IRS Gotchas – Foreign Bank Accounts

There is a question on your tax return about foreign bank accounts that trips people up, particularly immigrants. While the question seems to be aimed at bank accounts, it’s much broader. It includes brokerage and other financial accounts. Having signature or other authority over these accounts if they exceed $10,000 at any time during the year requires you to file an FBAR report with the IRS electronically.

 

The gotcha’s come in the form of penalties. Making an inadvertent mistake such as not realizing that the balance of the accounts came to $10,001 for only a single day results in a $13,481 penalty. If the IRS considers the omission willful, the penalty zooms to the greater of $100,000 or 50% of the balance. These penalties will wipe out most of the accumulated wealth in these accounts.

 

The FBAR report for 2021 is due today, 4/18. The good news for some is that there is an automatic 6-month extension until 10/15/22 if you do not file on time. This is a truly automatic extension that does not require you to file a form.

 

For those that may want to answer the question on their tax return as ‘no’ on the theory that the government cannot get the information, remember this. Even if the government cannot get this information now, that could change in less than a year. 

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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