Maybe you really do have a foreign bank account!
Every year I ask my clients “do you have a foreign bank account?” The answer is usually no. But you better think again! In this modern global community you just might have a foreign bank account and not even realize it. While the laws were designed to capture the large accounts of those intentionally trying to evade taxes, they are written in such a draconian manner, that they affect the innocent as well and punish them just as severely.
The actual question on the tax return reads: “At any time during 2015 did you have a financial interest in or a signature authority over a financial account (such as a bank account, securities account or brokerage account) located in a foreign country?” As usual with the IRS, this question is much broader than it appears.
Usually signature authority is cut and dry. This means you had the ability to make transactions in the account whether you own it or not. So if your employer maintains an account in a foreign country in which you have check writing authority or perhaps the ability to wire funds, you must answer yes, you do not have ownership, but you have signature authority.
What can be a bit stickier is the financial interest question. Suppose you have a parent in a foreign country that is elderly, and the parent decides for inheritance purposes, to put your name onto their bank or investment accounts to ease the transfer/probate issues after they pass. Even if you have no access to that account and no knowledge of the amount in the account and even you did not even know that your parent had put your name on it, you still have a financial interest and this must be disclosed. By the way, if there was income in that account, you may be liable for reporting it and paying tax on it!
One of the most common “forgotten foreign bank accounts” is a gaming account. Do you play games or gamble on line? These accounts are often based outside of the United States. Your ownership and control of this by law must be disclosed: even if there is nothing or next to nothing in it!
So Roger, how do I report this? If the account was not greater than $10,000 US dollars at any time for the entire tax year, then you only need report it on your 1040. If the account was greater than $10,000 at any time during the year, then you report it on your 1040 and must file an FBAR with the US Treasury by June 1. If at any point during the year the account was greater than $75,000 or was at least $50,000 on the last day of the year, then you must disclose it on the 1040, file an FBAR, and file form 8938 with your tax return.
What if I have to correct nondisclosure for past years? PRAY! I am not kidding!
There are multiple ways to correct this but, seek professional help! If you do it wrong it will cost you big! Remember when I said this was a draconian law? Minimum penalties are $10 grand per year if you do this wrong!
What if I just choose not to fix it and roll the dice? This is not something to be played with! If you choose this path and are caught the penalty is 100% of the account and five years in prison and a criminal record. By the way, the statute of limitations on this is six years not three.
