates for the forms ("For the year Jan. 1–Dec. 31, 2016, or other tax year beginning").  Can I specify the UK tax year dates instead; as this would make it much easier to total up income (P60s), etc.

Use 1 Jan to 31 Dec
 

Is it better to put a higher amount if not sure? For example, with bank interest, the totals will be very close, but I was thinking of increasing it just to make sure.

Be as accurate as your able, but if you do have to estimate, higher would be the way to go. For FBAR and 8938, add sufficient extra to be safe if unsure. They're reporting forms, so the extra doesn't hurt.

- If I'm entering SFOP for this year, am I correct in saying that I would submit 2016 as per normal and then 2015, 2014, 2013 along with this year's FBAR, along with the previous 6 years of FBARS?

Correct, perfect.
 

- Bona fide vs physical? I know I qualify for bona fide as I haven't been to the US in years and carry British citizenship, but which makes more sense in the long-term (in case I did have to return to care for relatives, etc).

If you use 2555, you qualify for Bona fide. Use it as it's much better. If you use 1116, you need not worry about either (but for 8965, for example, you still qualify as Bona fide).

- I'd like to do the right thing and get caught up, but do have to ask how risky a move it is.  I've read some horror stories online about "minnows" getting penalties, etc.  Has anyone here been through the process?

Choose words wisely for 14653, but without any 'complicating red flag' tax circumstances, I believe most applicants are successful. There are a number on this site who have filed SFOP and we've not heard of any disasters if the filing has been done properly. Hopefully, some may comment.

........had I been better informed those many moons ago, I would've been filing all this time. 

From speaking with other Americans here, I do find it amazing how many of them seem to be in the same boat.

Sadly, this is a very common circumstance. No matter the fine print on the passport or the less prominent pages on the Embassy website, this seems to be one of Americas' best kept secrets. No one seems to know why they do it if they are serious about USCs filing from abroad.

It's late - I've had a good evening - so if any of my thoughts need improvement or correcting, I'm sure others will comment. Good luck, but again you sound as though you have a good grasp of the process. 

US Treasury Currency Tables - 31 Dec. Treasury rates for FBAR and 8938 for each year. The separate unofficial IRS rate for the £/$ for all other forms for each year.

Given that the IRS accepts any posted exchange rate, couldn't you just use a single rate for all forms such as the 31 Dec Treasury rate?  (Makes life easier.)

The (pretend) 31 December Treasury rate must be used for FBARs and 8938s. It is a spot rate and not the optimum rate either. Most folks would use the IRS unofficial average rate for most items on a US income tax return.

In terms of the original question, marylebone is silent on how employer contributions and growth in UK pension plans will be treated on the returns; and whether any of those plans might be considered to be foreign grantor trusts.

I concur with theOAP that electing (late) to claim the foreign earned income exclusion is unlikely to produce the optimum result for most Americans in the UK.

First off, thanks for the great response and taking time out of your evening to respond! :-)

8938 - Yes, and don't forget any pensions you may have. Use the 31 Dec. Treasury rate for each year.

I don't have any pensions in the UK, other than NI contributions.  I have a cash ISA, but from what I've read, it's better to treat the interest like a normal cash account (especially as there will be no tax due).

2555-EZ - Are you sure you can use 2555-EZ for SFOP? 2555 would be OK. (I don't know about the EZ version, and I'm too lazy to look it up right now.) You might wish to do a form 1116 instead. With the UK tax rate being higher, a 1116 generally gives you some excess carryover credits which are good for 10 years. They can come in handy as an offset if a future year results in some tax due.

I will certainly take a look at 1116; though I'm fairly certain that you can use the EZ form so long as you meet all of the conditions; namely that total income is less than the exemption amount.

It's late - I've had a good evening - so if any of my thoughts need improvement or correcting, I'm sure others will comment. Good luck, but again you sound as though you have a good grasp of the process.

Thanks again for your help!

The (pretend) 31 December Treasury rate must be used for FBARs and 8938s. It is a spot rate and not the optimum rate either. Most folks would use the IRS unofficial average rate for most items on a US income tax return.

Do you know where the "unofficial" IRS rate is found?

In terms of the original question, marylebone is silent on how employer contributions and growth in UK pension plans will be treated on the returns; and whether any of those plans might be considered to be foreign grantor trusts.

I don't have any pensions/employer contributions, so that shouldn't be an issue.

I concur with theOAP that electing (late) to claim the foreign earned income exclusion is unlikely to produce the optimum result for most Americans in the UK.

I'm not quite sure what you mean by this - are you speaking in terms of 2555 vs 1116?

Thanks for your response!

Google is your friend

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates