Foreign Bank Account Filing Requirements
Foreign Bank Account Filing Requirements
My parents were immigrants to America, as was my wife and many of our friends and relatives. Oftentimes, immigrants maintain ties with their countries of origin, which may include keeping a foreign bank account or trust. That leads me to today’s Tax Byte – reporting on foreign bank accounts and foreign trusts. This is actually not a new requirement. However, this is one that’s often overlooked by many tax preparers. Not filing this form can actually lead to significant tax penalty which most people are not aware of.
Foreign Accounts Totaling $10,000 or Less
Under the laws of the United States, if you have a foreign bank account, or signature authority over a foreign bank account, and the total balance of all your foreign accounts at any time of the year was $10,000 or less, then you need to answer Yes to question 7 at the bottom of Schedule B. (That is the tax form where you report your annual interest and dividend income if it was greater than $1,500). That’s basically all you have to do. However, if your foreign bank account totals are ever greater than $10,000, then see the next section.
Foreign Accounts Totaling More Than $10,000
There are additional filing requirements if your foreign accounts ever exceed $10,000 during the year. You are required to file Treasury Form 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). This form asks you to identify each foreign bank account and the highest value of the account during the year.
While we can question the value of why the federal government needs this information and debate whether to file the form, the potential penalties for not filing can be extremely severe. If you are supposed to file the FBAR and you don’t, there could be a civil penalty of up to $10,000, per violation. If you willfully fail to file the FBAR, there could be another penalty of up to $100,000, or 50% of the account value, whichever is greater. There may even be criminal penalties (i.e. jail time) if the Treasury Department determines the offense is serious enough.
The FBAR form needs to be received (not postmarked) by June 30 of the following year. It is not filed with your tax return but mailed separately to the Treasury Department. The requirement to file this FBAR form applies to the following:
· US citizens
· US resident aliens
· US corporations
· US partnerships
· US Limited Liability Companies (LLC)
· US estates
· US trusts
If you have questions about the FBAR form, then I strongly encourage you to contact your tax professional for answers.
Foreign Trusts
In a nutshell, you may need to file Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) if any of the following events happen:
· You receive a distribution (money or assets) from a foreign trust,
· You created a foreign trust,
· You transferred money or assets to a foreign trust, or
· You received large gifts from foreign people, foreign estates, foreign partnerships, or foreign corporations.
Again, there are severe penalties for not filing a Form 3520 when required to do so. It is either $10,000 or up to 35% of the value of the foreign trust, whichever is greater. This form must be filed with your income tax return and it’s due when your return is due. As with the TDF 90-22.1 form, if you have any questions about Form 3520, you should speak with your tax professional for guidance.
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