r2i forum

I'm a US Citizen & also have an OCI. I have a NRE account in India since 1999 but never had enough money till 2007, when I started transferring money to invest in an apartment. I unknowingly never reported the interest that I earned in my account, thinking that it will be taxable in India upon my return. The interest in my account for the last few years 2007-2010 has been significant (around $1500 per year) & has been less than $50 or less for years 1999-2006.

I do understand that I need to report my interest from NRE account when I file taxes. Question is - should I take part in the 2011 Offshore Voluntary Disclosure Initiative (OVDI) or just file tax amends for years 2007-2010 & not worry about filing any taxes on income that was less than $50? If I opt for OVDI, do I then report the interest for years 2003-2006 even though it was not significant?

Appreciate your input.

Thanks
Zen

zen;381868I'm a US Citizen & also have an OCI. I have a NRE account in India since 1999 but never had enough money till 2007, when I started transferring money to invest in an apartment. I unknowingly never reported the interest that I earned in my account, thinking that it will be taxable in India upon my return. The interest in my account for the last few years 2007-2010 has been significant (around $1500 per year) & has been less than $50 or less for years 1999-2006.

I do understand that I need to report my interest from NRE account when I file taxes. Question is - should I take part in the 2011 Offshore Voluntary Disclosure Initiative (OVDI) or just file tax amends for years 2007-2010 & not worry about filing any taxes on income that was less than $50? If I opt for OVDI, do I then report the interest for years 2003-2006 even though it was not significant?

Appreciate your input.

Thanks
Zen

I am also in the same boat. I opened an NRE a/c in 2006 for a plot purchase (took loans) and closed the loan in 2008, but have kept the account active. I used it to transfer money and subsequently to purchase a flat. During that period (2009 - 2010), the balance was more than the $10k limit and interest was also significant.

appreciate your input.

Thanks

If you read the language of the law, it is really draconian. In a similar situation here. Applying for the OVDI means forfeiting a large chunk of life's savings for a really minor foot-fault. Under the OVDI they want 25% of max account balance - which may have nothing to do with income because the max balance can go up pretty high just because you transferred money, or because you sold something else to buy a house etc. Not sure what to do. But if they catch you the penalties are even worse. It is completely out of my understanding and the more I read about this stuff, I feel I have been hit by lightning. Just after I thought I could live a half-decent life having gone through the immigration torture.

Spoke to a lawyer. Here is the situation: had a bank account in India with 'international bank' starting 1995. Came to the US in 2002. Continued to have account. No income reported, account not reported through FBAR form. Was not aware of requirements as Indian taxes were being deducted at source. Balances went quite high occasionally, max balance was upwards of USD 200k at one time to finance purchase of apartment (to be delivered in the future). Interest income from the account had Indian TDS withheld at about 30%. Saw the news items recently in the papers and panicked. DIdn't sleep for a few days. FIled for "pre-clearance" under the OVDI 2011 myself before speaking to lawyer, and was pre-cleared by the IRS in 2 days.

Lawyer's advice was that because all the money in the account was after-tax money (from salary income), there is no point going for the OVDI 2011 as regular penalties are likely to be lower than the penalty under the OVDI. He suggested I should file amended tax returns for the past 3 years fully declaring the Indian income, take the foreign tax credit for Indian taxes deducted, file FBAR for 2010 (and not the prior years) and wait. SInce I am likely on the IRS's radar having filed for pre-clearance, I should be prepared for an audit. Criminal penalties will be unlikely in my case as there was no willful or criminal intent, except underreporting of the interest income from the account. WHich means civil penalties would apply which would be lower than the 8-years of back taxes plus 25% of max account balance.

SO that is what I am planning to do - file back taxes and wait, and keep filing the FBAR correctly in the future.

Hoep this helps someone.

thats good news...
and can you by any chance, forward me your attorneys contact details..may be i can present my case, and get his opinion?

How about domestic account which were opened as salary accounts while working in India? I recently came to know that I should convert them into appropriate account or close them.

Would like to get some feedback from KKASSOCIATES on this.

Also, if we want someone to represent us, will that be a CPA or a tax attorney?

Hi Everyone,

In our opinion there is lot to think before going ahead and declaring your assets for the previous years, if you had significant income from Non US sources which escaped taxation it would be advisable to amend your previous year's return and file the TDF forms as well. The chances of being audited increases because of the amendment of previous year's returns. At the same time if the amount is not significant enough you can simply comply with the laws from the current year onwards.

We provide assistance with FBAR reportings, US and India tax filings from Pune. You can email us with your details on [email protected] or visit us at www.kkassociate.com

Regards,
KKA

Very useful info. Thanks. What is "pre-clearance". What form has to be filled in? What is the benefit?

I am a US citizen. I reported NRE income on Schedule B for 2010 as suggested by somebody in this forum.

Do you know how to complete Form 1116 in order to take credit for taxes and TDS withheld on NRE/NRO accounts? I guess NRE income will also be included there. This is an area that has not been addressed adequately in this forum. Effectively interest from NRO accounts/Fixed Deposits in India should be tax-free in USA since we file taxes in India also.

Do you know what income from USA is taxable in India("global income")? I have not been filing global income returns in USA or India.

Filing income tax returns in 2 countries is not easy for most individuals. I have always done my own taxes and do not have the inclination or the means to go a Tax attorney in USA

Kindly include "easyinchennai" in your reply or alert me to read your reply. I am very much interested in filing the right way.

Thanks
easyinchennai

Hi easyinchennai,

No foreign source income is tax free in United States unless and untill specifically exempted by the DTAA between USA and India. The NRO/NRE interest earned in India though tax free only for certain period, it gets taxes after you become and Ordinary resident.

If you have not paid any taxes on the interest income then there is no question of credit for the same.

Alslo all the USA income too is taxable in India, being a USC you have an obligation to report your global income and also the file the TDF returns if applicable.

We provide assistance in FBAR,USA and India tax returns from Pune. You can email us with details on [email][email protected][/email] or visit us at www.kkassociate.com

Regards,
KKA