U.S. taxpayers are required to report and pay tax on their worldwide income, including investment income earned on financial accounts located outside the United States. This income is typically reported on Schedule B of the individual tax return.
In addition, taxpayers with foreign financial accounts exceeding $10,000 (in aggregate) at any given time are also required to file a Report of Foreign Bank and Financial Accounts (FBAR). An FBAR is due on or before June 30 of the year following the calendar year reported. These regulations took effect on March 28, 2011 and apply to calendar year 2010 and beyond.
Though the filing of a FBAR is a mandatory requirement, there are some exceptions:
1) Certain foreign financial accounts jointly owned by spouses;
2) United States persons included in a consolidated FBAR;
3) Correspondent/nostro accounts;
4) Foreign financial accounts owned by a governmental entity;
5) Foreign financial accounts owned by an international financial institution;
6) IRA owners and beneficiaries;
7) Participants in and beneficiaries of tax-qualified retirement plans;
8) Certain individuals with signature authority over but no financial interest in a foreign financial account;
9) Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
10) Foreign financial accounts maintained on a United States military banking facility.
Please note that a person required to file an FBAR who fails to properly file a complete and correct one may be subject to significant penalties. The FBAR requirement applies to foreign financial accounts, including a bank account, brokerage account, mutual fund, trust, to other type of foreign financial account, that exceed the above-mentioned threshold (for all accounts combined).
If you have or had a foreign bank account and have not properly filed an FBAR or included investment income on your tax return, you should contact legal counsel to determine your options. The Internal Revenue Service has several programs available for taxpayers such as these including the Streamlined Filing Compliance Procedures and the Offshore Voluntary Disclosure Program.