Unreported Foreign Accounts: U.S. persons with unreported foreign accounts have several IRS offshore reporting requirements. The IRS requires certain U.S. bank account holders to comply with annual offshore reporting requirements for foreign bank accounts, assets & investments. The overseas account information is reported annually on various international reporting forms, such as FBAR (FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act). The Internal Revenue Service has significantly increased enforcement of offshore reporting. The failure to timely and accurately report foreign bank accounts may result in fines and penalties, but the IRS has developed various offshore voluntary disclosure (amnesty) Programs.
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Unreported Foreign Accounts
The IRS unreported foreign accounts rules are harsh. While Foreign Bank Accounts are simply Bank Accounts that are located in a foreign country – the IRS and U.S. Government definition can get much more complex and convoluted.
Moreover, if you have unreported foreign bank accounts — which means you have foreign bank accounts which you did not properly report to the Internal Revenue Service (IRS) or Department of Treasury (DOT), you may be subject to significant fines and penalties.
And, if the US government believes you intentionally failed to disclose the account information, you could be subject to a criminal investigation.
The following is intended as a brief guide to help you understand foreign bank accounts, why they need to be reported and what happens when you have unreported foreign bank accounts.
What is a Foreign Bank Account?
One of the most common questions we receive at Golding & Golding (especially from our foreign residents) is “Why is it considered a foreign account if I’m a resident of the country the account is located in?”
Here is a common example:
David was steadfast in his position that he was non-willful in reporting his foreign accounts. The only potential issue was that David reported accounts from one foreign country, but not the other. We asked David how he could not know he was required to report accounts in both Japan and Switzerland (He only reported the Swiss accounts).
His response was simple: I live in Japan full-time. In fact, I only leave Japan for less than two weeks every year. Why would the accounts that I have in Japan be considered foreign accounts, when I live in Japan?
Here is the clarification: David is a Citizen of the United States. As such, David has an ongoing requirement to file US tax returns as well as FBARs (amongst other reporting forms) each year to report his foreign bank accounts. Just because David is a Resident of Japan does not eliminate his US citizenship. We explained that from a US tax reporting perspective, David’s Japanese accounts are located outside of the United States. Therefore, since the accounts are foreign — as they are not located within the United States.
Therefore, they are required to be reported as foreign accounts.
Who has to Report Their Foreign Bank Accounts?
Under federal law, US account holders of foreign accounts are required to report their account information in a number of different circumstances. The most common circumstance in which a person must report a foreign bank account is when they meet the threshold requirement for filing an FBAR.
An FBAR is a Report of Foreign Bank and Financial Account form. The FBAR form has been around since the 1970s, but with the recent implementation of FATCA (Foreign Account Tax Compliance Act), the IRS has renewed interest in enforcing foreign bank account compliance.
A person must file an annual FBAR statement in any year in which they have ownership, interest or signature authority over foreign bank accounts, that at any time during the year have an annual aggregate total that exceeds $10,000 on any day of the year. It does not matter if one account is worth $500,000 or there are 11 accounts each worth $1500. Once the annual aggregate total exceeds $10,000 on any given day, you are required to report all of the accounts.
The other very common form required for individuals who have foreign bank accounts is called a FATCA Form 8938. The threshold requirements for having to file this form is higher than for the FBAR and also has different requirements. It is very common for individuals who have to file an FBAR to also have to file a FATCA Form 8938.
What if I Only have Signature Authority?
This is very common for spouses, children of elderly parents, and employees. Even if the signatory does not have any interest in the money, the account is still considered a foreign bank account and would have to be reported for FBAR. The 8938 rules are more complex and the key phraseology is whether the filer has an “interest” in the foreign asset/account.
Who Has to Report a Foreign Bank Account?
The following is a list (not exhaustive) of the usual cast of characters of individuals and businesses required to report foreign accounts:
- A US Citizen has to report foreign bank accounts (no matter where he or she resides)
- A US Legal Permanent Resident has to report foreign bank accounts (no matter where he or she resides)
- A non-permanent resident who meets the Substantial Presence Test
- A former US Legal Permanent Resident who is considered a covered expatriate may have an ongoing requirement.
- An Expat who resides overseas, but did not formally renounce US citizenship
- A Foreign business with US ownership and foreign bank accounts
- An employee of a company that has signature authority over for the foreign accounts
- A US owner of a foreign trust that has bank accounts under its name
- A US owner of a Passive Foreign Investment Company (PFIC) that has bank accounts under its name
- A US owner of a Controlled Foreign Corporation (CFC) that has bank accounts under its name
What if a 1040 is Not Required (I didn’t Earn Enough Income)?
The Form 1040 filing requirement impacts the Form 8938 filing, but not the FBAR. In other words, even if a U.S. person is not required to file a tax return, they may be required to still file the FBAR.
It Gets More Complicated…
In addition to the FBAR and Form 8938, you may also be required to file forms such as an 8621, 5471, 3520, and/or 3520-A. Some of the due dates are the same as your tax return, and some are not. Some go one extension when you file an extension of your tax returns, and others do not, such as the Form 3520-A, which requires the filing of a Form 7004.
How do I get into IRS Offshore Compliance?
The first and most important thing you can do is get into FATCA and FBAR Compliance. For most individuals who have foreign accounts, the path of least resistance is the offshore disclosure program.
Golding & Golding (Board-Certified Tax Law Specialist)
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
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- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
Don’t be misled by inexperienced counsel.
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 IRS 3520 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.