Legal Taxes Travel
Understanding the IRS foreign bank account rules for US citizens
April 9, 2015
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Are you a US citizen with a foreign bank account?

Taxes are a big issue with digital nomads, particularly those from America. While I don’t practice or claim to have any expertise in tax law, I’ll try to address some of the broader tax issues that nomads and location-independent businesses face.

One issue that got a lot of nomads worried a few years ago was the United States’ FBAR regulations under the Bank Secrecy Act. These regulations deal with foreign bank accounts held by US citizens, and can carry serious penalties if not followed.

Let’s see what FBAR is and whether or not it may apply to you.

What is FBAR?

FBAR stands for “Foreign Bank Account Report.” Basically, it’s a report that you need to file with the IRS every year if you meet two requirements:

  1. You have a financial interest in at least one account located outside of the US (or you have “signature authority” over that account); AND
  2. The total aggregate value of all of those accounts was over $10,000 at ANY TIME during the reporting year.

If so, then you will have to file an FBAR.

“You,” by the way, means any US citizen or resident, along with any US business entities like corporations, LLCs or partnerships. It also means trusts and estates, if those apply to you.

FBAR stands for “Foreign Bank Account Report.” Basically, it’s a report that you need to file with the IRS every year if you meet two requirements.

So how hard is it to file one of these?

Not hard at all. You go to the US Treasury’s ominously-named Financial Crimes Enforcement Network website and fill out the pdf form it gives you. Then you go back and upload the form.

I would say that the best way to do this, though, is to go through a professional tax advisor. If you’re generating enough income to necessitate the filing of the FBAR, you owe it to yourself to get things done properly.

What can happen if you don’t file one?

Penalties, of course. Big penalties.

At the minimum, failure to file your FBAR will get you a $10,000 penalty per violation. However, if they find that you’ve willfully violated the rules, this penalty can skyrocket to $100,000! Yikes.

Actually, it’s the greater of either $100,000 or half of what’s in the accounts, so if you’ve got over $200,000 in the account, the penalties could be even higher.

At the minimum, failure to file your FBAR will get you a $10,000 penalty per violation. However, if they find that you’ve willfully violated the rules, this penalty can skyrocket to $100,000!

If you realize later that you needed to file the FBAR, you can still file it late. If you’re late, you also have to participate in one of the IRS’s amnesty programs. In order to avoid further issues, this has to be done before you have been contacted about it by the IRS or before a civil or criminal investigation has started. Otherwise, you’re FUBAR.

The most important thing

So, you’ve got the most basic handle on what FBAR is and how to deal with it. What now?

Again, I’m not a tax expert. This post is purely for informational purposes and not legal advice. If you feel you have a tax issue, get a tax advisor to help. Find a professional that you can trust. Someone that can walk you through what you need to file and when to do it.

As you can see, the penalties for screwing this up can be very large, so why take the risk? Get it done right.

I’d like to thank Stewart Patton of U.S. Tax Services for his help on this article. He’s a US tax attorney and expat living in Belize, and was gracious enough to look over the article to check for errors. Feel free to contact him or check out his blog for information about tax issues for digital nomads and other location-independent professionals.

photo credit: Tax via photopin (license)

About author

Zachary Strebeck

I'm a solo practice lawyer and full-time digital nomad. I run my law practice at www.strebecklaw.com, representing Internet, mobile software and gaming entrepreneurs. I also blog about digital nomad travel at A Lawyer Abroad.

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