International Accounting - Reporting Requirements for Foreign Accounts
Decades ago the US government was concerned that some US taxpayers were evading domestic tax laws by hiding their assets in foreign financial institutions. This concern led to the Bank Secrecy Act and the requirement that US taxpayers who have a financial interest in or signature authority over any foreign financial account must report those relationships to the IRS. You’re required to report if the aggregate value of the foreign account(s) is greater than $10,000 at any time during a calendar year. The types of accounts that you are required to report include bank accounts, securities, and most other financial accounts in any foreign country.
You can report your foreign financial interests by using an FBAR – a Report of Foreign Bank and Financial Accounts – and you must file that form by June 30 of the calendar year following the year in which you had the financial relationship. You are responsible for ensuring that the information on the form is correct. The deadline for filing cannot be extended. However, the rules are currently under review and some taxpayers may have until June 30, 2011 to file the form for the calendar year 2009. If you have a financial connection to a foreign country, you should talk with your tax advisor to find out if you are required to report it. Penalties for non-reporting are stiff – the greater of $100,000 or half the account’s balance at the time of the violation if you are found to have willfully failed to comply with the reporting requirement.
The new proposed rules indicate that some exceptions will be granted for certain governmental plans, pension plan participants, and IRA owners, as well as persons who have signature authority over an account but no actual financial interest. Again, your tax advisor can help you determine whether or not your situation qualifies for an exception to the reporting requirement.
Here are some types of accounts that you may be required to report if the aggregate balance in all of the accounts exceeds $10,000 at any time during the calendar year:
International Business Accounts. If you are an officer or board member who has signature authority over a financial account for a business in a foreign country, you are required to report the account.
Power of Attorney. If you hold Power of Attorney over a family member’s finances, even if it’s meant for some undetermined point in the future when that person can no longer make his/her own financial decisions, you are required to report the account if it otherwise qualifies for FBAR reporting.
International Family accounts. If your name appears on a financial account along with family members who still reside in the foreign country and you have signature authority over the account – even if you do not consider the account to be yours – you must report the account.
Inherited accounts. If you inherit an account in a foreign country, you are required to report it even if the account is later moved to a US financial institution.
You can read more about the FBAR on the IRS’s website. The tax professionals at Hodgson CPA encourage you to make an appointment to discuss your particular situation in greater detail.