U.S. Taxpayer Living Outside the United States
The U.S. Department of Justice reports 18,000 retired U.S. military personnel are living outside the United States. If you are a U.S. taxpayer living outside the United States and you have assets in a foreign bank account, you may need to file an FBAR or other specific foreign asset reporting forms with the Internal Revenue Service (IRS).
U.S. military retirees living abroad with a financial interest or signature authority over a financial account located outside the United States, such as a bank account, brokerage account, mutual fund, retirement account and some life insurance policies, may need to report the account yearly to the IRS if the total value of all foreign accounts is greater then $10,000 at any time during the calendar year.
While your country is thankful for your service, when it comes to taxes the IRS is only interested in collecting your money. Here are some tips to help you remain in compliance with U.S. tax laws and regulations when living abroad.
What You Should Know About Foreign Bank Account Reporting (FBAR)
- It is also referred to as FinCEN Form 114.
- For 2015 an FBAR must be filed on or before June 30, 2016 for the previous year’s Federal tax return. (For 2016 and after, the FBAR filing deadline will be April 15th).
- There are no extensions for filing FBARs, even if you received an extension to file your tax returns.
- An FBAR must be filed electronically.
Retirees May Also Need to File Forms 8938 and 8621
- IRS Form 8938: Statement of Foreign Specified Assets is similar to the FBAR but has a higher account balance.
- Form 8938 includes reporting of foreign partnership interests, private equity and hedge funds.
- IRS Form 8621 are used to report investments in Passive Foreign Investment Companies (PFICs).
Consequences of Not Reporting Foreign Bank Accounts
- Nonwillful violations can result in a civil penalty not to exceed $10,000 per violation.
- Willful violations penalties may be greater than $100,000 or 50% of the balance in the account at the time of the violation.
- Criminal prosecution with the possibility of jail time.
Options for Coming Into Compliance with FBAR and Other Foreign Asset Reporting
There are four main options for coming into compliance with the IRS regarding foreign financial accounts. Please see my previous Boston Tax Attorney blog post, “What Should You Do If You Have An Undisclosed Foreign Bank Account?” for more information on each of the options.
- Streamlined Filing Compliance Procedures
- Offshore Voluntary Disclosure Program
- Delinquent FBAR Submission Procedures
- Delinquent International Information Return Submission Procedures
Don’t get caught by surprise when it comes to reporting foreign bank accounts to the IRS. Talk to a tax accountant or a tax preparer to about your particular situation.