Moved to US from another country in July

I have a client who moved with his family to the US in July. They were living in another country until then. They grew up in this other country.
The parents are both US citizens and were both making money in a foreign country.
The two children just received their US citizenship at the end of 2019.

1. Do they have to report income from a foreign country? If so, how do you convert foreign currency to US dollars? Also, what about the fact that they paid taxes on their income where they used to live?

2. Does it matter that the kids only became citizens at the end of the year in regard to the various credits/deductions involving children?

Any information on this would be extremely helpful.

Thank you.

Your question is not entirely clear. Are you talking about three generations - US citizen parents, client and children of client? Or are you talking about two generations - US citizen parents and non-citizen children?

US citizens are taxed on worldwide income. I have to wonder if the children were also citizens from birth. The UK has had this discussion in the recent past, in connection with Archie Harrison Mountbatten-Windsor, who is a British citzen via his father, Harry Mountbatten-Windsor and a US citizen via his mother, Meghan Mountbatten-Windsor (nee Markle).

You may find it helpful to acquire a book on US taxation of non-citizens. I purchased 1040 or 1040NR? By Jean Mammen, EA some months ago and I am glad I did. It is not particularly deep, but it gives a good, practical overview. As I recall it was about $25. (NB, I have no connection with the author - just a satisfied purchaser.)

Thanks for your reply.

The situation is John and Jane Doe were both born in a foreign country but were US citizens by virtue of the fact their parents were American citizens.
John and Jane had two kids in a foreign country and didn't get the children US citizenship.

They moved to the US in July 2019 and got citizenship for the two children.

I understand that all their foreign income is taxable, but what about the fact that they never filed US taxes before.
Was their employer in the other country sending W-2's to the IRS?

Any information on this would be extremely helpful.

According to posts over the past few months you are new to tax return preparation.

You should get familiar with all of the foreign assets of John and Jane Doe, and it should be in your engagement letter that they must inform you of all foreign assets, regardless of amount. If they were born, raised, and worked in a foreign country and only recently moved to the US, it's not implausible to think they probably have foreign accounts, brokerages, life insurance, retirement accounts, etc.

This couple may have US obligations related to any foreign assets, which could include an FBAR, 8938, 3520, 5471, etc. If you're new and don't have experience with any of these forms or even know what questions to ask, from a risk perspective, you may want to pass on this client. The penalties for even non-negligent failure to file most of these forms are substantial.

I understand that all their foreign income is taxable, but what about the fact that they never filed US taxes before.

Missed this the first time...

I would pass on the engagement and direct them to an attorney.

The kids need to go into Streamlined, the difficultly on the international side depends on their facts and circumstances; but dont write the willfulness letter yourself. If you really want to do the returns, ask alot of questions, if you see anything remotely complicated, foreign mutual funds, retirement accounts, businesses, or anything else manvstax listed, punt, but you can probably handle vanilla bank accounts/ FBARs, if you spend your time learning it.

Dont get involved with the parents return, you need to refer them to an attorney or a more experienced international CPA.

This sounds like a typical fact pattern for the SFOP. An attorney is not required to enter the SFOP. Have you done much SFOP work yet? Many of us have filed hundreds of returns successfully through the SFOP, if you do not have this experience this does not sound a suitable client for you.

But my client lives in the US now.
How would SFOP be applicable?

Were they present outside of the US for at least one of the last three years?

Yes. They've been living out of the US their entire lives except for this past July when they moved to the US.

It sounds like the streamlined foreign offshore program might be good for them.

Do a search for IRS Streamlined Foreign Offshore and read a bit on what the IRS says about it.

It's probably best that you refer them to an expat tax service. A search for "expat tax services" will yield several results .

I would not recommend doing this yourself. If you fail to file favorably for them, you could be exposing them to large penalties - starting at $10,000 but possibly being much more than that.

It's not your fault, but even if you have a great malpractice policy - it's not fair to them to have someone not experienced with these procedures guiding them. Once they file under this procedure - you can still have them back as clients next year.

Yes. They've been living out of the US their entire lives except for this past July when they moved to the US.

Your previous posts say that you are not an EA, CPA or Attorney. You started in tax practice in November 2019. Potential penalties here run into the hundreds of thousands of dollars. It is unlikely you have adequate insurance to look after the SFOP.

We would happily handle this from our office in London if the clients would like the reassurance of working with a firm that has successfully prepared many hundreds of returns through the SFOP.

Thank you for the response.
I would be happy to refer my client as long as I understood why I'm referring them.
As of yet, I don't totally understand what you're referring to.
Yes you are correct, I'm only a licensed tax preparer in the state of MD.
I'm trying to understand why this program would be a fit for them if they live the US now.
Isn't that program only for people currently living in a foreign country?
Please forgive me for my lack of experience.
That's why I'm trying to reach out and find someone that can explain the situation in a way that I can explain it to my client.

I would be happy to refer my client as long as I understood why I'm referring them.

You're referring them because the professional risk is enormous and you don't have the experience required to help them...

Ok.
Can you explain what the professional risk is?
There are still details I'm not understanding.

Guya already noted the potential penalties for the client could run into the hundreds of thousands of dollars.

Do you expect the client to just eat that and be happy, or do you think they might try to collect from you?

Sec. 7206, Tax Preparer Fraud is 3 years of prison and $100,000 fine for individuals. I hope that helps.

Is it fraudulent for him to prepare the tax returns while perhaps being underqualified?

I would be more concerned with a malpractice law suit from the client against the preparer in the case of the client suffering penalties as a result of the preparer's inexperience.

Navigating delunquint offshore filing is advising, not just preparing.

Perhaps, presenting risks is the CPAs job, weighing them is the attorneys.

To the "scaremongers" and self-marketers: @y10nbaum is NOT responsible for the Client's non-compliance in prior year and that non-compliance has NO bearing on his risk (liability, professional, reputational).

@y10nbaum: there are 2 things here: (1) do you want to get involved with correcting prior year's non-compliance? Probably not (specialized experience). (2) are you only looking at preparing a 2019 return only? If so, I don't see what your incremental risk would be - assuming you can handle a plain vanilla 1116, and peripheral filings such as 8621, FinCen114, 3520 etc. It's a great learning experience and feel free to PM me and/or post here if you have specific cross-border questions.