SR Client Question: “Do I need to disclose my foreign bank account?”
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Yes! If you have a financial interest in or signature authority over a foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service. This includes bank accounts, brokerage accounts, mutual funds, trusts, or other types of foreign financial accounts.
The reporting is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions and is accomplished by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly referred to as FBAR.
The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
There is no tax due with the FBAR, it is an informational return. However, the IRS may impose stiff penalties for non-reporting, especially if it finds that the non-reporting was willful. Penalties can amount up to 50% of the highest balance in the account during a reportable year!
So, who must file an FBAR? The first requirement is that you have to be a United States citizen or resident. If you own a business entity created or organized in the United States, it also falls under the filing requirement. So do trusts and estates. The second requirement is that the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year to be reported.
What is considered a foreign financial account? Basically, any type of a bank or an investment account, including checking, savings, time deposits, securities accounts, i.e. mutual funds and brokerage accounts. Investments in individual stocks or bonds not held in a brokerage account are not considered a financial account. A financial account is considered foreign if it is located outside the United States and its territories.
How does the IRS determine if you have a financial interest or signature authority in a foreign account? If you are the owner of record or have legal title, you are considered to have a financial interest even if the account is not maintained for your benefit. A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained.
If you think that you or your business may be subject to foreign bank account reporting requirements, please do not hesitate to contact one of ShindelRock professionals. As always, we will be more than happy to assist you!