Do You Need to Report Your Foreign Bank Account and Other Foreign Assets to the U.S. and IRS?

If at any time during the year, the cumulative value of all your foreign bank accounts or the aggregate value of your entire portfolio of foreign financial accounts, which includes foreign bank accounts, foreign brokerage accounts, foreign pensions, or foreign life insurance, ever exceeds $10,000 then you must report each account to the Financial Crimes Enforcement Network each year. The FBAR form is separate from your U.S. Federal income tax return (Form 1040).

Not only do you need to ensure you are filing the FBAR, but also Form 8938 (and Schedule B for the foreign bank accounts and grantor trusts) on your U.S. Federal tax return may be required to report certain foreign financial assets if you are above the annual threshold.

The threshold for filing Form 8938

Individuals living in the US:

Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Individuals living outside the US:

Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

Specified domestic entities:

Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the tax year.

Penalties for Not Disclosing Your Foreign Bank Account and/or Foriegn Financial Assets

The FBAR-specific penalties, civil monetary penalties are adjusted annually for inflation. For non-willful (you didn’t know you had to file), the penalty is $10,000, which increases to the greater of $100,000 or 50 percent of combined account balances if you are found wilful of non-compliance.

The failure to disclose foreign financial assets on your U.S. tax return, Form 8938, Statement of Specified Foreign Financial Assets, is $10,000 for every 30 days of non-filing after the Internal Revenue Service issues you a notice of a failure to disclose for a total maximum penalty of up to $60,000. Additionally, there may be criminal penalties on top of the civil penalties.

Fortunately, the IRS does have amnesty programs for people who are behind with their past filings to avoid criminal and some (sometimes all) civil penalties. These programs include the Streamlined Filing Compliance Procedures.