Foreign Bank Account Reporting: Each year, US Taxpayers who have foreign financial accounts such as bank accounts, investment accounts, pension accounts and certain foreign life insurance policies are required to disclose their overseas account and asset information to the IRS and FinCEN on various international information reporting forms. While the FBAR (FinCEN Form 114) is the most popular and common of the IRS international forms — it is not the only game in town. Since the international reporting forms are not mutually exclusive from one another, a person may have to file several international information reporting forms in the same year, for the same foreign account or asset. It is important to note that foreign account reporting is not necessarily a complicated undertaking for all Taxpayers. Rather, it depends on the type of accounts, number of accounts — and whether or not the filer is in compliance for prior years. Here are five (5) important reporting tips for foreign bank account reporting:
Foreign Bank Account Reporting Due Dates Vary
There are many different types of international information reporting forms that may be required when a US person has foreign accounts — but the due dates for reporting those forms are not all the same. For example, the FBAR is due April 15th, but is (currently) on automatic extension through October. Conversely, another very common form (Form 8938) is due April 15th but is not on automatic extension.
Foreign Bank Account Reporting Even if no Taxes Return is Due
Some international information reporting forms are still required to be reported even when a Taxpayer is not required to file a tax return in that year. For example, FinCEN Form 114 (FBAR) is required by US persons with foreign accounts in any year that they meet the threshold requirement for reporting – even if they do not have to file a tax return in the current year.
Same Account on Multiple Forms
Most of the international information reporting forms are not mutually exclusive from one another. Thus, a Taxpayer may have to report the same foreign account on multiple different forms in the same year. For example, foreign pension accounts are required to be included on both the FBAR and Form 8938 in the same year.
Due Diligence vs Perfection
When it comes to foreign account reporting, your disclosure does not need to be absolutely perfect. Of course, it helps to make the submission as accurate as possible — but it is also very important to make sure that the Taxpayer reports their foreign bank accounts and other overseas assets timely. Thus, even when the Taxpayer does not have all the information available, they should try to submit their forms timely to include all the information they can reasonably gather when performing their due diligence. For example, if a person is unable to find certain account information to report — that does not mean they should avoid filing the form until all the information is available. That is because from the IRS’ perspective, if they intentionally file the form late — it could be considered a willful violation. Instead, the Taxpayer should try to complete the form(s) the best they can in order to file the form timely and as accurate as possible — with the information they have after having completed their due diligence.*
*In this type of situation, the Taxpayer may want to consider consulting with a Specialist before submitting.
Prior Year Noncompliance of Foreign Bank Account Reporting
If a Taxpayer is out of compliance for foreign account reporting in prior years, it is crucial that they get into compliance for prior years first before filing for the current year. Otherwise, their filing can be considered a quiet disclosure — and result in significant fines and penalties. The reason for this is that when a Taxpayer submits a quiet disclosure, they may have just taken what would have bee a non-willful situation — and morphed it into a willful disclosure by intentionally reporting prior accounts outside of the compliance program — or by just filing forward instead of submitting under one of the amnesty programs.
Foreign Bank Account Reporting is Not (always) So Bad
In conclusion, while foreign account reporting can be very complicated – it is not always complex. Oftentimes, the reporting requirements seem a lot worse online — due to the rampant fear-mongering — than they really are.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.