How to report your Foreign Financial Accounts to IRS

With the globalization of the economy, more and more people in the U.S. have foreign financial accounts. While there are many legitimate reasons to own foreign financial accounts, there are also responsibilities that go along with owning such accounts. Foreign account owners must remember that they may have to report their accounts to the government, even if the accounts do not generate any taxable income.

In addition to reporting your worldwide income, resident aliens (including part-year resident aliens), US citizens must also report on U.S. tax return whether they have any foreign bank or investment accounts (i.e., U.S. persons who own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account). The Bank Secrecy Act requires you to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if:
1. You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
2. The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year

Example:
1) Alexi has ownership of 3 bank accounts in Russia. The first account contains the equivalent of US $6,500, the second account, US $2,500, and the third account, US $1,200. Since the total of the three accounts equals US $10,200, he has more than US $10,000 in foreign bank accounts and must report all three accounts.

How to report your foreign financial accounts to IRS?
1. Completing boxes 7a and 7b on Form 1040 Schedule B
2. Complete Form TD F 90-22.1 (The Form TD F 90-22.1 is NOT an income tax return and should NOT be mailed with any income tax returns)

When is the Form TD F 90-22.1 due?
The TD F 90-22.1 is due by 6/30 of the year following the calendar year being reported. For example, for tax year 2010, TD F 90-22.1 is due on 6/30/2011. There is no extension for filing the Form TD F 90-22.1

Where to mail the Form TD F 90-22.1?
U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621

Penalties
Account holders who do not comply with the foreign bank account reporting requirement may be subject to the greater of $100,000 or 50% of the amount in the account at the time of violation, 10 years imprisonment or both.