Michael Lodge    by Michael Lodge, Chairman / CEO

Over the past year I have published several blogs on foreign bank accounts that you may own and that you need to report them.  On your tax return, Schedule B it asks the question – Do you have a foreign bank account.  You have to give a yes or no answer.  On our client worksheet we also ask the question if you have a foreign bank account.  Well, that question is very important because there are fines that you may have to face if you answered no and you have a foreign bank account with over $10,000 (at anytime during the year) or you are have a signatory responsibility on a foreign bank account.  So in the this article we will go over the rules of reporting and the fines and criminal action that will be placed upon you if you are found out.

There are two tax laws that went into affect that involve reporting of foreign bank accounts known as FATCA – Foreign Account Tax Compliance Act  monitored by the IRS and then there is another government entity under the Department of Treasury known as FinCEN or known as Financial Crimes Enforcement Network.

The foreign Account Tax Compliance Act, better known as FATCA, was passed on March 18, 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.  See how other bills are added into other bills in Congress and people just not aware, it is a sneaky way to add something into another bill.  Starting July 1, 2014 foreign financial institutions (FFI) will be required by the US government, under FATCA, to report information regarding accounts of all US citizens (living in the US and abroad), green card holders and individuals holding certain US investments to the IRS.  This law requires foreign financial institutions such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc. to report directly to the IRS all their clients who are “U.S. persons.”  Foreign Financial Institutions that do not become compliant will be subject to a 30% withholding on their U.S. investments when they are cashed in, which will directly impact Foreign Financial Institutions clients with U.S. holdings.

Under this law it requires U.S. citizens(Green Card Holders) who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers) to report those assets every year on a new form 8938 to be filed with the 1040 tax return.

DON’T STOP READING – WE ARE GOING TO TALK ABOUT ANY FOREIGN BANK ACCOUNT THAT IS AT $10,000.  There are two important reporting factors you have to understand.

WHO IS REQUIRED TO FILE?:  Under this law, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS.  This law requirement is in addition to the long-standing requirements to report foreign financial accounts on FinCen Form 114.  Read below – Understanding the Financial Crimes Enforcement Network.  This is a very important part of reporting foreign bank accounts.

Under this law it will require certain foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.  The reporting institutions will include not only banks, but also other financial institutions, such as investment entities, brokers, and certain insurance companies.  Some non-financial foreign entities will also have to report information on their U.S. owners.

This law covers U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals who own certain foreign financial accounts or other offshore assets (specified foreign financial assets) must report those assets

FAILURE TO DISCLOSE:  Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000;  criminal penalties may also apply.

If you have a foreign bank account or are a signatory on a foreign bank account we would ask that you contact your accountant and go over the rules.

FORM 114 – UNDERSTANDING THE FINANCIAL CRIMES ENFORCEMENT NETWORK (FinCEN):  The is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.  This is not reported on your income tax return, however it is a separate report you have to file online with the Treasure Department – yearly.

The reporting threshold (Total value of assets) is $10,000 at any time during the calendar year.  You will need to file a form 114 with the Department of the Treasury ONLINE only, no paper returns will be accepted.  If you do not report a foreign bank account or signatory on a foreign bank accountant(s) that is $10,000 or greater you will be fined.  This is not just one account, it means all and any account you may have that totals $10,000 and above.  And there is a penalty, if non-willful, up to $10,000; if willful up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply.

To read the IRS regs go to: 


FINAL NOTE:  If you have foreign bank accounts just remember those foreign banks will be reporting into the IRS accounts that you are on and will be matched up against your tax returns.  Remember, this is a reporting requirement of the IRS and the Treasury Department.  You should work with your tax accountant to advise you on what to do.  Remember, there are very stiff penalties and possible criminal issues that can arise for not reporting these foreign bank accounts.  The best thing to do is always remain in compliance with IRS and federal reporting requirements of the federal government.