FBAR/Fincen late filling?

[rikelme]

Hi,

I have a unique situation - my wife and I live in US, both residents, she is Norwegian and her parents live in Norway. Now, her father has his small business over there in her name (<100k), due to credit issues in the past he couldn't get business loans he needed to survive and this little money is really his life savings that will be his retirement supplement, hence me and my wife never have taken nor will take a penny from it, i.e. no tax impact here whatsoever. In fact, my wife has sign an agreement with him to transfer/gift the share title prior to coming to US (2019), but apparently the negotiation procedure between the banks and the father hasn't been completed till this year. Long story short she still is the owner of the share account.

Now, we never reported 8938 because the value of the shares since 2019  when she became a  US residence, was always between 50-95k never exceeding the threshold of 100k MFJ. However we never knew that this was suppose to be reported on FBAR for informational purposes if the account is over 10k, partially because out of ignorance and in all honestly, it is not and never will be our money. She has never had proceeds in her bank account from this venture. Parents are living off of it.

This year, we received a bank letter from there about some small stock sale proceeds around $2400 USD that were held in the company`s name and sold by her father but since she is the legal share owner with US address residence (even though never has input in the company nor any proceeds come to her personal account), my assumption is we need to report this here somehow, since it has been sent to IRS as part of fatca/crs terms, which brings me to couple of more questions:

1) Do we need to go back and file late FBARs/finFINCENcen 114 to state the amount of the foreign share even tho is under 100k (but over 10k). My understanding is yes, even though 8938 is not applicable but fincen wi US treasury is?

 2) Will this cause penalties since its late even though is really non willful and completely innocent admin mistake, not to mention there is no tax impact nor ever will be in US (eventually will be transferred to her dad once he retires this year, something that should have been done 3yrs ago but it was backed up on their side)

Confused how to disclose this in what forms exactly. 

Any help or advice is appreciated.

Thanks

[hbl3973]

rieklme,

https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures

is the first place you should go.  I helped a good friend through the process last year when I discovered she had foreign bank accounts that had balances above $10K.  You will need to go back 6 years, three for amended returns for 2019 through 2021 and three more 2016-2018 in addition to doing your 2022 return.  For each year, we filled in at least one form 8938.

It may take some time to assemble the required information, so get working on it as soon as possible.

[PattiF]

You do not need to follow the streamlined procedure for your FBAR returns. The FBAR returns are not delinquent and there was no income to report. You can simply file the FBARs.

@rikelme 

[hbl3973]

PattiF,

I stand corrected.  The situation I dealt with did have foreign interest and dividend income plus Spanish imputed rental income on an idle second home.

Correct me if I'm wrong, but I would, though, think there is still a need to file delinquent FBAR's assuming the shares were held in some financial account in Norway whether or not touched.  These taxpayers would know if that were the case.  The start year would presumably be 2019, the year the wife became a US resident unless she was treated as a resident via joint US filing (IRS Pub 519) prior to that. 

According to

https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures

the IRS does not impose penalties for delinquent FBAR filings in the case of these taxpayers because there was no unreported income prior to 2022 and they had no need to file 8939s.

[rikelme]

Thank you all for the prompt reply. After receiving some new accounting data from there, it seems that the value of the share was over 100k in some years, which definitely involves reporting and amending 8938 for those as well, along with FBARs, even though there was no income in any of them. I just hope this ignorance doesnt introduce big penalties here, since all teh tax compliance is in their country- afterall it is their retirement we are talking about, and would really be unreasonable for us to pay big fines for procedural mistakes out of not knowing/complexity of the issue.

[hbl3973]

In the case I worked, the highest account balance was about $140K and the penalty was about $7K, i.e. the 5% miscellaneous offshore penalty.

[rikelme]

What constitute a reasonable cause tho and not get penalty, since this is completely non willful and due to lack of ignorance ....we just didnt know as simple as that. Had we known this why wouldnt I report something that we dont get any benefit from really since income will never be produced here.

[hbl3973]

rikelme,

I could not find a way out of the 5% miscellaneous tax, which is what the documentation indicates is the reduced penalty for not knowing the rules.  If you can find one, I'd love to know it as would, of course, the friend I assisted.  The instructions at

https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states

don't show any leeway.  You already certify it was non-willful to get the streamlined break.

[CWTax]

I found this IRS page to be a good place to start reading all of the options for delinquent information filings and to decide which "Offshore Compliance Option" applies:

https://www.irs.gov/individuals/international-taxpayers/delinquent-international-information-return-...

If there is no criminal aspect ("willful failure") and no back taxes to report and pay, you may be able to use the Delinquent FBAR Submission Procedures to resolve delinquent FBARs:

https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures

[DM_78]

Hi, 

Has your friend been charged any penalties?

What did you guys put as a reason?

Thank you

[hbl3973]

DM_78,

My friend only had to pay the 5% penalty.  The stated reason was "Did not know that I had to file"