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Foreign Bank Account Reports

OPINION ORLANDO

By Orlando Gotay, Tax Attorney

US persons are required to report financial interest or signature authority over foreign financial accounts exceeding certain value thresholds annually to the US Treasury. You should treat this only as a “food for thought” primer; space does not permit a full explanation. An “FBAR” is different from other forms that are filed with income tax returns. It is not a tax return; it is filed electronically with Treasury, not the IRS. With the automatic extension, it is due on October 16, 2017.

Are you a “US person”? US citizens, green card holders, and others who meet the US “substantial presence test” are “US persons.”

Financial interest: If you are the owner of record, you have a financial interest over the entire account, even if other owners are not US persons. You also have a financial interest if the account is for a corporation, trust, or other entity that you control. Spouses have a duty to report their accounts; some joint filing for spouses is allowed.

Signature authority: One has signature or other authority over an account if you (by yourself or with others) can control the disposition of money, funds, or other assets held in the financial account. That means much more than a signature card. If you can do anything to move money or assets, you have “signature authority.”

Foreign financial accounts: Besides bank accounts, quite a few other things also fall in the definition of financial account: life insurance policies with a cash surrender value, even if no money actually is disbursed; mutual funds, brokerage accounts, prepaid debit cards, and many similar items also come in. Excluded are stocks and bonds held outright, cash in a bank deposit box, and Mexican Land Trusts (fideicomisos). But note: an “account” held by a Fideicomiso could be reportable. People have asked me: Yes, your Mexican HOA bank account is a “foreign financial account.” “Foreign” means outside the United States, even overseas branches of “regular” US banks.

Who files? US persons with a financial interest or signature authority over foreign financial accounts that in the aggregate exceed $10,000 US dollars at any time during the calendar year. The maximum balance for each account is figured out. If the total of those account balances is greater than $10,000, all foreign financial accounts are reportable, even ones with a zero balance. If your account is not in US dollars you must use the official end of year exchange rate published by Treasury; for 2016, $1= 20.6520 Mexican Pesos.

Be diligent ….

 

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer.

 

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