H-1B person in need of FBAR assistance


Posted by:
Phil Hodgen

Written on:
March 15, 2011

Posted in:
Real Estate
Voluntary Disclosure

This is a comment on another post on my blog. It is important to give this a more prominent platform, so I did a cut/paste and brought it over here again. If Google hates me because of duplicate content, well, Google, go stick your nose in a dead bear’s bum. :-)

Any experienced accountant or lawyer who wants a referral, please email me. I will pass along your contact information. (I have the gentleman’s email address).

Here’s the gentleman’s comment:

Hi,

I am working here on work visa (H1B) from 2008 and for the tax purpose I am a residential alien. I was completely unaware that the US tax is for global income and about the FBAR requirements. Because of this I haven’t included the interest/income earned in India while filing 2008 and 2009 tax return. I have several accounts in India, most of which are created before coming to US .I was working in India before coming to US and my account include Tax-exempt(for Indian income tax) investment as well. In addition to the interest I earned on these accounts, I am also getting a small portion of my salary around $150/month in India from my employer, which was not shown in my W2.

Since I don’t have a long term plan to stay here in US, I used to send all my savings to India on a regular basis. I don’t have any asset or major investment in US. But recently I came to know that the US tax is for global income and I was supposed to disclose all my accounts in India. I assume my tax liability for both 2008 and 2009 will be around $1500 and the maximum account value during 2010 is around $80,000 worth of investment. So the 25% FBAR penalty will be around $20,000. This will be a huge amount for people like me who does not even own a house. I always want to go in the proper route and would like to fix these issues, but the cost I have to pay for this is too much for an NON WILLING mistake.

Will I be able to request for a FBAR penalty waiver? Is my unawareness a reasonable cause? Will the IRS accept my penalty waiver request?

After going through all the blogs I am feeling that IRS is worse than the Somalia pirates.

I am also looking for some professional help with a reasonable cost to proceed further on this.

Someone out there please volunteer to help this guy.

And oh, by the way, is this not the perfect way to chase highly skilled workers away from the United States? Unintended (perhaps intended?) consequences, Mr. Shulman.

 

 

Comments

ss says:

Phil, thanks a lot for posting it here…

Jim says:

Hi, I am not sure what help anyone can offer! This is a clear cut case… No FBAR filed, even with no intent to defraud, is 25% (I was “lucky’ to get away with 20% because I came out of the closet a year earlier than this poor gentleman…).
They don’t care. They quote “fair to all” by standardizing the penalty. What baloney! Why not go the whole way and say anyone who commits a crime of any nature should pay the same penalty, 25% of their entire wealth, because that’s fair to all… A 4 year old could work out the injustice in that one… Each case is diffrerent, this man’s “crime” is not the same as mine or anyone elses, and should be assessed as an individual case, without the axe of half your worldly financial possessions being taken by the state.
Insane.

Jim says:

…. by the way, half was not a misquote, it’s what I was told I was risking if I tried to stand up for myself…. 50% of my highest bank account balance for the past 5 years, PER YEAR, so $1.5m… My crime was shortpayment of tax by about $15,000 over those 5 years, all since paid with interest and penalties. I have no clue where they think I’d get $1.5m, as this is, by deduction, considerably more (by a factor if at least 3) than I ever ever EVER had in a bank anywhere, anytime!
Phil, sorry, one word from you, I shut up, ok? :-) Promise…

Phil Hodgen says:

@Jim,

No, you keep talking. The IRS Commissioner has promulgated a monstrous evil and the more this is understood the better off we will be.

I will stop now before someone invokes Godwin’s Law. :-)

Ooops. I just did.

Phil.

ss says:

Jim, Thanks for your comments. I would like to know how you went ahead and filed this. Did you send any covering letter/ penalty waiver request. Because I saw the below information from this site..

I got the below inforation from this link http://gswlaw.com/irsblog/2009/09/15/fbar-civil-penalties-reasonable-cause-exception/

ss says:

The civil penalties for non-willful failure to file may be waived by the IRS if the Taxpayer can show reasonable cause. If the Taxpayer has a reasonable cause exception, the FBAR should be filed with an explanation (i.e., the reasonable cause, with an express request for waiver of penalties).

The waiver of civil penalties for a reasonable cause exception may include among other factors:

1. All the income from the foreign account was included on the US Taxpayer’s return.

2. The Taxpayer was unaware of the requirement to file (for example, lack of understanding of what constitutes a financial interest).

3. Once the Taxpayer became aware of the filing requirements, he filed all delinquent reports (up to 6 years).

MBK says:

From what I understand, the IRS is almost never accepting “reasonable cause” unless the income was declared and paid or if the “account” was something like a life insurance contract with a cash value.

But if you filed your FBAR by 2010, that might remove 2010 from the penalty picture. And in that case if you’re below 75K in other years, the penalty is 12.5% of 75K, so its slightly less.

Also, if you plan to stay in the US for an extended period of time, and apply for a green card, I believe you can be denied if you have any tax issues. Not, great news, unfortunately.

Anonymous says:

“Also, if you plan to stay in the US for an extended period of time,…”

OP states “Since I don’t have a long term plan to stay here in US,…” I very much doubt that this experience will convince him or her to reconsider that in the slightest.

My best guess at the optimum course of action for OP is to disclose quietly, comply in future but stay under the radar for the rest of the stay in the US, regularly move cash out of the US to leave little if anything in reach of the IRS, and then depart the US as scheduled and not return. In other words, much the same tactics one might employ if temporarily posted to a third world dictatorship.

Phil says:

“I am shocked — shocked — that living in the United States could be compared to a temporary posting to a third world dictatorship.”

Signed,

Captain Renault.

ss says:

MBK Thanks for your response. Even though your first point is not happy news for me, the second point brings lot of relief to me. If they exclude year 2010(which I am going to do correctly) it will easily brings down the penalty to around $6000. Only problem is that, I have transferred $22000 from one account (which had a balance $25000) to another (which had balance $0). Hope they won’t count the maximum value as $47000($25000 + $22000) for the penalty calculation. As per FAQ #37(http://www.irs.gov/businesses/international/article/0,,id=235699,00.html), they should only consider $25000 for the penalty calculation.

I am really wondering how a government organization in a democratic country can be as rude and do injustice like this?

ss says:

Can someone please explain me the meaning of the below line.

4.26.16.4.6.2 (07-01-2008) Mitigation of the Non-willful FBAR Penalty

4. If the aggregate balance of all accounts held during the year does not exceed $50,000, then the penalty for each violation is $500, not to exceed a total of $5,000 in penalties.

“Penalty for each violation”- does it mean penalty per unreported year or penalty for each unreported account.

DK says:

i think the problem is it is hard to convince IRS that you were non-willful..

RR says:

Hi all,

Does anyone know when this enforcement came into affect. The reason for my question is most of us didn’t seem to know that such a form had to be filled out.

Most of us also seem to be complying anyway now. so the loss is only a loss of knowledge. Most us (or maybe me) seem to agree that they are willing to pay for the tax loss. However, what doesn’t make sense is the huge penalties of 12.5 or 20%. I guess most of us are looking for a justification of this especially if they didn’t know about it.

Thanks
RR

Phil says:

@RR – the IRS started down this path in March, 2009. They assume that everyone on the planet is as intimately familiar with arcane tax rules as they are. That’s a wrong assumption of course. But the IRS does not care. And yes, the huge penalties do not make sense.

RR says:

So, if the law in not well known, this kind of penalty doesn’t make sense.

Also, if the person is disclosing everything in the missing period, then again a loss of knowledge doesn’t warrant this kind of penalty.

Anyone knows if getting a tax lawyer might help. We hear those “pennys on dollar settlement adevertisements”, not sure how good they are. Talking directly seems waste, as they keep on repeating that you broke the law while you keep on insisting that you didn’t know about it.

Thanks

Phil says:

The “pennies on the dollar” tax settlement advertisements are usually BS.

Anyone telling you that there is a “pennies on the dollar” solution for the offshore account situation is lying to you. Run away.

You are correct — the penalty doesn’t make sense.

An experienced tax lawyer is going to tell you what your options are that will keep you legal, and what your risks are for the various options. If you’re getting advice that sounds like you’re going from the frying pan into the fire, run away. :-)

tax2011 says:

In my case, major chunk of the aggregate value is coming from life insurance policies which have significant cash surrender value but no income as such.
Also, most of these policies were started by my parents since i was a child.
So my aggregate value is around $ 20,000 which I’ve not disclosed (didn’t know) in last 4 years of paying taxes in US but there was no taxable income on any of these accounts as per Indian Tax law. Total income over these 4 years is less than $ 1000.
Most important thing is, I’ve NEVER transferred any funds to these accounts !
I’m really confused about how to go about this.
Any suggestions will be appreciated.

klk says:

Indian tax law is irrelevant in this instance. If the policy has not matured, there should be no current income on the policies. Did some policy mature over this period ?

ss says:

Someone please help me!! Please suggest which one to choose from the following options

I have the following options:

1) I was checking with a tax guy and he told me that I have to amend my tax for the previous two years and file the FBAR for 2008, 2009 and 2010 and send it with a penalty waiver request.
2) I have checked with an attorney, and he told me that since my amounts are very less and I came recently to US, he has some option other than Voluntary Disclosure. I am not clear what his idea is. He said some statement need to be attached when sending the amend details. I think he is planning to do the same thing what the tax guy has told me. He will charge a fee of $5000 – $6000.
3) Do a voluntary disclosure without the help of any one. If they will only consider 2008 and 2009 as I am going to file my 2010 with all income, then this also is an option. But I don’t know if the will calculate 2010 for the purpose of penalty.

I am not sure what if the waiver request is rejected. Will I be able to join the VD program? Please suggest which of this option I have to choose.

DK says:

SS,

According to the FAQ 16 below, I understand it may not be a good idea to file amended tax return for this purpose:
http://www.irs.gov/businesses/international/article/0,,id=235699,00.html

if you file accoring to IRS’ requirement for 2010, why do you think they will calculate 2010 for the purpose of penalty?

Please email me at (deleted at request of the person making the comment, by Phil. 12-Apr-11). I am not a lawyer or accountant, rather I am also researching this topic

ss says:

DK,

Hope that you had received my mail. Please let me know if you got any information regarding the penalty calculation – will they include 2010 or not.

(Obscured by Editor) says:

Hi Phil,
My story is similar to the one posted above. I moved to the United States from Hong Kong in Q3 2008 for a job in Manhattan, and filed the 1040 NR return in 2009. I also filed my taxes in Hong Kong.

In 2009, I engaged a new CPA (since my last CPA had forgotten to file my state/City taxes) who filed the 1040 but never asked me about foreign bank accounts or even showed by schedule B. He was gruff and did not have time for any questions and did not ask me if I had any foreign bank accounts. Since I was unaware of the FBAR and global income reporting requirement, I again filed for my taxes in Hong Kong for 2009 returns.

This year, I thought I should get a better CPA and I spoke to a senior accountant in a reputable firm a few weeks ago. He asked me about FBAR etc and when I googled FBAR I realized I am in deep trouble! I had spent the last 15 years working in Hong Kong and had accumulated some savings for retirement (mostly in low interest checking account and a securities account) of about US$500K. I then found out about the 2011 Voluntary Disclosure and the first thing that came to me is that I will lose 25% of my hard earned savings for 2009! As you can imagine, I have had sleepless nights since.

Am I correct that I should have filed for 2009 FBAR (due June 2010) and also include foreign income in my 1040 (which I think is negative/nil since my securities accounts had a $40K LOSS and my interest income is less than $3K)? Do I have any recourse as a new resident, and that I only missed one year of 1040 Schedule B and FBAR? The 2011 Voluntary Disclosure is so punitive, I really do not know what to do… .

Can someone recommend a good tax attorney in the NYC area? Please help.

Phil says:

Hello, (Obscured by Editor),

I don’t know whether the name you used in your comment is your real name (or not). Commenter MBK noticed this and suggested that I hide your name, just in case.

/Phil

MBK says:

Phil — I would suggest editing out the last poster’s name, since it seems to be naive on his/her part to post it. She can always add it later if she wants to.

MBK says:

On 2nd thought,

I am not an expert, but if someone filed a 1040NR, then I presume that he/she does not have to file an FBAR for 2009.

So, you still have time to file a FBAR for 2010.

KS says:

Thanks Phil and MBK for the advice.

Sorry the message earlier was unclear – To clarify my case:
1. For my 5 months of work in the US for 2008 – my first CPA filed a 1040NR. I filed and paid Hong Kong taxes as well. I was on a non-immigrant temporary work visa.
2. For assessment year 2009 – my second CPA filed a 1040, but never asked about my foreign bank accounts. I filed for my Hong Kong taxes. I received my H1B visa in late 2009.
3. For assessment year 2010 – the due date to file is APril 18th this year, and I just found out from my 3rd CPA that I should have filed my FBAR for 2009 since I was deemed a resident alien!!!

So I missed filing FBAR for 2009 returns and I am petrified!

I will appreciate a referral to a good tax attorney in NYC. Please help… .

Confused says:

What are the chances of getting fined if you filed US taxes but didn’t know about the FBAR when your foreign accounts total just over $10,000? And what if they look like the total closer to $19,000 because of money deposited in one account and moved to another?

I’m a U.S. citizen living overseas who only just learned about the FBAR requirement, and it’s all a bit nerve-wracking.

Phil says:

@Confused,

Yep. Isn’t this dumb that you’re in fear of draconian penalties due to a trivial paperwork problem?

The IRS is all full of “trust us, it’s OK, just get current with your paperwork and no harm will befall you.” Vague blandishments from the spider to the fly. That’s how I treat words from the IRS. “By their fruits ye shall know them” if you want to wax Biblical.

Do your 2010 stuff correctly. I’m not going to tell you one thing or another about retroactive fixing of stuff because I don’t know anything more than what you put in the comment.

In normal times, you’d expect long-standing IRS bureaucratic procedures to be applied fairly and consistently. The Internal Revenue Manual would make me guess that worst-case penalties would be $500 for failure to file an FBAR.

You get to vote on whether these are normal times.

/Phil

Gary says:

Hi

Any one has real settlement on FBAR Penalty ? Really appreciate if some one share their experience.

I am in almost same position as KS and SS above, i.e. expat on H1B, filed in first tax return in 2008 (1040) through CPA, never came to know abt FBAR. 2009 I did myself, by turbotax but followed same way as earlier year. Now I heard and felt lot of noise & pain about FBAR. I have my savings of 15 years worked at Hong Kong with HSBC though very negligible amount of income on it. I feel regret coming here when I think I have to pay penalty of balance of my life time savings.

I am taking extension for 2010 to assess current & last two year situation. KS, SS, can you please share your decision, how you are going to pursue this matter ?
thanks

Gary says:

Moreover, I remember Inland Revenue Dept at Hong Kong is very “friendly”, always willing to help for those who miss something and coming forward to correct voluntarily. I remember where I was working, they had several companies. My financial controller simply forgot to file returns for one year. Inland Revenue noticed non filing of return after substantial delay. They just took a statement from the Financial controller and accepted return with a simple warning letter. How is IRS here..? The way they have drafted laws, I don’t feel good.

Phil says:

I believe most of the IRS Revenue Agents would be exceedingly reasonable if they could. But they can’t, due to IRS management enthusiasm for blind infliction of pain.

P

ss says:

Gary,
I haven’t decided yes. But I had filed my 2010 tax correctly showing all the income. But don’t know what needs to be done next. Probably go ahead with the attorney (Option #2).
Always checking here for suggestions…hope that someone will answer my questions…

ss says:

“I haven’t decided yet”..It was a typo…

klk says:

It all depends on how long you want to stay in the US. If its < 4 years (this time around) with no intention of applying for a green card, I would say comply going forward only.

Otherwise, it depends on how risk averse you are. If staying in the US for several years is important to you financially, then you might consider OVDI. Otherwise, just fill in previous years returns and send in an explanation that you’re a new citizen with delinquent FBARs. Or comply going forward only.

I doubt an attorney can help you much — they don’t know what the IRS will do either.

Christ says:

We are in the same situation. We came to US in June 2008 on E-3 visa. We are Australian citizens and have bank accounts back in Australia. The bank pays us interests and Australia government tax around 10% on the interests. We did not know have to report this income to IRS and no FBARs were ever filed.

It is horrific to know we have to give IRS 25% of the money we have in Australia!!! It looks like a trap. Coming to work in US looks like a big mistake to US.

Edgar says:

Hi fellow Aussie, I hope things are well for you. It would be nice to chat with you and share experiences. Not sure how to do that via this forum though :)

ss says:

Hi All,
I am thinking of filing FBAR for 2010 now (probably in a week) and wait for couple of months and then go for voluntary disclosure for 2008 and 2009. I believe if I do this way, the IRS won’t come and ask me to pay penalty for 2010 as I have already did everything correctly for 2010. Does any one have any suggestion? Is there any potential problem with this approach? Please advice as soon as possible.

Wada says:

You might try calling the voluntary disclosure hotline and asking about 2010. They might know whether it would be included in penalty base.

As far as 2008 and 2009 goes, only you know your risk tolerance, how long you plan to stay in the US, how important staying here is for your financial and personal life, so that is up to you. But remember this

Its not just the so called NRI accounts that HSBC was pushing that would need to be reported, but ALL accounts and all income bearing assets owned by you (and possibly your spouse ?) in India. That could include things like
— Your college bank account
— A retirement account in India
— An income bearing bond or other security
— Property that pays income (you said you didn’t own a house, but any other real estate would count.
Also, if you have power of attorney over a parent’s account, or a joint account with an Indian relative, that would need to be reported as well, and MAY be included in penalty calculations unless you can establish that you don’t have any ownership over that asset/account.

BS says:

l am in a similar boat. Would really need some help from a good lawyer or tax guy.

clarity on two issues will be highly appreciated:
1) Before I came to US, I was given stock options. when these were in the money and I was in US, I exercised them. will IRS want a piece of this pie, although nothing of this pie belongs to them.

2) I sold my home abroad, once I decided to stay here and immigrate. Again the money from proceeds had nothing to do with IRS especially a large chunk went to service the mortgage loan.

Can someone show me some lights?

Phil says:

@BS

Unfortunately I think you are right. Based on what you reveal here and my experience with similar situations, i would guess that all of the things that happened before you became a US resident (stock option grant, bought real estate that went up in value) will be taxable in the USA.

The next thing to do is get an experienced tax person to do some calculations. Then you make you decision on how to clean it up.

Unfortunately this is a fairly common situation. Sorry you’re getting hammered like this.

Phil

BS says:

Thanks Phil!

This is daylight robbery. couple of follow-up questions:
1) I have not sold the stocks, just exercised the options. This means there is only unrealized gain. So I am guessing that even though this may not hit the taxes, it will be part of the account maximum calculation.

2) How does the mortgage loan figure in this? For example, you put 10k, the bank puts 90k for a 100k home. let us say after few years, your home is worth 150k. your amount toward maximum account balance would be 150k or 150k less mortgage expensed (loan+interest expense all these years)?

I know you are not providing any legal or tax advice to me. I am just trying to understand some basic things in this. IRS had been hiding this form all this while in hopes of penalizing hard working people in bad times. If they were really transparent about it, everybody would have known about this!! I just do my highly skilled job and be compliant in every way possible. This exploitation has led me shaken about the transparency and coward injustice of the American democratic system. I think I made a huge mistake moving here.

Wada says:

1) About options, I think these would be treated similar to non qualified US options. In that case, tax has to be paid when you exercise an option (on the difference between exercise price and FMV of stock). So there is definitely income. If you held a non qualified option in a US company and exercised it, it would be considered income, so this would (and should) be considered income. if you paid tax on this income in the other country, you could get a tax credit, but there would be income tax on this gain. The second question is whether the stocks from the exercised options would be included in the penalty base. I think if you had not exercised the options, they would not be included in the penalty base, but as it is, I think the stocks would be included.

2) About your house, I think any penalty would be levied only on your holding in the house, i.e. FMV – mortgage. You might also have to pay tax on any gain from sales. If this was your principal residence before you moved, then you might get some tax benefits from that if you redo your tax returns

“IRS had been hiding this form all this while in hopes of penalizing hard working people in bad times. If they were really transparent about it, everybody would have known about this”

its true that knowledge of the FBAR form is (was ?) not widespread. However, the question on your Schedule B about foreign bank accounts as well as the requirement to report worldwide income doesn’t seem to be “hidden” in any way.

ss says:

Wada,
Thanks for your suggestion.
I currently have a plan to stay here in US till Aug 2013. I may have to leave before that based on my current project and other circumstances. Anyway, I don’t have any plan to apply for GC and to stay beyond Aug 2013.

I believe calling the voluntary disclosure hotline it is like a suicide. Because whatever the answer is, I then have only left with one option – “Voluntary Disclosure”. If they say only 2008 & 2009 are included in penalty calculation, then it is somewhat OK but if not…..It is more trouble for me. It is $12,000 vs $34,000(for me and my wife), which is almost our one year savings in US(or 6-7 year savings in India).
They way this injustice organization is looting money from poor and innocent people, I think if we give any such option, they will definitely include 2010 for penalty calculation. So what I was checking is that is there any problem if I file 2010 first before doing the Voluntary Disclosure and do the VD after couple of months.

BS says:

@wada – Thanks for your response. Regarding stocks, how would you calculate capital gains when you sell the stocks? Will it be selling price less FMV on exercise date? The reason being one has already paid gains on the difference between FMV and the exercise price on the exercise date?

On a side note, do you know a really good tax consultant?

Aut says:

Phil, I think SS may have asked similar question before. I just wonder how the Mitigation Guideline will work in this situation.. I think even if IRS views SS as willful, the penalty will still better off.. Do i miss anything? could you please comment?

Thanks.

Phil says:

@Aut,

Your approach is the correct one, I think. Look at the latest IRS program and the penalty cost. Then look at the expected outcome under the Internal Revenue Manual for FBAR violations. If the worst that can happen — a willful violation — results in a lower penalty than the latest IRS program, then it is obvious what to do. :-)

Phil.

ss says:

Aut,
If understood correctly, Willful penalty in my case is much more than 25% VD penalty. I am not sure whether the below calculation is correct. Please feel to correct me if anything is wrong.
Assume my offshore account is $30,000 for 2008, $66,000 for 2009 and $86,000 for 2010.

So the NON willful penalty under the mitigation will be $11600.
[$5000 for 2008 (even though my total amount is $30,000 I have 7-10 different account and for each account I have to pay $500 as penalty. The funniest part is most of these account not even have $200 in balance. ) $6600 for 2009 (10% of the Maximum amount)]

I believe I don’t have to pay anything for 2010 as there is no violation.

Now the Will full penalty is 50% for each year and it is $48000($15000 for 2008 + $33000 for 2009)

Now VD penalty is
Case 1: $21500(25% of $85,000) if they include 2010.
Case 2: $8250(12.5% of $66,000) if they exclude 2009.

ss says:

A sad news..in one blog I just saw that year 2010 appears to be included for penalty calculation.

http://www.patellawoffices.com/blog/protecting-your-assets/fbar-and-ovdi/

————————
(It appears that the 2010 year is included in the penalty calculation even if the 2010 FBAR and/or other information returns are timely filed in 2011.)

Aut says:

SS, if you look at the mitigation guideline closely, your penalty I think should be $7000 ($5000 for 2009, $1000 for 2008) under willful scenario and under the mitigation guideline.

It also says in the guideline, in most of the cases, multiple violations in one year will only incur one penalty, so your penalty in non-willful scenario would be $1000 ($500*2).

However, I am still not sure if mitigation guideline can be consistently applied. :(

Please let us know if you disagree after reading the guideline.

ss says:

Aut,
“The Level I penalty is the greater of $1,000 per violation or 5% of the maximum account balance during the calendar year for each Level I account.”

The penalty is per violation(per account), as I suggested I have 7-10 account even though the amount is very small…

If I had this amount in a single account then what you are saying is correct…but that is not the case …:(

Wada says:

“Regarding stocks, how would you calculate capital gains when you sell the stocks? Will it be selling price less FMV on exercise date? The reason being one has already paid gains on the difference between FMV and the exercise price on the exercise date?”

Correct, it would be capital gains between selling prices and FMV on exercise date (and short term or long term capital gains depending on holding period). Once exercised, the stocks are just like normal stocks.

One caveat here — I am assuming that the options you held were what are called non qualified options. There are also so-called “Incentive Stock Options” which have different rules, but its very hard to see a foreign company meeting the very strict standards for Incentive Stock Options.

Look at this book

http://www.amazon.com/Consider-Your-Options-Equity-Compensation/dp/0967498163

for more information on how option income is calculated. It would be the same for foreign options, with some additional twists for currency rate conversions.

I don’t know any tax consultant — I’m a TurboTax person myself :-)

Wada says:


I believe calling the voluntary disclosure hotline it is like a suicide. Because whatever the answer is, I then have only left with one option – “Voluntary Disclosure”. If they say only 2008 & 2009 are included in penalty calculation, then it is somewhat OK but if not…..It is more trouble for me. It is $12,000 vs $34,000(for me and my wife), which is almost our one year savings in US(or 6-7 year savings in India).”

??? I don’t understand that at all. I was suggesting that you call the voluntary disclosure hotline and ask them whether 2010 would be included. That is not equivalent to joining the program. I don’t know if the hotline would ask for your name or more identifying details. You can always hang up if they ask for that and you don’t want to give it.

But if you’re only planning to stay here for 2 years more, there is absolutely no reason to join the OVDI at all. Its not meant for people like you at all and I would assume the “Injustice organization” (IRS) has very little to no interest in temporary workers whose income is legal and who have no ties to the US beyond a temporary stay.

If your account is not with HSBC India, it would be even sillier to join the OVDI. I have no doubt the IRS will move on to other Indian banks that offer NRI accounts eventually, but likely that will take more time.

Even if your account is in HSBC India, the IRS probably has bigger fish with larger accounts to fry, so the worst that would likely happen is that you get an examination in the next 1-2 years, and then you can assert reasonable cause etc. The very worst is that you might have to file tax returns for 2008 and 2009 with interest. Even if you are assessed an FBAR fine, you could appeal and the IRS would have to sue to collect it, and that would take years by which time you would have left.

My suggestion: Instead of spending time to figure out whether the IRS would apply the penalty guidelines for 2010, or what mitigation might be, just comply going forward, stop worrying and enjoy your time here. And when your assignment is over, all you have to deal with is the IRS (India Revenue Service) which is a model of customer service, efficiency and incorruptibility :-) and is not known for looting poor and innocent people (like telecom ministers and executives :-)

Tom says:

Hey Guys,

What about repayment of student loans in a foreign country? What should I do, if I sent back ~18K to my joint account abroad? The money was used immediately upon receipt to pay back part of a student loan. No interest accrued in that account, so no tax ought to be assessed. This was in 2009. The account was idle in 2010.

Please help!

Min says:

This is really very very bad and inhuman nature of IRS. Apparently they might want to balance federal account and this is the reason why all the severe penalties.

If they are really incorrupt and fair, there should have been proper communication on FBAR and income earned abroad to be taxed in US. One fine morning they will come up with a new Reporting form and again start penalizing us.

We work day in and day out and they just want to rob us for not doing anything wrong.

Vikram says:

SS, what did you finally decide?

MP says:

Here is my situation. I came to US in 1998 on an H1 visa and worked till 2004 to take a transfer of residence to my home country. Later, in 2006, I came back to US on H1 again. Most of the time, I filed my taxes myself (paper and turbotax). I used a CPA a couple of times, but was never made aware of this requirement. Not that I am using this as a defense, but I am not sure where I stand now. I have transferred all my savings in my previous stint to my home country to buy real estate (neither rented, nor sold since) and some equities (none sold till date). My account balance in my home country varied (before and after above investments) between USD 10,000-80,000. What on earth am I supposed to do?

SV says:

This year i have sent almost $60k [ all my saving money and also took loan ] to relative account to my home country .. and $5k my account in home country..
How exactly i need to file tax next year since in my account balance is less than $2k in my home country i need to file FBAR or not ?

Aut says:

Phil, thank you a lot for the clarification. What I am unsure is whether or not IRS agent/manager will purposely set some hurdle to disqualify one, for example he can claim one is not fully cooperating. Or does IRS agent/manager simply has the DISCRETION of NOT following the mitigation guideline at all even when all the conditions are satisfied?

Say if a “small fish” like SS got disqualified for the mitigation guideline for some reason, what is your estimate for the worst case for the “small fish”? (well i hope this is not a $100,000 question :))

Thank you again Phil!

Phil says:

@Aut,

I can’t predict what a Revenue Agent might do. They are humans. Some are perfectly sane, some are true mensches, and some, well, you wouldn’t want your daughter to marry him (I’m looking at you, area code 801).

All you can do is assume that a Revenue Agent would follow the Internal Revenue Manual in assessing penalties. Then further assume that the Revenue Agent will be forced by management to assess the maximum penalty possible rather than exercise the discretion he/she is given. What penalty do you calculate? Can you live with that?

Phil

Aut says:

Phil, thank you again! last 2 questions:

Are you saying that
1. IRS has only 2 tiers of monetary penalties for FBAR, mitigation and maximum? ie. if mitigation is not used, the maximum penalty will automatically kick in?

2. Agent has no discretion in accessing the penalty, and all the decision (willfulness, mitigation, penalty amount) is made by the management?

Sorry for the confusion, and thank you!

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