Foreign Bank and Financial Accounts (FBAR)

Do you have business interest in a foreign bank or have any foreign financial accounts? We have provided information especially for US taxpayers living abroad or resident aliens regarding filing a personal income tax return. The Internal Revenue Service (IRS) has updated their Frequently Asked Questions (FAQ) regarding Foreign Bank and Financial Accounts (commonly referred to as FBAR) including specifically updated FBAR filing requirements and updated FBAR financial accounts.

Any taxpayer who has a financial interest that exceeds $10,000 at any time during the calendar year including signature authority (or any other authority of the account) in a foreign country should review this information carefully. A “financial account” is defined as any banking institution, foreign financial securities or derivatives, or other financially related instruments.

Does your financial interests exceed $10,000 during the calendar year?

The IRS considers a country as “foreign” if the location geographically resides outside the United States, Puerto Rico, the Northern Mariana Islands, or any territories or possessions of the US including Guam, American Samoa, and the US Virgin Islands.

The official IRS website, irs.gov, provides a variety of current and relevant topics and references for taxpayers with international financial dealings. Consult with an experienced tax professional before you file a personal income tax return that involves ANY foreign income or matters that pertain to a foreign bank and financial accounts.

Are you a US Taxpayer living abroad?

Tax tips for US taxpayers living abroad are always useful. The America.gov Archive website is no longer updated but still provides important recommendations for both US citizens who live abroad and resident aliens. In summary, regardless of what kind of financial information you file (for example, income tax returns, estate returns, or gift tax returns), the filing rules are the same whether you live in the continental US or abroad. The rules also include paying any estimated taxes.

What are important filing deadlines?

Personal income tax returns (namely, IRS Form 1040, 1040a, or 1040EZ) are generally due in the middle of the fourth month (April 15) that follows the end of a calendar year.

Income tax filing rules are basically the same for US Taxpayers living abroad.

For those who are living overseas or are serving in the military outside the US and Puerto Rico (but not a combat zone) , there is an automatic two month filing extension.  It is important to remember that this two-month extension or the six month filing extension (IRS Form 4868, Application for Automatic Extension of Time to File US Individual Tax Return) is for the filing of a return; any taxes that are owed the government must be paid by the original filing deadline.

Any filing extension for US Taxpayers living abroad apply only to filing the return; pay any tax balance due by the original return deadline.

Your failure to address payment of any tax balance due by the original return deadline leaves you subject to paying interest as well as possible penalties.   Your tax payments are considered paid when the IRS receives the funds rather than when you postmark your your balance due, a separate voucher, or estimated tax payment.

What about difference in Exchange Rates?

All income reported on US federal or state income tax returns are stated in US dollars (USD) rounded up (or down) to the nearest whole dollar. While a taxpayer can use a daily currency exchange rate for very specific financial transactions, taxpayers reporting income should reference the yearly average exchange rate. If you find yourself filing income tax returns for prior years and are unable to determine an annual average, consider reseaching the exchange rate as of December 31 of the tax year you are reporting.  You can find further information about exchange rates by searching for “exchange rates” in the Search feature available on the official IRS website, irs.gov.

Do you have a taxpayer identification number ?

You need a taxpayer identification number to file a personal income tax return. Most US taxpayers have a Social Security number (SSN). You also need identification, typically a SSN, for any people who are claimed as joint filer or dependent on a US income tax return. If a spouse or dependent does not have a SSN, you need to provide an Individual Taxpayer Identification Number (ITIN).  You need original or certified documentation proving identify, age, and citizenship when applying for an SSN at a local US Social Security office or, if abroad, at a US consulate.  The IRS issues ITINs used exclusively for filing financial information with the federal government. Use IRS Form W-7, Application for IRS Individual Taxpayer Identification Number,  when applying for an ITIN for a spouse or dependent.

More help for US taxpayers living abroad?

On the official IRS website, www.irs.gov, click the Individuals tab on the left side of the main menu.  In the submenu, click International Taxpayers.  You will open a webpage with many IRS references to various topics that assist the US taxpayer living abroad.  If you are living abroad, consider seeking assistance from a tax professional before you file your income tax return.

A shameless “cut and paste” directly from Reuters News:
NEW YORK (Reuters) – H&R Block Inc will pay as much as $20.2 million to settle a New York lawsuit accusing it of fraudulently marketing retirement accounts that caused hundreds of thousands of mostly lower-income clients to lose money. New York Attorney General Andrew Cuomo said the accord calls for the largest U.S. tax preparer to refund $11.4 million to $19.4 million of fees to customers nationwide who opened one of its Express IRAs, a type of individual retirement account.

H&R Block will also pay $750,000 in fines and other costs to the state, and convert Express IRAs into new retirement accounts that do not charge fees, Cuomo said. The size of the refund depends on the number of claims made, he said.

New York had accused H&R Block of steering more than 600,000 customers to Express IRAs, without disclosing hidden fees that wiped out the interest that 85 percent of them could earn. Eliot Spitzer, Cuomo’s predecessor, had first sued H&R Block over the marketing of Express IRAs in March 2006.

“H&R Block’s aggressive peddling of fee-laden retirement accounts that were virtually guaranteed to lose money needlessly cost families across the country millions of their hard-earned dollars,” Cuomo said in a statement on Monday.