It's Time to Bare Your Soul to the U.S. Treasury
It's that time of year again where almost every American with a "foreign account" must "tell all" to the U.S. Treasury Department. This means you if you have a foreign account or accounts with a total value of US$10,000 or more. (In other words: It's NOT US$10,000 per account.) If so, you must file Form TD F 90.22-1 by June 30. You must also declare that you have a foreign account or accounts on Schedule B of your personal tax return. (Click here for the link to the form.) Trust me: It's definitely worth your time. If you don't report your foreign account, you could face serious penalties. For starters, you could be prosecuted. In fact, prosecutions for failing to report foreign accounts have risen sharply in recent years.If you "willfully" fail to file the form, or acknowledge your account(s) on Schedule B, you face a fine up to US$500,000 and a five-year prison sentence. Let me put this another way: You would likely receive a shorter prison sentence if you were convicted of manslaughter rather than willfully failing to file your TD F form each year! If you merely forget to file your form, you're subject to a civil penalty of US$10,000. And that's for each year you fail to file the form, going back at least to 2004, when Congress imposed the civil penalty provision.
Even With the Extra Form: It's Still Worth It!
But should this form stop you from opening up a bank account or taking your retirement plan abroad? Absolutely not. In the grand scheme of things, it's one extra filing requirement a year that takes only a few minutes to complete. In return, you receive superior investment potential (I'm talking about markets that your U.S. broker won't touch), additional asset protection, and the security of knowing that any busybody can't peer into your private financial affairs.Plus, let's face it: As an American, you are already subject to penalties, fines, and possible jail time if you don't file your income taxes each year. So think of this form as an addition to your income tax return, and just take care of it. Ok now what does the IRS consider a "foreign account?"
What Exactly You Need to Report
According to Treasury regulations, a "foreign account" isn't merely a foreign bank account, but numerous other types of offshore relationships. You must report a "financial interest in or signature authority, or other authority over any financial accounts, including bank, securities or other types of financial accounts in a foreign country." For instance, let's say you've formed a foreign corporation, but someone else operates its foreign account on your behalf. If that's the case, you still must file the TD F form, because you have a "financial interest" in the account. Also, if you have a debit card connected to a foreign account, and you can use the debit card to withdraw money from it, you clearly have "other authority" over the account. Some IRS agents even claim that a foreign annuity or life insurance policy represents a financial account, even though there are no specific Treasury regulations in this regard. I've always recommended reporting these contracts as "foreign accounts," although plenty of advisors disagree with me. But I'd rather be safe than sorry. What about "electronic gold" accounts? Again, there are no specific regulations saying you need to report them. But my recommendation is to disclose them as well, just to make sure you're in compliance.
What the IRS Doesn't Need to Know About Your Private Affairs
Fortunately, a few items appear to be non-reportable:
Real estate. Direct ownership of real property (including timeshare arrangements) in a foreign country doesn't constitute a foreign account. But you're required to report income from your real estate holdings, wherever they're located.
Safekeeping arrangements. Valuables purchased outside the United States and placed directly into a non-U.S. private vault don't appear to trigger the reporting requirements.
Warehouse receipts and similar instruments. Certificates that represent ownership of a specified quantity of precious metals or other commodity, stored outside the United States, may not be reportable. A certificate should provide for "allocated" or "non-fungible" storage to qualify. This means you own specific barrels, bars, coins, etc. that are stored in your name and not available to meet other claims of the warehouse company. Commodities held in non-allocated, pooled, or fungible form may be reportable.
I realize the TD F is a "tell all" form that you'd rather not file. However, my advice is to file it even in borderline situations, just to be safe. And as I said, the extra forms are worth it in the long-run. So rip the Band-Aid, get it over with and enjoy the fruits of your account abroad for the rest of the year.
Even With the Extra Form: It's Still Worth It!
But should this form stop you from opening up a bank account or taking your retirement plan abroad? Absolutely not. In the grand scheme of things, it's one extra filing requirement a year that takes only a few minutes to complete. In return, you receive superior investment potential (I'm talking about markets that your U.S. broker won't touch), additional asset protection, and the security of knowing that any busybody can't peer into your private financial affairs.Plus, let's face it: As an American, you are already subject to penalties, fines, and possible jail time if you don't file your income taxes each year. So think of this form as an addition to your income tax return, and just take care of it. Ok now what does the IRS consider a "foreign account?"
What Exactly You Need to Report
According to Treasury regulations, a "foreign account" isn't merely a foreign bank account, but numerous other types of offshore relationships. You must report a "financial interest in or signature authority, or other authority over any financial accounts, including bank, securities or other types of financial accounts in a foreign country." For instance, let's say you've formed a foreign corporation, but someone else operates its foreign account on your behalf. If that's the case, you still must file the TD F form, because you have a "financial interest" in the account. Also, if you have a debit card connected to a foreign account, and you can use the debit card to withdraw money from it, you clearly have "other authority" over the account. Some IRS agents even claim that a foreign annuity or life insurance policy represents a financial account, even though there are no specific Treasury regulations in this regard. I've always recommended reporting these contracts as "foreign accounts," although plenty of advisors disagree with me. But I'd rather be safe than sorry. What about "electronic gold" accounts? Again, there are no specific regulations saying you need to report them. But my recommendation is to disclose them as well, just to make sure you're in compliance.
What the IRS Doesn't Need to Know About Your Private Affairs
Fortunately, a few items appear to be non-reportable:
Real estate. Direct ownership of real property (including timeshare arrangements) in a foreign country doesn't constitute a foreign account. But you're required to report income from your real estate holdings, wherever they're located.
Safekeeping arrangements. Valuables purchased outside the United States and placed directly into a non-U.S. private vault don't appear to trigger the reporting requirements.
Warehouse receipts and similar instruments. Certificates that represent ownership of a specified quantity of precious metals or other commodity, stored outside the United States, may not be reportable. A certificate should provide for "allocated" or "non-fungible" storage to qualify. This means you own specific barrels, bars, coins, etc. that are stored in your name and not available to meet other claims of the warehouse company. Commodities held in non-allocated, pooled, or fungible form may be reportable.
I realize the TD F is a "tell all" form that you'd rather not file. However, my advice is to file it even in borderline situations, just to be safe. And as I said, the extra forms are worth it in the long-run. So rip the Band-Aid, get it over with and enjoy the fruits of your account abroad for the rest of the year.
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