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Foreign Bank Accounts & Investments

Foreign Bank Accounts & Investments


If you are a U.S. citizen or a green card holder who has bank accounts or investments abroad, then you likely wonder what the tax consequences of owning and holding those assets are. Are you required to declare those bank accounts to the Internal Revenue Service (IRS) and/or pay taxes on any earnings that those financial assets may generate? The answer to both questions is a definitive yes. Part of this is driven by the fact the United States is one of the few countries in the world which taxes its citizens and permanent residents on earnings and assets held worldwide, not just in the United States. This has become a very hot button issue in the past several years, after tens of thousands of Americans were discovered to have secret Swiss bank accounts after a former UBS banker blew the whistle on the Swiss banks’ practice of assisting Americans in shielding assets from the IRS. This has led the IRS to take aggressive enforcement actions against Americans who held assets in Switzerland or in favorable tax jurisdictions. Now is a particularly important time to ensure that you comply with all U.S. laws regarding any foreign bank or other financial accounts you may have an interest in.

Reporting Requirements for Foreign Bank Accounts and Investments

Under FATCA (Foreign Account Tax Compliance Act), a US taxpayer is required to file a form called a Report of Foreign Bank Account and Financial Accounts, or FBAR for short, if he/she (i) has a financial or ownership interest in at least one financial account outside the United States and (ii) the aggregate value of all of that individual’s foreign financial accounts exceeded $10,000 at any time during the calendar year reported. FBARs must be filed with the Department of Treasury on April 15th. Therefore, if you spent two months in France for work and opened two separate bank accounts with French banks, one with $4,800 in it and the other with $4,500 in it, you would be responsible for filing an FBAR and declaring those accounts, as well as the funds in them, to the US Government. That would be true even if your combined balance in those accounts only exceeded $10,000 during any single day in that period, as the requirement to file an FBAR is triggered by foreign financial accounts which exceed $10,000 in total value at any single day during the calendar year.

What Types of Accounts Do These Requirements Cover?

Under the U.S. Bank Secrecy Act, any American citizens who owns or has an ownership interest in a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account is required to file an FBAR. The requirement is therefore not directed solely at those who may have foreign bank accounts, but also those who have foreign financial holdings in a number of other financial assets as well.

Conclusion: If You Meet the Requirements for Filing an FBAR, Do So

If you own or have an interest in a foreign bank or other financial account and have more than $10,000 in total in those foreign financial account(s), you are required to file an FBAR under U.S. tax law. Given how much this issue has been in the news the past several years and the seriousness with which the IRS takes such issues, you should make sure to always file an FBAR if required to do so. The amount of money and headache you will experience if you do not do so is not worth whatever little time, energy and money you may think you will save by not filing an FBAR.

How Long Does the IRS Have to Attempt to Collect on an Unpaid Tax Debt?
One of the most common questions that many people who may have unpaid tax debts wonder is how long the Internal Revenue Service (IRS) is allowed to attempt to collect unpaid taxes from prior tax years from a taxpayer. Given that the IRS has very broad collection powers that enable the agency to pursue unpaid taxes in a much more aggressive manner than private debt collectors (such as by seizing Social Security payments, filing tax liens against a taxpayer’s residence, and other means), a taxpayer often is left wondering when they will be able to stop worrying about whether the IRS will stop going after their paychecks, their house, or other assets if the taxpayer neglected to pay taxes in a certain year. Assuming you have unpaid federal taxes, the IRS unfortunately has a long window of time within which to attempt to collect those unpaid taxes from you. The statute of limitations, a legal term for the amount of time that a party has to pursue legal remedies against someone, for unpaid taxes extends ten years past the point the unpaid taxes are officially assessed. This means that a taxpayer may find their paychecks being garnished, their ability to sell their house impaired due to a federal tax lien, and other problems for a long duration of time solely as a result of unpaid taxes.

What Is a Statute of Limitations?

Most types of lawsuits and criminal charges carry with them a time limit within which either a case must be filed, criminal charges must be brought, or other legal action must occur. This is commonly referred to as the statute of limitations applicable to that particular legal action, whether it be the filing of certain criminal charges or a certain type of civil lawsuit. The statute of limitations sets the time period within which the prosecutor must charge someone, a lawsuit must be filed against an individual, or, in this case, the IRS is able to continue making collection efforts on unpaid taxes. Once the statute of limitations has expired, then a prosecutor cannot file charges, a person cannot file a lawsuit, or, in this scenario, the IRS must cease collection efforts on unpaid taxes. Once that time period has elapsed, then the IRS is no longer able to pursue an individual for amounts that person may owe the government from taxes he or she failed to pay in previous years, regardless of the success or lack of success of the agency’s efforts to recover those funds from the taxpayer to date.

What is the Statute of Limitations for IRS Collection Efforts to Recover Unpaid Taxes from Previous Years?

As a general rule, there is a ten year statute of limitations on any IRS collections efforts to recover unpaid taxes owed by a taxpayer. This means that the IRS can attempt to collect your unpaid taxes for up to ten years from the date the unpaid taxes were assessed by any means permitted to the IRS-including garnishing your paycheck or other sources of income, filing a tax lien against your house or a myriad of other methods. Once that ten years has passed, however, the IRS is required to completely stop collection efforts. Any unpaid taxes at that point would remain outstanding, but the IRS simply would not longer be allowed to pursue you for payment of those taxes by, for instance, filing a tax lien against your home or garnishing your paychecks.

Posted in: Cross Border Tax Transactions, International Tax, Tax Planning, Uncategorized

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