Foreign bank accounts have long been synonymous with the ultra-wealthy in the United States. For decades, those with the most resources used reporting and tax loopholes as a way to diminish their personal taxable holdings. However, the Internal Revenue Service (IRS) has updated its policies to require the disclosure of foreign assets, including foreign bank accounts. Those who decide to hold their resources in an offshore account have an obligation to report those resources to the IRS when filing their annual income tax returns.
There are many scenarios other than tax avoidance that could lead to someone holding international resources, such as a foreign bank account. Some people enter the United States with foreign assets already in their names. Does someone who has relocated to the United States have an obligation to report a bank account that they held before entering the country?
Most foreign assets require reporting
People with resources in another country might live in the United States for a variety of reasons. They may have become naturalized citizens of the United States. They may temporarily be in the country on an educational, employment or investor visa. They may have dual citizenship in the United States and another country.
In any of those scenarios, someone living in the United States typically has to report their foreign assets to the IRS when they file a tax return. The assets need to have a minimum value to require reporting. If the maximum balance of all foreign accounts reaches $10,000 at any point throughout the year, then the account holder must report it to the IRS.
When and why they started the foreign bank account does not matter. What matters is their eligibility for taxes in the United States and the maximum balance of those foreign bank accounts. Complying with Report of Foreign Bank and Financial Accounts (FBAR) requirements can be difficult.
Most people are unfamiliar with this niche area of tax law. Immigrants and those with dual citizenship may need assistance when preparing their tax returns or responding to a tax controversy. Small mistakes related to reporting foreign bank accounts could have major implications for a taxpayer. Learning more about reporting requirements, and seeking personalized legal guidance as necessary, can help people to better ensure that they appropriately comply with domestic income tax regulations.