Sri Lanka Express

Taxes: Foreign bank accounts with more than $10,000 must be reported


SLE News/Features
April 14, 2017

Own assets in Sri Lanka?  Have a bank account with more than $10,000 in Sri Lanka?  Earned interest on foreign bank accounts?  You are required to report these assets as well as pay taxes on interest earned.   Bear in mind that the United States has a worldwide tax system, meaning every U.S. taxpayer must report all his income regardless of where it was earned. There are very stiff penalties for failing to disclose foreign assets.


If you have foreign accounts in your name or simply have "signature authority" on them, and combined they're worth at least $10,000, you're required to disclose them to the IRS when filing your 1040.  Additionally, you're supposed to electronically file what's known as an FBAR form by June 30 every year.

This reporting is mandatory,  even if the accounts don't generate taxable income.

If your foreign accounts and assets combined are worth at least $50,000, you may have to disclose them on Form 8938 and file it with your federal tax return.


The IRS is emphasizing compliance with foreign account reporting requirements, raising the risk level for taxpayers that do not properly report their foreign accounts and those taxpayers' advisers.

U.S. residents or citizens must report a financial interest in, or signature or other authority over, specified bank and other accounts in a foreign country on Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if their aggregate maximum values exceed $10,000 at any time during a calendar year.

Form 8938, Statement of Specified Foreign Financial Assets, has a higher reporting threshold than an FBAR. The Form 8938 threshold is met by accounts with an aggregate maximum value of $50,000 on the last day of the tax year for single taxpayers and still higher for married taxpayers filing jointly and those living abroad.

FBAR reporting applies to U.S. persons, as defined by regulations under Title 31, which can include certain corporations, partnerships, trusts, estates, and other entities. While this is a broader requirement than for individuals required to file Form 8938, the latter has been extended in recent regulations to include certain specified domestic entities.

Persons who nonwillfully fail to file a required FBAR can incur a civil penalty of up to $10,000 for each violation. A willful violation increases the potential penalty to the greater of $100,000 or 50% of the foreign financial account balance and may also carry criminal penalties. Courts have defined willfulness for these purposes as "reckless conduct" or "willful blindness" to the requirements.

Best practices for practitioners include clearly and specifically discussing the foreign account and asset reporting requirements in engagement letters and using a separate engagement letter for FBAR filings. Tax organizers should include examples of reportable foreign accounts, particularly types that clients might overlook.

Source: www.thetaxadviser.com

More on filing FBAR





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