How do I Report A Foreign Bank Account & Can I File Late: Two common foreign bank account questions we receive at Golding & Golding are:
How do I Report A Foreign Bank Account?
What if I am Late?
How do I Report A Foreign Bank Account & Can I File Late?
Since the IRS has made offshore and foreign account compliance a key enforcement initiative, we wanted to a take a moment and explain the absolute basics about:
- Foreign Bank Accounts
- Reporting rules
- What forms are required; and
- What if you are Late?
A. What is a Foreign Bank Account?
When it comes to reporting foreign bank accounts, the IRS requires extensive reporting. Offshore reporting and disclosure is much more encompassing than just reporting a typical checking or savings account. The concept is that the IRS (Internal Revenue Service) and FinCEN (Financial Crimes Enforcement Network) want to know about your foreign accounts – whether or not they are held in a bank, and/or other type foreign financial institution.
Common types of reportable foreign bank (and financial) accounts, include:
- Checking or Savings Account
- Investment Account
- Stock Account
- Mutual Fund or ETF
- Life Insurance Policy
- Foreign Pension Account
*There are reporting and disclosure limitations, exceptions and exclusions to consider – but these are the basics.
B. What are the Reporting Rules?
The IRS has gobbles of information on their website about the forms to file. The two main forms are the FBAR (aka FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act). Generally, when a person has foreign bank accounts that exceed an annual aggregate total (not a per account total) of $10,000, the person must file the FBAR. The FATCA reporting is more encompassing (it includes “assets”) but also has a higher threshold for reporting. The threshold filing requirements range from $50,000 to $600,000.
C. Which Forms do you File?
The IRS sure loves forms. They have a form for almost everything under the sun. There are too many forms to detail here, but we prepared a summary of some of the more common forms you may need to file:
FBAR (FinCEN 114)
The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.
The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?
If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
This form is used to report “Specified Foreign Financial Assets.”
There are four main thresholds for individuals is as follows:.
- Single or Filing Separate (in the U.S.): $50,000/$75,000
- Married with a Joint Returns (In the U.S): $100,000/$150,000
- Single or Filing Separate (Outside the U.S.): $200,000/$300,000
- Married with a Joint Returns (Outside the U.S.): $400,000/$600,000
Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:
- Gift from a Foreign Person: More than $100,000.
- Gift from a Foreign Business: More than $16,076.
- Foreign Trust: Various threshold requirements involving foreign Trusts
Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:
- Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
- Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
- Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
- Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
- Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).
Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).
The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.
*There are some exceptions, exclusions, and limitations to filing.
D. What if you File Late?
If you file late, there may be penalties. The penalties may range from a warning letter, all the way to a multi-year 50% penalty on the maximum balance of your foreign accounts – up to 100% value of the account. The IRS can also refer the matter for a criminal investigation (but this is not very common).
Offshore Disclosure Lawyers: Golding & Golding
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.