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Important Steps to Take When Reporting Your International Financial Accounts

Important Steps to Take When Reporting Your International Financial Accounts

We live in a globalized world, which means that more U.S. alien residents and citizens are taking their money overseas for banking and investment purposes. While owning a foreign account is not illegal, in fact, there are many benefits associated with owning an international account, U.S residents with these accounts have an obligation to the IRS to report all sources of income, investments and bank accounts both at home (in the U.S) and abroad.  Even though these accounts may not generate any taxable income, all international financial accounts must be reported to the government.


Individuals who should report foreign accounts.

The Bank Secrecy Act requires that all U.S. taxpayers report brokerage accounts, international bank accounts, unit trusts, mutual funds and all other financial account under Form TD F 90-22.1, Report of Foreign Bank and Financial Authority, FBAR, once:

·         You have financial interest in, signature authority, or other such authority over one or more international accounts; wherever, they may be and

·         The cumulative value of international accounts is in excess of $10,000 at any time during the current calendar year.


Who is considered a U.S. Person?

·         A U.S. person is a citizen or resident of the United States of America, or

·         Any legal entity operating within the U.S such as an estate or trust or a partnership or corporation.


What is considered a foreign country?

A foreign country is said to be all geographical locations outside of the United States of America; the Commonwealth of Northern Mariana Islands; the Commonwealth of Puerto Rico and all territories and possessions of the United States, such as American Samoa, Guam, and the United States Virgin Islands. However, if you have an account known as a United States “military banking account”, you are exempted from filing these as finances in foreign countries because they are not considered to be international accounts.


Although you are required to file the FBAR, please keep in mind that this is not an income tax return; therefore, you must not mail it in with your returns. All FBAR forms must be completed and mailed into the IRS on or before the June 30th deadline of the following year to this address: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621.

Extensions to file your FBAR will not be granted; therefore, ensure that you file this document on time to avoid any problems with the IRS.


Who is exempted from filing the FBAR?

Individuals who may have signature or other authority over, but no financial interests or obligations may be exempted from reporting this account and filing an FBAR only if they are a federally-regulated publicly traded corporation or an employee or officer of a federally-regulated bank.


What is the importance of filing the FBAR?

Not all foreign financial institutions conduct business within the United States, which means that these businesses do not have an obligation to report certain aspects of their business. Which also means that the accounts you have with these companies do not get reported. The FBAR is, therefore, filed by U.S individuals with foreign accounts in such businesses to provide the U.S government with an insight into persons who may use these international accounts evade U.S tax laws.


The U.S. government requires that these accounts be reported to keep track of individuals who may be participating in economic crimes such as embezzlement or income tax evasion. The government is also afraid that some individuals with foreign accounts may be using this money to fund more serious illegal activities such as drug trafficking, or even worse, terrorist activities.


What will happen if you do not file Form FBAR?

Individuals or businesses that refuse to file an FBAR may face serious consequences such as criminal or civil penalties or a combination of both. As of October 22, 2004, the maximum civil penalty for failing to report foreign accounts are, the greater of $100,000 or 50% of the balance in the international account at the time of the violation. There is a penalty of $10,000 for non-willful violations, while criminal violations for breaking the FBAR rules will result in a fine and or 5 years in prison.


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