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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7460
Experience:  15years with H & R Block. Divisional leader, Instructor
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I am a US Citizen by birth. I have been residing in India right

Customer Question

I am a US Citizen by birth. I have been residing in India right after my birth. I know I am liable to pay tax in US but have not filed any tax returns in US. My age is 25 years.
I know the rules of foreign income exclusion. My question is for how many years can I file prior tax returns. I know the statute of limitation is for 7 years, but if I am not mistaken they do not begin till the time you file the tax return. I have income in India from the age when I was 2 years. So am I liable to file tax returns for last 23 years.
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Hello and thank you for using Just Answer.

You are correct as a US citizen you are to file a tax return on worldwide income. The Foreign Income Exclusion is for Earned Income (I mention this because you stated your age as 2 for income and if that was from investments then the exclusion would not apply). There is a foreign tax credit that could be used to lessen a tax burden on US return for paying tax in another country on the same income.

The statute of limitations is 3 years for the IRS go back and audit a filed return. The statute begins when the return is filed so if no return was filed then the statute does not start. Generally a taxpayer can file for the past 3 years but in your case you should start with the past 5 and the main problem you may have is in not having filed any FBAR (Form 90-22.1) reporting on foreign accounts over $10,000. If you have not filed those but had any accounts in a country other than the US that had at any time in a tax year more than $10,000 you need to file those forms. I advise on 5 years because the US requires the past 5 years returns when one wants to give up their US citizenship. Not that I am implying you want to do this but it is best place to start.

Customer: replied 2 years ago.
My question is still not answered. If I file for prior 5 years return, CAN IRS come after me for the prior 17 years.
Expert:  Robin D. replied 2 years ago.
Yes they can. As I stated, the statute of limitations only begins to run when a return is filed. Since you had no returns filed they are still open years. The IRS takes into account the fact that a foreign resident US citizen has paid all tax to the country of residency. We also have a very good tax treaty with India and if you have not been in the US for any of those years then you will need to file (as I suggested start with the past 5 years) and if the IRS wishes to request any years prior to that they will let you know. It is the foreign accounts that have more penalty possibilities (as long as you have stayed compliant with India tax).
Customer: replied 2 years ago.
As regards Foreign Account they can only hold me liable for the last 7 years (i.e. once I have become major), because I do not have any right in any account as a minor. Correct me if I am wrong.

As regards Income Tax I am more worried because I am a very high HNI in India, hence want to know my total tax liability scenario. So even though there is a tax treaty between USA and India, IRS can hold me liable for more than 5 years. Correct me if I am wrong.
Expert:  Robin D. replied 2 years ago.
The IRS can hold you liable for more than 5 years. The fact that you were a minor is not relevant for tax in US if your name was on the account then you owned the account. That would mean that you were responsible for filing (of course in real life a minor is reliant on adults but we are speaking of taxes).
Customer: replied 2 years ago.
If FBAR requirement part of a Treasury Department, then why the IRS rules will work for holding of the account. I am being informed that as I do not have any rights in the account then just the mere fact that someone oepns the account in my name does not hold ground on for FBAR.

But going by your answer on FBAR then for how many years can they held me liable for not filing. When did FBAR come into effect.
Expert:  Robin D. replied 2 years ago.

They can hold you liable for every year that you did not file and your responsibility was to file. FBAR was written in 1970 but has been amended over the years.

 

Customer: replied 2 years ago.
Read this:
Taken from
http://www.bnncpa.com/services/tax/NewUSForeignBankAccountReportingChanges.asp

What is a financial interest?

The term “financial interest” is now defined as an interest held by a U.S. person if the person is the owner of record of the interest or the U.S. person has legal title over the interest “whether the account is maintained for his or her own benefit or for the benefit of others, including non-United States persons”. So now “financial interests” can include the following:

  1. Accounts at foreign financial institutions held for the benefit of minor children


Having said that then the Minor's account acctually belongs to the Parents and in my case belongs to NRA and not to US Citizen.
Expert:  Robin D. replied 2 years ago.
The account would be the child's unless the parent decided to included the interest on their own return which in your case the parents would not need to file a US return so the fact that it belonged to the child stands for US tax purposes. I am basing my interpretation on the rules for a parent filing Form 8814 to report their child's interest on their return. The child being the owner of record and no tax form being required form parent's the child would have been liable to disclose the account.

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