"quiet disclosure" - what if I filed FBAR?

gpancio · Post by **gpancio** » Mon Mar 31, 2014 12:48 pm

I have several problems, related to failure to:
- include income from RESP and TFSA for 2009-2012 on my 1040
- file other paperwork for those (3520, etc).

I'm reading all about "quiet disclosure", voluntary disclosure, etc.
These seem to be in regards to foreign accounts that you never disclosed; and, there seem to be penalties involved, like if you voluntarily disclose a foreign account, a 20-something % penalty of the account value.

So, does failure to include the income on my 1040 classify these accounts as "undisclosed"?
I have filed 1040's for all those years, AND filed the FBAR each year AND included those accounts.

I think I have disclosed them, just didn't report the income.

I was wondering if I amend those returns to include the income, is that just going to be getting me into more trouble by falling under "quiet disclosure", which the IRS seems to hate?

FWIW, I haven't done the full math, but my "tax" on the unreported income for those years would be:
$6, $80, $50, $80.

I don't have the returns handy, so I can't tell for sure if my tax liability for those years would increase at all (my tax liability was $0 for each year). Meaning: likely the income would be wiped out by exemptions, or in the worse case, foreign tax credit.

I want to go back and correct my mistakes- but I want to make sure it doesn't cause more trouble due to something I don't know about.

*PS I likely need to file other paperwork too. 3520, 3520A, 8621? Asking about those on other threads.

rohitkn@gmail.com · Post by **rohitkn@gmail.com** » Mon Mar 31, 2014 3:54 pm

People generally don't get penalized when they come forward and find out about some page 1066 rule they had to comply with.

Come forward asap on all CRA/IRS issues and you'll be fine. I've dealt with the CRA and amended tax returns before.

I am delinquent on 3520/a + 8621 + fbar + 8938 + 8891 from last year. So you're not the only one sweating this crap.

Just imagine - normal RRSP, TFSA (mutual funds) and the digit soup doesn't end anywhere.

nelsona · Post by **nelsona** » Mon Mar 31, 2014 4:10 pm

gpan, nice of you to start a thread rather than hi-jack.
Yes, if you filed a US tax return and BOTH failed to report foreign income, AND failed to report the existence of these accounts, you are in the worst situation.

You cannot quietly disclose these errors.

Hd you done one OR the other, you, could using the streamlined method.

gpancio · Post by **gpancio** » Mon Mar 31, 2014 4:16 pm

Hi nelsona, thank you for replying.

I just wanted to clarify your comment.
In my case, I have filed 1040s AND I have reported every account that I have in Canada via the FBAR (TDF9020- whatever).
But I did NOT report some income from TFSA/RESP.

If I just go back and amend my tax forms to report that income, is that ok?

In other words: suppose I had failed to report the accounts via FBAR. Is that the case in which you would be in bigger trouble, for trying to "quietly disclose"?

Sorry if my questions don't make too much sense....

gpancio · Post by **gpancio** » Mon Mar 31, 2014 4:24 pm

[quote="rohitkn@gmail.com"]People generally don't get penalized when they come forward and find out about some page 1066 rule they had to comply with.

Come forward asap on all CRA/IRS issues and you'll be fine. I've dealt with the CRA and amended tax returns before.
[/quote]

This is what i'm hoping. Right now my plan is to:
1. file amended returns for 2009-2012 to fix my unreported RESP and TFSA income (I might need to file the ... 8621? also...)
2. file the 3520 and 3520-A for those years too, explaining the truth- I didn't know.
3. File properly this year... expect for the 3520-A which is already late. Probably still file it though, explaining why.
4. Get rid of my TFSA
5. Get rid of my RESP
6. Probably deal with $10,000 penalty letters in regards to the late 3520s.

I'm hoping that the knowledgable readers in this forum, and those who have gone through this before, can lend some advice. For example, if any of this plan is really stupid, or if there's a better way.

I believe my amended returns will be ok since I likely won't owe any new taxes.
I still fear filing those and the 3520s because of the crazy penalties they will likely send to me. It is good to hear that nobody on this forum has actually had to pay those though.

rohitkn@gmail.com · Post by **rohitkn@gmail.com** » Mon Mar 31, 2014 4:30 pm

Nelsona: "Yes, if you filed a US tax return and BOTH failed to report foreign income, AND failed to report the existence of these accounts, you are in the worst situation. "

Certainly it's bad to under report income and miss reporting the existence of accounts.

But owing a $100 vs $5000 are two different situations. perhaps having tax credits in Canada helps mitigate some of this. I don't know but doing the right thing is never too late.

nelsona · Post by **nelsona** » Tue Apr 01, 2014 10:06 am

The "right" thing is to correct your return. That is always paossible in the 3 year period. Interest and penalties apply, but no fines.

However, for FBAR, 3520, 8891 etc, retro filing is NO LONGER POSSIBLE WITHOUT IRS PERMISSION! So one cannot do this quietly. Otherwise Interst penalties AND FINES will be levied.

gpancio · Post by **gpancio** » Tue Apr 01, 2014 10:12 am

[quote="nelsona"]The "right" thing is to correct your return. That is always paossible in the 3 year period. Interest and penalties apply, but no fines.

However, for FBAR, 3520, 8891 etc, retro filing is NO LONGER POSSIBLE WITHOUT IRS PERMISSION! So one cannot do this quietly. Otherwise Interst penalties AND FINES will be levied.[/quote]

That's partly what i'm trying to clarify. So it is still "quiet disclosure", meaning interest, penalties, and fines, EVEN IF all FBAR has been reported properly?

I'm amending my returns now to report the income I failed to report before. There might be one year that I will owe tax of less than $50.

I still need to deal with 3520/3520-A; it seems from others' experience here, you do get massive penalty letters, but if you really just made a mistake, you eventually get the penalties waived.

nelsona · Post by **nelsona** » Tue Apr 01, 2014 11:18 am

Requesting permission, which is done by a Private Letter Ruling (PLR), is costly and amounts to a fine anyways.

gpancio · Post by **gpancio** » Tue Apr 01, 2014 11:32 am

Rohitkn, it sounds like we are screwed.
I don't know what to do anymore. It doesnâ€™t sound like you can try to fix an honest mistake with out being heavily penalized.

What are your plans?

gpancio · Post by **gpancio** » Tue Apr 01, 2014 1:10 pm

Well, i keep digging. There are a few procedures available to come clean:
1. 2012 Offshore Voluntary Disclosure
2. New Streamlined process.

#2 sounds great but explicity states that if you filed 1040s but only need to amend the return to report unreported foreign income, then don't use this procedure.
Fine.

#1 has lots of penalties: 27.5% of aggregate value of undisclosed accounts; or, a reduced penatly of 12.5%; or a reduced penalty of 5%.

I think I could qualify for the 5%.
http://www.irs.gov/Individuals/Internat ... nd-Answers
Question 52, #3.

That would be about $2000 for me. That's not the end of the world, and considerably better than other penalties, however for 2009-2012 my unreported income would add $0 tax liability for 3/4 of the years; only in 2011 would it make me owe tax, and that would be less than $50.

Does anybody know if the OVDP is a good option here? Is there a better way? is there some text somewhere that says that for such little money owed, no penalty applies?

The New Filing Compliance procedure is much more forgiving- it seems you only pay what you owe plus interest, assuming you are "low risk". But I can't do that program, because I need to just amend a return!

rohitkn@gmail.com · Post by **rohitkn@gmail.com** » Tue Apr 01, 2014 2:35 pm

gpancio:

First of all don't panic.

You are not a tax cheat. Do the conservative thing first - it's not to hire a lawyer and ask for a PLR. Make sure you file your taxes for this year correctly - with 3520/a, 8891 and 8938. Then take a deep breath and file 1040X with all the accompanying forms for past years. And wait to see what response you get from the IRS.

For each form that is late (3520-a) or back filed create a letter stating.
- you are trying to comply
- you didn't know the requirements
- your accountant couldn't advise you so you went to a better professional (enclose receipts of consultations)
- indicate you have no tax owing
- show any foreign tax credits.

Again what I am saying is not legal nor tax advice. It's just to calm your nerves down. I was asked by a friend to talk to a cross border tax accountant. I phoned him today and will meet with him 2 days from now. Since I am going to Canada where he works, it will work out for me.

The firm is in toronto (not endorsing anyone)

He charges 350$ per hour and hundreds more to fill out each form. I may not get him to do that.

If you are assessed penalties or asked for even more documentation, then you talk to the IRS.

Good luck. You're not the only one in this position. And panicking won't solve anything. Fill out all the forms you think you have to and do so to the best of your abilities.

Rohitkn

rohitkn@gmail.com · Post by **rohitkn@gmail.com** » Tue Apr 01, 2014 2:43 pm

I potentially have $100 tax owing to the IRS from small profits in my TFSA from 2012.

I haven't done any FBARs (I missed 2012).

But I am not freaking out. You do the best you can. Time is of the essence so explain it to your boss/family and get to it.

nelsona · Post by **nelsona** » Tue Apr 01, 2014 2:44 pm

Unfortunately, it was the Cdn accountants who spoun this out of control in the firstplace. We were succesfully advising quiet dosclosure for YEARS until 2011 when -- mostly due to Cdn acct firms -- all this got amped-up.

So your $350 meeting will likley result in a tale of doom and gloom.

gpancio · Post by **gpancio** » Tue Apr 01, 2014 2:46 pm

Thanks rohitkn. You seem to have better nerves about this. Obviously I read stuff, get stressed out, calm down, repeat.

I feel better having read about OVDP- it seems like there *is* a max penalty that I would be subject to, which wouldn't be as awful as I imagined. For example, it could be $2000 instead of, say over $10,000. That kind of penalty would really put a dent in my savings.

I'm still leaning towards doing what you say: file amended returns, pay up the tiny tax I might owe (like $40), write letters saying why, etc.

I might make some calls to the IRS tomorrow morning to see what they say. I had done that before because I *also* neglected to send 8891's for several years (for RRSPs). They said: just amend your return, add the 8891, include a letter explaining it. That was like 3 years ago and I have not heard a peep about it.

I'm not a tax cheat, and for $40 at most I would hope they don't care too much how I become compliant. But when you start reading their docs, and various posts on this forum- man, it sounds like you have huge trouble.