Streamlined foreign offshore procedures

[shachar183]

Hello,

Individual who lives overseas and wants to complete the SFO procedures didn't have any income in 2019 and 2020 but did have in 2018. Does file only 2018 together with form 14653 and the required FBAR (for the recent 6 years)? He does not need to file Federal tax return for 2019 2020 if there was no income, right?

Thanks, 

[itonewbie]

Are you saying your client living overseas didn't have any gross income from any sources at all?

You'd want to make sure because the exposure of getting this wrong and the disclosure done incorrectly could be significant.

[itonewbie]

Also, preparing the F.14653 is not all that straightforward.  There have been legal challenges as to what constitutes willful conduct, which means the narrative of the surrounding facts and circumstances would be critical, especially since your client has only one chance to get it right.

[shachar183]

Thanks. They do live overseas same town as I do. I know the couple. The mom which holds a US citizenship was a teacher and quit. She does receive social security funds which are way below standard deduction (threshold for filing). The dad and the kids are not US citizens. 

[shachar183]

It is not straightforward but required. I ask my clients to describe their background both financial and personal and ask them to add that failures to report financial assets and income earned in the past resulted from non-willful conduct. 

Any other suggestions? 

[itonewbie]

Procedurally, what you proposed would be correct.  As for the certification, it would not be sufficient for your client to "add that failures report financial and income earned in the past resulted from non-willful conduct".  Rather, it should be ascertained how the failure was not.

One of the most common oversight is how foreign pension contributions are not reported, at all or properly, on the returns, even with streamlined procedure.

[shachar183]

Assuming that I verified carefully and this individual did not earn income above standard deduction in 2019 and 2020, but did so for 2018. Do you think it will be right to say that she is required to file 2018 tax return and FBARs for the most 6 recent years? (2015 through 2020 when exceeding the 10,000$ threshold).

[shachar183]

I do pay attention to my clients' contributions to pension plans in general and employers' contributions to individuals specifically which is much more pervasive. I did meet one tax partner which works at the big4 and discussed about potential impact on employer's contributions on US citizens tax returns - section 402b.

Thanks for the heads up I do know that it is a matte that has been raise lately. 

[itonewbie]

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@shachar183 wrote:

Assuming that I verified carefully and this individual did not earn income above standard deduction in 2019 and 2020, but did so for 2018. Do you think it will be right to say that she is required to file 2018 tax return and FBARs for the most 6 recent years? (2015 through 2020 when exceeding the 10,000$ threshold).

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I suppose you meant gross income instead of earned income.  If so and there are no other information reporting requirements (which may be triggered by certain foreign pension), then yes, go ahead and file the F.1040 for 2018 but I would explain why the other years' are not filed in F.14653.

As for FBAR, the correct years your client needs to file are 2014-2019 since 2020 is not past due.

2020 should be not be part of the streamlined procedures filing.

[itonewbie]

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@shachar183 wrote:

I do pay attention to my clients' contributions to pension plans in general and employers' contributions to individuals specifically which is much more pervasive. I did meet one tax partner which works at the big4 and discussed about potential impact on employer's contributions on US citizens tax returns - section 402b.

Thanks for the heads up I do know that it is a matte that has been raise lately. 

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Yes, §402(b) is the operative section but the tax treatment also depends on whether it's a grantor or nongrantor nonexempt employees' trust.  Whether the foreign plan is discriminatory would also be part of the consideration.  If you spoke with a Big Four partner, these are the finer points that he/she should have discussed with you.