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How Does The IRS Tax You For Assets Held In Foreign Countries?

Posted by Brandon Keim | Jan 09, 2021 | 0 Comments

If you have financial assets or bank accounts in another country, you may not know how to report them to the IRS. If you're not careful, you may face failure-to-report penalties for a simple misunderstanding.

When Do You Report Foreign Assets?

You are obligated to report any foreign assets to the IRS if you are a United States citizen or a resident alien. If you qualify as a United States citizen or a recognized foreign alien, under the IRS's guidelines, and you have held over $10,000 in your foreign bank account at any point in the past year, then you will be required to file a Foreign Bank Account Reporting (FinCen Form 114a) come tax season.

Filing Foreign Bank Account Reporting

A Foreign Bank Account Reporting (FBAR) alerts the IRS to the status of any foreign bank account or assets you have in other countries. If, as mentioned, you qualify to stand as a citizen of the United States, you will need to file both this document and a Form 8938 alongside your tax return. Both documents are due on April 15th (with six-month extensions available) and require you to detail the total of your foreign financial assets as well as your filing status, be it single, married filing jointly, or married filing separately.

There are, however, circumstances that will allow you to file your taxes without filling out an FBAR. If, for example, you share your assets with your spouse, and your spouse has completed a FinCen Form 114a, then your spouse may file an FBAR for you. Alternatively, you can forgo an FBAR if your account is:

  • Held by a US military bank
  • Owned by an international government body
  • Affiliated with a retirement account or plan
  • Affiliated with a trust

Understanding Double Taxation on Income Earned by Foreign Assets

If you owe tax in the United States on income earned by foreign assets, you may face double taxation from both the country in which your assets are located and the United States. That said, you may be able to claim a credit via Form 1116 for the taxes you've paid in another country.

Failing To Report: The Consequences

Unintentional violations, should you fail to file an FBAR or similar document, can cost you $10,000 in fines per account per year that you fail to report. Willful negligence can see you fined by up to 50% of the account balance, or $100,000, whichever is greater. There are also criminal liabilities, including imprisonment, for failing to report foreign assets. 

Call Senior Partner, Tax Controversy Attorney, Brandon A. Keim at (602) 200-7399 today to discuss proper accounting and reporting of foreign assets.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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