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Foreign Income - I have a new taxpayer client. * She is a US

Foreign Income -I have a...
Foreign Income -I have a new taxpayer client.
* She is a US citizen.
* Was married in Austria and still married to the Austrian.
* Marriage is not recognized in the US.
* Has rental house in US, no earned income in US
* Works as tutor in Austria approximately $ 30K a year before Austria taxes
* Spends less than 30 days a year in US - usually just a couple of week long visits.
* She does have a joint bank account - foreign with her spouse and the aggregate is over $ 10KAll of the above, was her tax situation starting in 2011. The prior account just completed a 1040 with Schedule E, no FIN and no reporting of world wide income. He informed her it was not necessary because she earned so little.1. Her taxable income would not have changed over the year if she correctly reported all income and used the foreign income exclusion (which she would have qualified for all years).
2. She was very concerned about having to report the joint bank account and providing those account numbers especially since the husband is not a US citizen.What type of penalties or problems can be lingering on her for those years of incorrect filling and not reporting bank account?When she files correctly this year, will it raise any red flags or create/generate any IRS notice?What else should she be concerned about?Thanks,
JW
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Answered in 10 minutes by:
8/11/2017
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,880
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It appears, base don the amount fo rteh foreign account, that her penalty would be for FBAR non reporting and not the higher FATCA penalties.

If an individual fails to file the FBAR, the IRS can impose one of two civil penalties:

  • A nonwillfulness penalty, not to exceed $10,000, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements (IRM §4.26.16.4.4); or
  • A willfulness penalty may be imposed on any person who willfully fails to file the FBAR, with the ceiling on the penalty being the greater of $100,000 or 50% of the balance in the account at the time of the violation (IRM §4.26.16.4.5.1).

Significantly, the nonwillfulness penalty should not be imposed if an individual’s violation was due to reasonable cause and the balance in the account was properly reported on an FBAR (IRM §4.26.16.4.4). This may be her saving point because she relied on a professional and their advice.

She should correct this non filing. Filing correctly now may not draw attention to her that is really unknown but the past can be corrected now.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,880
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