Make a quiet disclosure?

[heyo]

So, I am mostly tax compliant, but I have one little skeleton in my closet and I'm not sure what to do. I've been advised by one CPA to ignore it, but I don't really feel comfortable with that.

I'm a dual citizen/Canadian resident. In 2009, I filed in the US for the first time because I was there fore college, had some US source income, and wanted a refund. Didn't understand CBT at the time. Anyway, I did it myself with Turbotax (the free online edition), and ended up doing it wrong.

The problem? I included all my Canadian Income on Form 2555, but not on line 7 of 1040. As a result, my gross income showed up as a negative number. I also did not file schedule B or disclose the $3 of interest from my Canadian savings account because I didn't know about it.

I filed on time, so the statute of limitations should have passed already, but I am wondering if I could be on the hook for another three years. Would the IRS consider that I have underreported my income since it was not on line 7? Or surely they would have realized it was a simple error and made the correction themselves?

I would probably not worry about it except that I only learned about the FBAR this year and I found out I should have filed one in 2009. (Never actually had 10K, but I transferred money around between accounts).

Since that time I think I have done my taxes correctly, and I did not need an FBAR for 2010 or 2011. I'm just wondering if I should amend my 2009 return before sending in the FBAR. Even if I made the correction, it would not change my refund amount, and I'm worried an amendment would just raise red flags.

[Taxpoor]

You have two options here, you can file a 1040X for 2009 and correct your mistakes.....or you can do nothing.

Your return obviously did not flag the IRS computers so your return must be safely tucked away in bed right now....and has been for the last 5 years..why wake it up?

I surely would not for 3 dollars of unclaimed interest.

Your bigger problem is FBAR...this is what you should be worrying about.

If your aggregate value of your accounts exceeded 10k then you should have filed one with the Dept of treasury.

This form (although can be amended) can not be filed without a reasonable cause letter...and if you are going to file one for 2009 i strongly recommend sending a letter or they will come after you with a penalty structure.

This is what you should be worried about IMO....forget about the 1040 and 3 dollars of interest.

Also....don't listen to your CPA....do what you feel is right and makes you sleep at night.

[heyo]

Okay, so what I'm hearing is just file the FBAR with a reasonable cause letter. That's what I have been leaning towards.

I guess my only reason for worrying about the 1040 is that I do *technically* have unreported income even though I have no tax owing. You think I could avoid penalties without the 1040X?

[Taxpoor]

The beauty of your situation is that you DID file a tax return for 2009....all you would be doing is amending it with a 1040X...and the fact that you did not owe any tax for that year eliminates any discussion for penalties or fines on interest owing...which there is not.

Filing a 1040X to amend an already filed return is an acceptable procedure in your case....and would not be considered a 'quiet disclosure'

It would be a different story if you owed a bunch of tax to the IRS and did not file a return....

If I was in your situation I would call the IRS directly, explain you situation about the 3 dollars of unclaimed interest (as I think this is what you are talking about), and see what they say...you might be surprised. Make sure you write down the agent number when you call.

Also make sure you tell them the error was just discovered, don't make it appear that you filed a false return back in 2009.

[nelsona]

for the 1040 return,

I would simply amend the return, correcting line 7 and schedule B, and be done with it.

my fbar submission would be separate of course, and have a letter as taxpoor indicated.

[heyo]

Okay, thanks guys. I will do that.