Dual citizens, along with all other “United States persons”, must file a Report of Foreign Bank Accounts (FBAR) if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the year. This requirement applies to U.S. citizens, residents, green card holders, and those who must file taxes because they are substantially present in the United States. It also applies to legal entities, including corporations, partnerships, and trusts.
While other countries only tax their citizens on income earned within the country’s borders, the United States taxes its citizens—and other individuals who have a filing requirement—on all worldwide income from any source. This requirement, along with the FBAR filing requirements, can create problems for expatriates, immigrants, and anyone else with offshore bank accounts.
Expats who move abroad are still responsible for complying with U.S. tax law as long as they remain U.S. citizens. Even if you live abroad for the entire year, and none of your income would be taxable, you may still have to file a tax return. If you open a bank account in a foreign country, and the aggregate value of all of your foreign accounts exceeds $10,000 during the year, you must file an FBAR.
Those that live outside of the U.S., and who have failed to file FBARs non-willfully, may be eligible for the Streamlined Filing Compliance Procedures, and may have the miscellaneous offshore penalty waived. Read our Free Special Report on the Streamlined Filing Procedures for more information.
Another group of taxpayers who may unknowingly run into FBAR compliance issues is immigrants to the United States. Immigrants who maintain a bank account in their home country and then become United States taxpayers may have to file an FBAR in addition to filing a U.S. tax return. U.S. citizenship is not a prerequisite to triggering these requirements; individuals with green cards or who pass the “substantial presence” test will also need to file these returns.
The penalties for FBAR non-compliance are severe: $12,459 per violation for non-willful violations and the greater of $124,588 or 50 percent of the balance in the account at the time of the violation per willful violation. To avoid these penalties, contact a tax attorney to discuss whether you should pursue one of the voluntary disclosure programs.
If you have been contacted by the IRS regarding delinquent FBARs, talk to a tax attorney immediately. You may be able to negotiate reduced penalties, particularly if you have no history of tax problems and certain other requirements are met.