Foreign Bank Accounts & Legal Tax Filing Requirements

People who hold bank accounts outside the U.S. may face challenges when filling out their tax documents. They will need to file a form called Schedule B with their regular return. Schedule B generally states interest and dividend income from accounts in the U.S. if those amounts exceeded $1,500 in the past year. However, people who have foreign accounts must file Schedule B to report any of these accounts, regardless of how much money they hold. These taxpayers will need to complete Part III of Schedule B to indicate that they hold such an account, although they do not need to state the amount that it contains. They also must state whether they have filed a Report of Foreign Bank and Financial Accounts (FBAR), also known as FinCen Form 114. The FBAR is discussed further below.

Schedule B is not the only tax form that you may need to file in this situation. Many taxpayers with foreign accounts also must file Form 8938. This applies if they held $75,000 in a foreign account at any time during the year ($150,000 for married couples filing jointly), or if they held $50,000 in a foreign account on the last day of the year ($100,000 for married couples). People who are living abroad need to file Form 8938 only if they held $300,000 in the foreign account at any time during the year ($600,000 for married couples), or if they held $200,000 in a foreign account on the last day of the year ($400,000 for married couples). Certain taxpayers may need to file more specific forms as well, such as Form 5471 for foreign businesses or Form 3520 for foreign trusts.

FBAR Filing Requirements

You must file an FBAR if you held a total of more than $10,000 in any foreign accounts at any time during the calendar year. On the form, you will need to report the names and addresses of the financial institutions at which you held accounts, your account numbers, and the maximum amount that you held in each account. The FBAR is provided by the Financial Crimes Enforcement Network and should not be filed together with your tax return. You must file it by the same date as your tax return with the Department of Treasury.

Multiple Owners

If a foreign financial account is owned by two or more people, each owner must report the entire value of the account on an FBAR. There is an exception for spouses who jointly own all reportable financial accounts with a filing spouse who timely files an FBAR and completes Form 114a.

Penalties for Failing to Report

You can face harsh penalties for failing to report foreign accounts, whether by failing to file Schedule B or by failing to file an FBAR when required. These can include substantial fines, especially if your conduct is considered intentional.

If you failed to file Schedule B when it was required to disclose your interest or divided income from accounts in the U.S., you can amend your return and pay any related taxes, interest, and penalties. A taxpayer will face no further consequences in most cases. People with foreign accounts who failed to file Schedule B also may be able to amend their return if they filed the FBAR as required and did not need to file Form 8938. If they did need to file Form 8938, they can still amend Schedule B while submitting Form 8938, but they may face additional penalties.

Filing Late

It is possible to file an FBAR late and provide the IRS with a reason for the late filing, which may help reduce any penalties.

It becomes harder to solve the issue by filing an amended Schedule B if a taxpayer reported domestic accounts but not foreign accounts on Schedule B or affirmatively stated that they did not have foreign accounts on Schedule B. If you made misrepresentations on Schedule B, or if you failed to file an FBAR, you should promptly consult an attorney who specializes in this area of the law and can advise you on your options.

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