Friday, January 20, 2012

Q&A Series: Reporting Obligations for Individuals with Foreign Assets – THIS MEANS YOU!

This week's question comes from a reader who maintains assets in a foreign bank account.

Q: I am a U.S. citizen with a bank account located overseas. Someone told me that these assets aren’t reportable to the IRS. Is this true?

Excellent question! There’s a flourishing industry of unethical (or unknowledgeable) “professionals” advising clients to open accounts overseas because the funds are supposedly not reportable to the IRS. Not so!! This is tax fraud, and it gets a lot of people in trouble and could mean jail time. If you’re a U.S. citizen or resident alien, you are required to report worldwide income, regardless of where your assets are located. So while there’s nothing wrong with having assets in an offshore account, it’s important to make sure you’re following IRS rules on reporting the assets in those accounts. Here are the basics:

To try to stop U.S. taxpayers from hiding foreign assets, the IRS has published Form 8938, “Statement of Specified Foreign Financial Assets.” Beginning with the 2011 tax year, individuals with specific foreign assets with a combined value greater than $50,000 (this threshold increases if you live abroad or if you are married filing jointly), are required to file a Form 8938 with their individual income tax return. At this point, the IRS is only requiring individuals, and not domestic entities, to file the Form 8938. This is strictly an informational report at this time.

If you previously had to file a Report of Foreign Bank and Financial Accounts ("FBAR") with the IRS, it’s important to note that Form 8938 doesn’t replace the FBAR. These filings are undoubtedly similar and there is substantial overlap, but a taxpayer is obligated to also file the FBAR if he or she has a financial interest in (or signature authority over) at least one foreign bank or financial account, and the combined value of all overseas accounts is greater than $10,000 at any time during the calendar year.

Unlike Form 8938, the FBAR isn’t filed with an individual’s annual federal tax return. Instead, it’s due by June 30th the year following the calendar year in which the individual’s account(s) met the $10,000 threshold.

Thanks so much for your question. This post just touches on the tax filing requirements for individuals with foreign assets. To ensure you are complying with IRS filing rules, it is always best to consult with a Certified Public Accountant. In that regard, our sister CPA firm, Rollins & Associates, is always willing to help.

We encourage our clients and readers to send us questions for our Q&A series at And as always, we hope you will keep Rollins Financial in mind when seeking professional advice on financial planning and investing.

Best regards,
Joe Rollins

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