[indianinusa]

I have two NRI/NRE accounts in different banks. One of these two banks regularly sent me 1099INT which I reported on my US tax returns. However, I never received anything from the second bank and I never reported any interest income on it.

I have just realized that I should have reported the interest income on this account as well even though I didn't receive 1099. In addition to this mistake, I was just made aware of the FBAR act, acc to which I should have declared the accounts (in case of balance increasing more than $10K).

I believe the balance in one of my account went above 10K limit in the last yr or so.

Firstly, is this 10K limit a cumulative for both the accounts or is it per account?

I don't have any clue how to straighten up things. I didn't intentionally do this and my interest for the second account will not be more than $20-30per yr.

What are my options now? I don't want to end up paying hefty penalities for this genuine mistake. Any help would really be appreciated.

[ebaines]

If the amount of interest paid to you during the year is less than $10 the bank won't send a 1099-INT - perhaps that is why you never receieved one for that 2nd bank? If the amount is over $10 then you should have received a 1099INT. If that's the case I suggest you contact the bank and ask them to resend it. Or you may be able to download a copy if you have online access to the account. Then you can submit a 1099-X to modify the amount of income you reported for 2010, and pay the extra tax plus a small amount of interest. It's better for you to clear this up now rather than wait for the IRS to catch up with you (which they will, IF the bank issued a 1099-INT).

[AtlantaTaxExpert]

The $10K figure is cumulative for FBAR purposes, so, yes, you DO need to submit the FBAR for 2010.

The form is Form TD F 90-22.1. The IRS FAQ page is at the link below:

http://www.irs.gov/businesses/small/...210244,00.html

There IS a Voluntary Disclosure Program which allows you to "catch up" on the FBAR requirement with no penalties.

As for your tax returns, amend the returns to add the interest, even if the amount is relatively small. It will look good on your FBAR catchup submission if you in fact amend the returns to report the missing income.

[Nadel]

Most offshore banks wouldn't send 1099-INTs anyway. The bank you got it from was likely an American bank with a branch in India.

There are hefty penalties for not filing FBARs, but since you reported all income on one account, and had only a small sum in another account, you should be able to avoid them.

[indianinusa]

Thanks all for your replies. I agree with Nadel... my second bank may even not know about 1099...

AtlantaTaxExpert- The "catch up" opportunity has the penality of 25% of the highest balance. Can I file the amendments and then file delinquent FBARs for the last few years?

[AtlantaTaxExpert]

The 25% penalty can be and normally IS waived under the Voluntary Disclosure Program, unless the IRS has reason. To believe you were hiding income. That does not seem to apply in your case.

There is NO extension for the 30 June deadline, so file the FBAR for 2010 FIRST, then amend the returns, then file the late FBARs

[indianinusa]

Thanks so much for the reply, ATE.

In this process of F"BAR 2010 -> Amended returns -> Late FBRS", at what step will I use the Volntary Disclosure Program?

[AtlantaTaxExpert]

Submit the 2010 FBAR by 30 June 2011.

Then do the Voluntary Disclosure for the past year FBARs.

[Nadel]

If you have a cumulative balance > 10K for only 1 year (2010), then you can file the FBAR by Jun 30 2011 and you are OK. The interest for the last few years is likely too small < $10 too be worth amending older tax forms. But you can consider amending this years. You do not need any form of disclosure.

If you have multiple years with a cumulative balance > 10K, the its more problematic. If you join the IRS's formal voluntary disclosure initiative (OVDI), it will be a mechanical process and you WILL be fined 12.5% (since your balance < 75K, it wouldn't be 25%) of the balance of the account for which interest was not reported.

The other alternative is to file the FBAR for 2010, amend 3 years of returns even if the sum is small, and send in past FBARs for years where aggregate balance > 10K. That is not formal 'Voluntary Disclosure', its so-called "Quiet Disclosure". The IRS has been making noises that it doesn't want Quiet Disclosure, but in your case, since the balances are so small, you should get off without a penalty. No guarantees though.

[Nadel]

The 25% penalty can be and normally IS waived under the Voluntary Disclosure Program, unless the IRS has reason. to believe you were hiding income. That does not seem to apply in your case.

Under the IRS's formal OVDI, there is NO indication that the penalty will be waived if there was any income on an unreported account (no de minimis sum). Its only waived if there was NO ($0) income, or if all the income was disclosed. Based on the IRS's last VD initiative, it will be a very mechanical process and 'indianinusa' will be fined 12.5% of account balance if he joins the OVDI.

Its very likely IRS will not assert any penalty in this case if indianinusa just quietly files delinquent FBARs (if last year is the only FBAR to be filed, then there is no problem) and amends returns. But that is NOT the IRS's formal VD initiative.

[austinuser]

Hi,
I have a NRE and a NRO account in India.I recently found that I need to file FBAR.
Now , I need to amend this from 2005 and each year it crossed more than 10k
2005 - 15k interest - $15.00
2006 - 38k interest - $60.00
2007 - 55k interest - $100.00
2008 - 19k interest - $110.00
2009 - 15k interest - $150.00
2010 - 47k interest - $50.00

I couldn't believe , I am so ignorant about this.All the money which I sent are after tax money from US.

Could you please suggest how bad my case and what should I do now.

Thank you for all your help

[AtlantaTaxExpert]

Modification to guidance above:

Amendments for interest amounts UNDER $100 is not needed; the IRS does not want to be bothered with the paperwork for an amount below $100.

[Nadel]

ATE, are you also going to modify your guidance suggesting that "[I]the 25% penalty can be and is normally waived under the IRS's Voluntary Disclosure program.["/I]

In fact, the IRS has said that under OVDI, agents have NO discretion to modify penalties. It will be 25% or 12.5% (if < 75k). The only way to do that is go through the OVDI, and opt out at the end. It is extremely mechanical. There is no 'normal 'waiver at all. Your advice to indianinusa is extremely misleading.

Indianinusa, if your balance only crossed 10K last year, then file the FBAR immediately to Detroit. It has to reach Detroit by the 30th of June. Then amend this years' return to include the extra income. If you have no FBAR violation in previous years, then absolutely do not go in for formal VD. You can amend previous year's returns to include extra interest unless its too small to bother. But if no old FBARS are due, there is NO need to go for the formal VD at all, since you will be fined $1250 for no reason.

[Nadel]

Indiainusa -- rereading your note though, its not clear whether your maximum aggregate balance was greater than 10K in previous years, or only your unreported account was greater than 10 K. If maximum aggregate balance was greater than 10K (whether the interest was reported or not), then you have a FBAR filing requirement. My advice still holds if 2010 is the only year where you had a maximum aggregate balance > 10K.

In any case file a FBAR for 2010. Then talk to a local CPA about what to do for previous years. Under the IRS's OVDI program, you will likely be fined 12.5% of maximum balance in the unreported account. But its also possible that you might not be fined at all. In any case, its simply not the case that the penalty is "normally" waived under OVDI. This is a new program, so there is nothing normal about it. Judging by the IRS's comments, the penalty will not be waived (although there may be a few walk-on-water case where they do waive it, and your case might be one of those).

[indianinusa]

Nadel- Thanks for your replies on the matter. I have had a cumulative balance of more than 10K for past 2 yrs. One thing which is still not very clear to me is- what accounts to report?

I have NRI account with the Citibank for which I have always received 1099INT and I have reported this income regularly. Do I still need to report this account on FBAR form?
The second account is NRE account for which I never received the 1099INT and I didn't report or paid taxes on.
The interest amount has been in the range of $100-$200 for the second account. Is it possible to report the interest for past 2 yrs (from second account) in my 2011 income? I am not sure if this will save me from amendements.

[Nadel]

indianinusa: I think the Citibank account is very likely held by Citibank India, which is technically a foreign bank, so in the FBAR for 2010, you need to report it and the other account as well in the FBAR. File for 2010 for sure.

No, you cannot put the income in your 2011 return. Income has to be recognized the year it is paid. Normally, for the sums you describe, no one would care. But when it comes to foreign accounts, the iRS is becoming VERY strict. At least, this year's return should be amended, I think.

No one can say for sure what the IRS will do in a case like yours. Since the OVDI is a very mechanical process, if you join it, you will need to fill in lots of paperwork and will likely be fined 12.5% of the undeclared account. On the other hand, if your undeclared account was below 10K by itself, you might be able to claim that since the total account balance that was not reported for income purposes was less than $10K, you should not be subject to an FBAR penalty. Or you could just quietly amend 2009 return as well and send in an FBAR for 2009. Since the sums you mention are so small, its quite likely the IRS will not bother you. Sorry, I don't have a definite answer, only the IRS knows. Maybe you can talk to a local CPA who might be able to ask the iRS. Bear in mind though that your extra cost if you joined OVDI will be 12.5% * unreported account maximum balance + whatever small amount of tax, 20% penalty of tax due, and interest will be (probably around $100), but there will be a lot of paperwork you will have to do.

austinuser -- your case is totally different. You have 6 years of FBAR violations. You should talk to a local CPA. The interest amounts are small, but 6 years of violations are a serious matter. If you join OVDI, you will be fined 12.5% of 55K + tax, 20% penalty of tax due, and interest (probably around $300 or so in your case).

[AtlantaTaxExpert]

Nadel:

Do you have ACTUAL first-hand experience where you or your clients were in fact fined the amounts you cite (12.5% of balance) when they participated in the Volunary Disclosure Process?

My contact at the IRS indicated that no fines would be assessed, which is the exact opposite of what you counsel on this forum.

I await your response.

David Kempe

[Nadel]

I have no first-hand (or second hand for that matter) experience with a 12.5% fine, because it is new for this VD period. I don't see how anyone could have any experience with the OVDI since cases have been settled yet. I go by the statement in the FAQ:

"No. Voluntary disclosure examiners do not have discretion to settle cases for amounts less than what is properly due and owing.
..
Examiners will compare the amount due under this offshore initiative to the tax, interest, and applicable penalties (at their maximum levels and without regard to issues relating to reasonable cause, willfulness, mitigation factors, or other circumstances that may reduce liability) for all open years that a taxpayer would owe in the absence of the 2011 OVDI penalty regime. The taxpayer will pay the lesser amount. If the taxpayer disagrees with the result, the taxpayer may request that the case be referred for an examination of all relevant years and issues (see FAQ 51)."

What part of that leads you or your contact to believe that the penalty can be and is normally waived ? The offshore penalty of 25% or 12.5% will NOT be waived. The only break you get is that this is compared with the maximum FBAR penalty of 100K per year (and likely more) for each and the lower is taken. Such a deal !

If you disagree, you drop out and go through routine examination.

Even in the 2009 OVDP (and I do have experience there), the penalty was almost never waived even if some people had NO tax due because of Foreign tax credits. The IRS is becoming very tough on offshore accounts and they have a very big stick.

[Nadel]

One clarification -- in 2009, the penalty was occasionally reduced (although almost never waived entirely) under the so-called FAQ 35 argument occasionally. It was still not that common though, and its been withdrawn even for 2009 OVDP participants. For the 2011 OVDI, its pretty clear that it will not be waived although I suppose there could be a true walk-on-water case where it does get reduced to an accuracy penalty of $500 if someone wants to drop out.

[rsharma]

I have two NRI/NRE accounts in different banks. One of these two banks regularly sent me 1099INT which I reported on my US tax returns. However, I never received anything from the second bank and I never reported any interest income on it.

I have just realized that I should have reported the interest income on this account as well even though I didn't receive 1099. In addition to this mistake, I was just made aware of the FBAR act, acc to which I should have declared the accounts (in case of balance increasing more than $10K).

I believe the balance in one of my account went above 10K limit in the last yr or so.

Firstly, is this 10K limit a cumulative for both the accounts or is it per account?

I don't have any clue how to straighten up things. I didn't intentionally do this and my interest for the second account will not be more than $20-30per yr.

What are my options now? I don't want to end up paying hefty penalities for this genuine mistake. Any help would really be appreciated.

Yes- 10K is the aggregate balance. You have all options - from starting fresh now, do quiet disclosure, go for Voluantary Disclosure or OVDI. I am sure OVDI CPAs / Atty will not suggest starting fresh or to do a quiet disclosure as they probably can not.

But going for OVDI and then opt out might be the best scenario. Until now I thought that if you opt out penalties might be as high as $10K per year per account. Just found that it could be much lower here... My OVDI case is ready to be closed - should I opt out? | IndianCPA.US Any comments?