US Tax Question - Schedule B

[BKKSnowBird]

Hey guys, Can anyone give me a bit of advice please?

I just realized my Thai bank account earns interest. I honestly never thought about it. This account has only been used to get my teacher pay and not required to file a FBAR because the balance has never been over $2000.

I file a tax return every year. I report my US interest (maybe a few hundred dollars) and my Thai earned teacher income. I don't owe any US tax as I use form 2555ez.

I now understand I should have been using a schedule B to report my Thai bank account. I only earned about $7 in interest but understand schedule B is required if you have any account outside the US.

I realize I have basically under reported my income by $7 which may or may not be serious but since it is interest from a foreign bank may be?

Advice please?

[CarolinaJames]

Not necessary to report. The Thai bank will not send a statement to the IRS like American banks (1099 I think).

Sent from my iPad using Thaivisa Connect Thailand mobile app

[isawasnake]

If you earned 7 dollars in interest, you have got much bigger worries.

[Langsuan Man]

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Schedule B (Form 1040), Interest and Ordinary Dividends

Use Schedule B if any of the following applies.

• You had over $1,500 of taxable interest or ordinary dividends.
• You received interest from a seller-financed mortgage and the buyer used the property as a personal residence.
• You have accrued interest from a bond.
• You are reporting original issue discount (OID) in an amount less than the amount shown on Form 1099-OID.
• You are reducing your interest income on a bond by the amount of amortizable bond premium.
• You are claiming the exclusion of interest from series EE or I U.S. savings bonds issued after 1989.
• You received interest or ordinary dividends as a nominee.
• You had a financial interest in, or signature authority over, a financial account in a foreign country or you received a distribution from, or were a grantor of, or transferor to, a foreign trust. Part III of the schedule has questions about foreign accounts and trusts.

Source: http://www.irs.gov/uac/Schedule-B-(Form-1040),-Interest-and-Ordinary-Dividends

[BKKSnowBird]

Yes Lang,

I now see that last bullet. I never thought about it because I normally did not need a schedule B or need to do a FBAR.

It seems it would be easier for the IRS to say you must report any account outside the US through a FBAR OR Schedule B. The FBAR being required only if over 10K.

Any ideas on how to fix this or think I need to worry?

[BKKSnowBird]

If you earned 7 dollars in interest, you have got much bigger worries.

Care to explain?

[DogNo1]

Some of this information is out-of-date. Banks in Thailand now must report on all accounts held by Americans to the US Treasury and the IRS. Now in addition to submitting a yearly FBAR, you must also submit a FATCA. See the article shown on this link: http://www.huffingtonpost.com/terry-savage/fatca----the-global-reach_b_5502322.html

[JimGant]

I file a tax return every year. I report my US interest (maybe a few hundred dollars) and my Thai earned teacher income. I don't owe any US tax as I use form 2555ez.

Which says, if you added the $7 in Thai interest to your $200+- in US interest, you'd still owe zip in US tax (i.e., you'd still have no Taxable Income after subtracting out exemptions and deductions). So, no requirement to file an amended return to report $7 on which you owe nothing. And leaving off an attached form to your 1040 (in this case, Schedule B is not grounds for filing an amended return -- if, again, not additional taxes are owed -- which they aren't.

Even if FATCA reporting were now in effect with Thai banks (which it isn't for 2013), due to the $50,000 de minimis threshold, your account info would not be reported.

Relax. Next year add the $7 to the reported Thai interest on your Schedule B. Then, in the completely non existent chance the IRS comes calling, you can show your magnanimous honesty in trying to rectify matters.

Edited June 18, 2014 by JimGant

[JimGant]

Banks in Thailand now must report on all accounts held by Americans

Only on accounts that exceed $50,000 on Dec 31st, 2014 (unless that date has once again been pushed back....).

Now in addition to submitting a yearly FBAR, you must also submit a FATCA

Attaching Form 8938 to your 1040 reporting, per FATCA, is only required for us (married) expats if our foreign assets (not to include real estate) exceeds $400,000 on Dec 31st (or $600k anytime during the year). For married US taxpayers living in the US, it's $100k ($150k).

[lopburi3]

Not necessary to report. The Thai bank will not send a statement to the IRS like American banks (1099 I think).

Sent from my iPad using Thaivisa Connect Thailand mobile app

But foreign accounts will now be subject to reporting to US - this was not the case previously - so I would be careful from now on to include any income on your tax form. FBAR has nothing to do with tax payments. Actually US banks do not send 1099 for amounts of less than $10 so even with them you have to do your own calculations.

[BKKSnowBird]

A big THANKS JimGant,

That is what I was looking for. Yes, reporting it now would not change any tax owed. In fact, after I use 2555, my adjusted gross income is less than $1000. I do have an IRA but that is just growing for my retirement and nothing to report. Some have said that you don’t even need to file a return as my income is so low? I would rather be safe than sorry so I file.

It just concerned me that Schedule B is required for a foreign account and leaving it off could cause a problem like a big fine.

I will report it in the future as I really didn't want to amend the last 4 years of returns. If I did get audited; could they fine me 10K for this? Anyway the bottom line is, all Americans must file a schedule B if they have an account outside the US even if it did not earn interest or require a FBAR.

[Pib]

Even when banks don't send me 1099INT like because it's below $10 interest earned per year or like how Thai banks don't send any type of document (you only have the passbook entries to go off of or your Thai banking ibanking), I include that interest on my U.S. federal return. For Thai bank interest I enter it in my tax software (I use TaxCut) just like I had actually got an 1099INT...basically I'm creating a 1099INT entry without an actual 1099INT. Being doing this for years. That way I don't have to worry about the U.S. Treasury/IRS getting interested in me because they see in my FBAR reporting I have Thai bank accounts but on my federal return there is no interest earned being declared...or just any type of govt database cross checking which might bubble this issue to the surface.

Best to stay honest with Uncle Sam versus not reporting one or a couple of accounts which earned less than $10 interest (or worst yet, accounts that do earn significant interest) and always worrying some small thing like this possibly going to trigger U.S. Treasury/IRS interest in me regarding my federal return, FBAR, etc.

[BKKSnowBird]

^ I 100% agree. In my case it was a mistake and will do a Schedule B in the future. I do not need to do a FBAR.

My question is what do I do now? Should I do amended returns? Again, the small amount that I did not report would not effect my tax liability, but worried about a 10K fine.

[Pib]

^ I 100% agree. In my case it was a mistake and will do a Schedule B in the future. I do not need to do a FBAR.

My question is what do I do now? Should I do amended returns? Again, the small amount that I did not report would not effect my tax liability, but worried about a 10K fine.

Personally, I wouldn't amend especially since it did not affect your tax liability...just start reporting in the future.

[BKKSnowBird]

^ Thank You. Yes, I think that is what I will do. I obviously was not trying to avoid tax. I have done more research and seems the 10K fine is only for failure to file an FBAR if required.

[Pib]

^ Thank You. Yes, I think that is what I will do. I obviously was not trying to avoid tax. I have done more research and seems the 10K fine is only for failure to file an FBAR if required.

Correct...and I expect that would have to be a grievous case also...like it was clear the individual knew of the law and had been avoiding significant taxes/obviously hiding overseas accounts, etc.

[dinger]

I am in a similar situation so am interested in this. Let me put out my perspective and see what you guys think.

The IRS requires that you file a schedule B if you have an interest in a foreign account, bullet #8. There is no mention of money amounts in their statement so for argument sake we can throw out money thresholds and tax liabilities

If the requirement is you must file a schedule B if you have any foreign accounts and you didn't file, are you then stating that you don't have any foreign accounts.

Now with the new bank reporting requirements your name shows up at the IRS as having an account. Pretty easy cross check if they get curious.

[JimGant]

Some have said that you don’t even need to file a return as my income is so low? I would rather be safe than sorry so I file.

You do if you want to use the foreign earned income exclusion (Form 2555 or Form 2555EZ), which is your situation. That your US derived income is too low for taxation doesn't matter.

If the requirement is you must file a schedule B if you have any foreign accounts and you didn't file, are you then stating that you don't have any foreign accounts.

Yes, but if you included your Thai interest on Form 1040, line 8a, along with your US based interest (which, if under $1500, doesn't require a Sched B ), absence of the form would not be penalized, since its non filing didn't involve tax under reporting.

Now, if you filed a FBAR (FinCEN Form 114), this would automatically mean you were required to file a Sched B -- even if no foreign income was involved. And the IRS is tasked with FBAR enforcement, even tho' filed with a different agency of the Treasury. Would they be curious about no Sched B to marry up with a FBAR? Dunno. Suspect they'd be more interested about Sched B's, over a period of years, that showed no foreign income -- yet related FBARs were fairly robust.

Who knows.... Mandatory Sched B filing for foreign acct holders came about because the Feds got tired of the, "I didn't know I had to file a FBAR -- nothing in IRS guidance that mentions it." Actually, a workable excuse -- while it lasted. Then, with mandatory Sched B filing, you're forced to answer "yes or no" as to whether you're required to file a FBAR, which means you can no longer claim ignorance of the FBAR. Clever buggers.

[dinger]

Typical IRS. If you owe them (I don't owe anything) 85 cents they will spend half a million to get it from you

[DogNo1]

I think that it is safest to file every required form and include any amount of interest, no matter how small. There is a difference in the requirement to pay tax and the requirement to report fully. Using software such as TaxAct, only the first year is really tough. After that you've got a template and TaxAct will pull your personal data from your previous year's return. My brokerage will produce my Schedule D and 8938 online and then I can just include them as attachments when I file my return electronically. There's no need to send them bynsnail mail as in the past. I meticulously report every niggling bit of income. My banks will send me a 1099 INT for amounts less than a dollar so I don't leave out ANY amount of interest or dividends. I also receive those dreaded K-1s that I must report on Form 1065. The point of the careful reporting is to avoid an audit when discrepancies are noted. When you are audited, they can go back 5 years and there actually prison sentences for false reporting. Although small amounts would be unlikely to trigger any jail time, an audit going back several years can be excruciating. Best to be avoided at all costs. I know Americans who don't file returns because the amount of money is small but they can actually be arrested when they return to America for a visit. I'm sure that the government usually only goes after the big fish but I could tell you the story of a lien filed against me by the Orange County (CA) treasurer for a small amount I made on an investment AFTER I left California. The notice of the earnings was sent to my temporary forwarding address in Huntington Beach that I used while I was getting settled in Japan. It took me 5 years to clear the lien.

[purushanti]

If this were my case, i would go back and report everything. Always best to be compliant.

In the end run, it is your responsibility to make the decision as you see fit.

If you want to consult with an American CPA here in TH, Joe Krebs at http://www.us-taxpayers.com. He is here only the first six months of the year.

Your data is simple, but maybe he would have his own subjective idea of what to do.

[BKKSnowBird]

I read an article that many people have started including schedule B since they have an account outside the US. The GAO has told the IRS to start looking at these.

If you don't owe any tax and not required to FBAR, is there a penalty for not including a schedule B hence not disclosing the account?

Seems to me that most Thai banks will find it easyer to just turn over ALL American account holders and let the IRS do with it what they want. Luckly my account was recently closed after they took out a maintance fee for a few months.

Anyone think the IRS will ask me about this account in the next 3 years? I did not amend past returns since it would not have changed any tax obligation.

[gk10002000]

I would not do an amended return especially if you are still filing a State return. Too much hassle. Technically if you file an X amended Fed return you would then have to use that and supply that and re-do your State return if you have already filed that. The tax due amount won't change. That bottom line on Schedule B is just a filing/notification requirement. In addition, you may have noticed that US banks don't typically send 1099 INT statements if you earned less than $10 USD interest in that account.

[Pib]

I read an article that many people have started including schedule B since they have an account outside the US. The GAO has told the IRS to start looking at these.

If you don't owe any tax and not required to FBAR, is there a penalty for not including a schedule B hence not disclosing the account?

Seems to me that most Thai banks will find it easyer to just turn over ALL American account holders and let the IRS do with it what they want. Luckly my account was recently closed after they took out a maintance fee for a few months.

Anyone think the IRS will ask me about this account in the next 3 years? I did not amend past returns since it would not have changed any tax obligation.

Regarding including a Schedule B if you have an account outside the U.S., it is simply the law like it or not...it's not like an optional thing to do. Just to quote Section Part III Foreign Accounts and Trust of the Schedule B, "You must complete this part if you ( a ) had over $1,500 of taxable interest or ordinary dividends; ( b ) had a foreign account; or ( c ) received a distribution from, or were a grantor of, or a transferor to, a foreign trust." Then in the Sch B instructions it repeats the requirements with more details.

Notice the "OR" criteria above which means if you meet either of the three criteria above you must include a Sch B with at least Part III completed. So, say you have a saving account at a Thai bank that does or does not even earn interest you have just met one of the three requirements for including a Sch B with your return. And in that same Part III section you also indicate whether your are required or not to submit a FinCen Form 114 (a.k.a., FBAR), and the country the foreign account is in such as Thailand. Now, if you are required to submit a FBAR that is not included as part of your tax return...that is submitted separately on the FinCin Form 114 to another U.S. Treasury Dept office by 30 June vs the IRS by 15 Apr

Regarding a penalty of not identifying any foreign accounts on your tax return by not including a Sch B I expect that would like any attempt to evade or defeat tax which is handled on a case by case basis with numerous factors considered like did you knowingly or unknowingly file a tax return that leaves out certain information/omits income not that "unknowingly" helps in most cases because it's too easy for anyone to play stupid and say they didn't know. There is no set in stone penalty, if a penalty is applied. Take a look at page 2 of the IRS handbook on tax crimes below where it talks the different kinds of tax crimes with one of them being: "Evasion of assessment. The most common attempt to evade or defeat a tax is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is not entitled. The tax reported on the return is falsely understated and creates a deficiency. Consequently, such willful under reporting constitutes an attempt to evade or

defeat tax by evading the correct assessment of the tax."

http://www.irs.gov/pub/irs-utl/tax_crimes_handbook.pdf

Now are they going to throw you in prison with a big fine for not identifying your foreign accounts and related tax info. Well, I guess it would all depend on each situation such as how many accounts and how much interest/dividends you had not reported, how much of that should have been taxed, etc...etc...etc. For the dude who didn't report his Thai bank saving account that only had a hundred dollars in it and earned only a buck or two of interest I sure nothing would happen other than paying any back tax due alone with some scary sounding IRS audit letters....but if he had been not reporting very significant interest earned like maybe a $1,000 in interest from his Bt800K fixed account he uses for retirement extension of stay purposes then maybe the IRS would get more serious with him (or not). But hey, it seems only the big tax evaders (i.e., not reporting tens of thousands or more of income, etc) are the only ones the IRS seems to go after with any serious effort with jail time in mind to set an example. Unless something has change, a typical income person only has about a 1% chance in being audited usually caused by something on their return that got flagged by the IRS.

Now, how will the IRS tax return and U.S. Treasury Dept FBAR folks start using reporting from foreign financial companies/banks to catch folks who are not reporting their foreign accounts/interest/dividend/etc., well, I just couldn't say....that's way above my knowledge and interest level. For me, I just comply with the tax and foreign accounts reporting laws while trying to take advantage of every possible tax advantage possible and legal. Thank goodness using cheap tax software (I use TaxAct...use to use TurboTax) and using the new FinCen 114 individual submission system makes preparation & submission of the forms via online not too hard of a process/guides you through the process...and I don't have to always be looking over my shoulder for Uncle Sam wanting to have a talk with me about my tax/FBAR reporting. I'm at peace with the IRS and Uncle Sam, but when it comes to a lot of our elected representatives, well, that's a different story.

Edited March 28, 2015 by Pib

[JimGant]

Anyone think the IRS will ask me about this account in the next 3 years?

No.

[Pib]

Here's a CNN Money article talking possible IRS penalties in failing to report foreign accounts. Link

[Rhys]

A good reason to never go back.. don't need it..

[JimGant]

Another unhelpful press report trying to scare all who have not filed required FBARs.

From the CNN report:

But make no mistake: You will likely pay penalties, and -- if your foreign account generated income -- back taxes and interest as well.

BS! First and foremost, the IRS has stated that, if you've declared your foreign earned income on your US tax return, you will owe no penalties for failure to file FBARs. And you don't need to enter the Offshore Voluntary Disclosure Program -- which is for those who did NOT declare their foreign income.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities

See FAQ 17: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

Also:

But one rule that surprises many people can make entry into the IRS programs unnecessary. What’s more, it holds out the promise of no penalties whatsoever. Sound too good to be true?

http://www.forbes.com/sites/robertwood/2013/05/12/irs-gives-big-break-to-some-offshore-account-holders/

Let's say you actually did declare your Thai bank interest, but based on your years of Stateside tax filing, you didn't include a Schedule B -- since it's not required for amounts totaling less than $1500 (and you didn't see the part about it now being required, if you have a foreign account). Instead, you total up all your interest and stick it in Line 8A on the front of your Form 1040. Some of that total would have a 1099 tail -- but, of course, the Thai interest would not (nor would interest of less than $10 from a US financial institution). Thus, you have an amount that can be explained as Thai interest. That you failed to file a Schedule B is not subject to penalty (just as failure to not file a FBAR is not subject to penalty -- as long as you declared your foreign earnings).

Well, ok -- should you go back and file past FBARs? FinCEN would like you to, according to their FAQ 17:

For taxpayers who reported, and paid tax on, all their taxable income for prior years but did not file FBARs, you should file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late.

You should file. Hmmm. What if you don't.... Probably nothing, as they have no way of determining that you went over the $10,000 aggregate -- unless you sent a SWIFT wire of $10k, or more. Or even a $10k ACH transfer through Bangkok Bank NY, since those transfers are SWIFT encoded for the journey to Thailand.

Actually, tho', it's not too difficult with the electronic filing system, that even has a drop down box to check, "I didn't know I had to file." Not sure, however, the added attention may be worth it -- if you had no $10k transfers.

And, some more unhelpful reporting from CNN:

"Under FATCA, the U.S. Treasury has struck agreements with more than 100 countries that require those countries' financial institutions to report back to the IRS on any accounts held by U.S. taxpayers, which include U.S. citizens, people with green cards and U.S. ex-pats."

NO NO NO. There's a $50,000 de minimis threshold for reporting US person accounts. And for 2014, there's no requirement for reporting on existing accounts (those opened before June 30); and for new accounts (after June 30) that exceed the $50k de minimis -- only there existence, but not earnings, is to be reported, at least for 2014.

But, hey, going forward, probably wise to start reporting all your Thai earnings on your US tax return -- it just might be easier to report all US person accounts, not just running a search for de minimis thresholds. And, yes, filing a FBAR, if you qualify.

[Rhys]

.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities

See FAQ 17: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

Also:

But one rule that surprises many people can make entry into the IRS programs unnecessary. What’s more, it holds out the promise of no penalties whatsoever. Sound too good to be true?

http://www.forbes.com/sites/robertwood/2013/05/12/irs-gives-big-break-to-some-offshore-account-holders/

Let's say you actually did declare your Thai bank interest, but based on your years of Stateside tax filing, you didn't include a Schedule B -- since it's not required for amounts totaling less than $1500 (and you didn't see the part about it now being required, if you have a foreign account). Instead, you total up all your interest and stick it in Line 8A on the front of your Form 1040. Some of that total would have a 1099 tail -- but, of course, the Thai interest would not (nor would interest of less than $10 from a US financial institution). Thus, you have an amount that can be explained as Thai interest. That you failed to file a Schedule B is not subject to penalty (just as failure to not file a FBAR is not subject to penalty -- as long as you declared your foreign earnings).

Well, ok -- should you go back and file past FBARs? FinCEN would like you to, according to their FAQ 17:

For taxpayers who reported, and paid tax on, all their taxable income for prior years but did not file FBARs, you should file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late.

You should file. Hmmm. What if you don't.... Probably nothing, as they have no way of determining that you went over the $10,000 aggregate -- unless you sent a SWIFT wire of $10k, or more. Or even a $10k ACH transfer through Bangkok Bank NY, since those transfers are SWIFT encoded for the journey to Thailand.

Actually, tho', it's not too difficult with the electronic filing system, that even has a drop down box to check, "I didn't know I had to file." Not sure, however, the added attention may be worth it -- if you had no $10k transfers.

And, some more unhelpful reporting from CNN:

"Under FATCA, the U.S. Treasury has struck agreements with more than 100 countries that require those countries' financial institutions to report back to the IRS on any accounts held by U.S. taxpayers, which include U.S. citizens, people with green cards and U.S. ex-pats."

NO NO NO. There's a $50,000 de minimis threshold for reporting US person accounts. And for 2014, there's no requirement for reporting on existing accounts (those opened before June 30); and for new accounts (after June 30) that exceed the $50k de minimis -- only there existence, but not earnings, is to be reported, at least for 2014.

But, hey, going forward, probably wise to start reporting all your Thai earnings on your US tax return -- it just might be easier to report all US person accounts, not just running a search for de minimis thresholds. And, yes, filing a FBAR, if you qualify.

Quite insightful responses...thanks...years ago the Embassy had an IRS official who would advise on matters, straightforward, had the forms ready.. done.

However, in your opinion, how many American Expats just do not comply, with any IRS reporting.. and live happily ever after.

Rationale: Never returning to the USA and don't want the SSI and relinquished citizenship...

[Pib]

If you don't file FBAR (now also called FinCen114) and someday get asked why by Uncle Sam why not, be sure not to use the excuse of it was too hard. At least from last year forward because since last year the E-fling of a FBAR has got a lot more streamlined/pretty easy by going to the "File an Individual FBAR" webpage which provides the FBAR PDF form to fille out, the form has button on it like Save, Sign, Print, Validate, Ready to File, etc.. See this webpage for the announcement and then go to this webpage which is File an Individual FBAR which provides full info, FBAR form download, full instructions, FinCen114a downlaod if filing a joint FBAR, etc. Gone are the days of being able to mail in a FBAR or needing to have a User ID/Password to file on the FBAR E-filing site.

Basically, a FBAR form in PDF format will download to your computer, file it out at your leisure like any other fill-able PDF form, when done and Ready to File, just ensure you have an internet connection and then click the Ready to File button on the form. You will be taking to a webpage where you enter your email address so you can get a couple of acknowledgement and acceptance of filing emails back from Uncle Sam, your first and last name, phone number, and then attached the completed PDF file. Hit submit and you are done. Within a few minutes you'll get an Acknowledgement email saying the system has received your submission with a control number and within the next day or two (always been next day for me) you get an Acceptance Confirmation email with one more control number---you are done for another year.

Here's the FBAR form in PDF form which will download from the site for your to complete. It has not changed from last year's verson (Ver 1.0) so if you still had last year's submission some updating of the previous year submission can make completion of the form faster.

NFFBAR.pdf

So, don't use the excuse of it was too hard to E-File the FBAR.