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grandmabee

FinCin form 114

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Client has foreign bank accounts since 2008 and now has decided to tell me in year 2018, even after I ask every year if she had any.  I guess she thought she had to be in the foreign country for it to count.  It is over 10, 000.  we filed the form 114 and claimed the 2018 income on the 1040.  She wants to go back and file all returns and pay tax owed.  So will IRS accept amended returns past the 3 years?  I know no refunds would be issued, which there won't be any.  We are hoping after reading on late form 114 returns that if we file all returns and pay the  tax she won't get any penalties for not filing form 114.  Does anyone have any experience with this.  TIA

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Is there a tax?  I thought there is a penalty for not disclosing bank accounts if they exceed $10,000 (combined daily balance) and the penalty is 50% of the highest account balance.

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I have for someone with Canadian bank accounts but it was during the amnesty program which has ended.  We did the Streamlined Filing program which may or may not be available to your client.    She will be liable for some penalties but I think if you have good reason they could be waived, at least that was the case during the amnesty time period.  Check out the FBAR website.

I also have one with an Italian bank account whose doctor told her not to file, people always listen to their doctors and barbers.

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6 hours ago, ILLMAS said:

Is there a tax?  I thought there is a penalty for not disclosing bank accounts if they exceed $10,000 (combined daily balance) and the penalty is 50% of the highest account balance.

Yes there will be a tax on the 1040X for Div, Interest etc.  the penalty will be on the form 114 for not filing it, but I was reading that if you have a good reason for not filing and have paid all the tax owed on income from the accounts they could wave it.  I told her the law is she has to file.  after reading it also said if she files the form 114 and had paid all tax on 1040x before they asked her for or caught her as a non filer her chances would be better of no penalty being assessed.

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I think you advice to her is excellent, but i have no idea what is considered an acceptable reason for not filing or what the chances are that she will escape penalties.  I would love, however, to hear how this turns out. 

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I had a client who voluntarily disclosed foreign accounts during the amnesty program and the IRS wanted six back years.  (They asked questions about minutia and asked for supporting docs for well over a year before accepting them, so they really did review them with a fine tooth comb.)  I had several IRS examiners as classmates in my MS program, and at the time they were being trained in the then new requirements.  They told us that the agency was looking for "back door" disclosures, i.e., people suddenly filing with foreign accounts or amending returns to report them.  These were to be flagged as violations of FATCA so are not a good way to resolve the delinquency.  On the other hand, the IRS's goal is to collect money owed and not to put people in jail or the poor house.  All of the good seminars I've attended on this subject were conducted by attorneys, and you might advise your client to consult one.

The penalty for not filing is 50% of the highest balance of the account during EACH year.  It could quickly drain the account.  Even during the amnesty period, when penalties were greatly reduced, my client ended up paying far more than if he had just reported the income each year and paid the tax.  Failure to file FBARs is a criminal violation, but during the voluntary compliance programs the IRS agreed not to pursue criminal charges.  That is over, another reason why your client should consult an attorney.

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In my client's situation during the amnesty program we did the Streamlined filing and explained that the failure to file was non willful and by proving  (with death certificate) that the taxpayer had passed away and  he was the one in charge of family financial matters.  Since he had years of cancer treatments he wasn't thinking straight.

We filed the required 3 years of amended income tax returns and 6 years of FBARs but they did not charge any penalties.  Also balances weren't large compared to some of the oligarchs out there.  Balances were under 300K.

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I also did a streamlined filing for two clients (sisters).  In their cases, they are dual citizens but had not lived in the US since they were young teens.  All their adult lives were spent in Europe.  We filed 6 years of FBARs and three of 1040's (all wages excluded under foreign earned income, "taxable" income of a couple bucks' worth of bank interest wiped out by std deduction).  No penalties.  Bank accounts and securities accounts, small balances, and an entire wage-earning history of being outside the US; where were they to have heard of requirements?  And every year we do the 1040 and they do the FBAR.  I think I only charge them enough so they don't feel like they are being given charity.  Once I got my English-Czech "cheat sheet" so I can read their docs, it all takes me about twenty minutes each.

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Sorry, late coming to this topic. From the info provided, your Taxpayer client should use the Streamlined program to file the amended returns and the FBARs. I assume the client lives in the US and had filed each year. Therefore, the IRS will assess a 5% penalty.  If the client does not use the Streamlined program, there is a risk that the client will get hit with all the penalties for late FBARs (10k/year). If the client is required to include other forms on the 1040 such as 8938, 5471, 8621, 926...more penalties will be assessed.  It is not worth the risk for filing late FBARs when there is also int & div income that was not reported.  If there is no additional int or div income to reported, your client may avoid penalties for late filing FBARs without the Streamlined program.  The IRS site explains the programs very well...

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

https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures

Extra thought....my gut feeling when you said your client did not include dividends from a foreign account gave me two thoughts 1) the foreign broker invested in US companies, which means that the client already had 30% withholding tax on the US dividends and/or 2) the foreign broker invested in non-US mutual funds and you will have a bad PFIC problem.

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