Should You File a 1040X for Missed Foreign Income & Accounts?

Filing IRS Form 1040X  For Missed Foreign Income or Assets

Filing IRS Form 1040X For Missed Foreign Income or Assets

When U.S. taxpayers make mistakes on previously filed tax returns, they may need to amend their tax returns to update their tax return information and include any missing income, forms, etc., noting that not every mistake in a tax return requires the full return to be amended. Unless fraud is involved, generally, there is only a limited amount of time in which the taxpayer is required to go back and amend their previously filed tax returns before the statute of limitations expires — which means the IRS does not have the opportunity to audit or examine the return.

The rules are more complex when it involves international-related issues, such as missing a foreign information reporting form or substantial amounts of foreign income. Typically, the IRS has an extended amount of time to audit their return when an international reporting form was not included in the original filing.

Let’s take a brief introductory look at Form 1040X and how to file amended returns.

First, Was the Original Tax Return Filed?

The first thing to take note of is that to file an amended return, the taxpayer must have filed an original return. In other words, just filing a late original return does not qualify as filing an amended return; an amended IRS return can only be filed after the original return has been filed.

Did the Taxpayer receive a Notice from the IRS?

Sometimes taxpayers will receive notices from the IRS indicating that there was an incorrect amount included or missing from an originally filed tax return. Typically, in these types of situations, the IRS will make its own adjustments to the return without the taxpayer having to file an amended return. But if the IRS made some adjustments on the original return, and the taxpayer realizes that other adjustments may be needed, the taxpayer may still be required to file an amended return and include both the adjustments made by the IRS and the additional adjustments (not just the ‘new’ additional adjustments).

Are International Forms Missing or Prepared Wrong?

At Golding & Golding, we specialize exclusively in international tax. Oftentimes, taxpayers retain us because they failed to report one or several international information reporting forms, such as Form 8938, 8621, or 3520 (The FBAR is also a common form that is not filed, but it is not technically a tax form). Before amending a return to include or to change international reporting form information, the taxpayer should assess their different amnesty options because the IRS does enforce international non-compliance with fines and penalties, even if the original return was filed timely (and the only thing missing was the international reporting forms)

Is Foreign Income Missing or Incorrectly Stated?

It is also not uncommon for taxpayers who have foreign accounts and assets to also have foreign income and not have included that foreign income on their U.S. tax return.

This could be for any number of different reasons, such as:

• • • Misunderstanding that foreign income is still taxable in the United States;

    • Excluding foreign income on the US return because it is tax-exempt overseas, or

    • Reporting the net foreign income when foreign taxes have been paid already instead of including the gross foreign income along with the foreign tax credit — which typically has the effect of reducing or eliminating U.S. tax liability on the foreign income (depending on how much is paid in foreign taxes and the total U.S. to foreign income ratio).

Should You Amend Your U.S. Tax Return?

Before filing an amended return including international-related components, taxpayers should consider consulting with a Board-Certified Tax Law Specialist about the different options.

*Taxpayers should also be aware that, unfortunately, there is a large amount of fear-mongering online by tax professionals and attorneys who claim to be board-certified but are not really Board-Certified Tax Law Specialists.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.