Dear Michelle,
I hope for your sake these are new accounts in 2011. Otherwise, you may have some serious penalties for not properly reporting your accounts. As a U.S. citizen or resident, you have an obligation to report and pay tax on your worldwide income, which includes interest earned on foreign accounts. Any tax paid on interest earned from foreign sources can be credited against any tax you may owe on the same income in the U.S. For example, if you earn $1,000 in interest and pay $100 in taxes to country X, the $100 can be used to reduce the taxes owed on the interest in the U.S. This is known as the foreign tax credit, which is claimed on Form 1116.
In addition to reporting the income, you have foreign bank account reporting, or FBAR, rules. FBAR requires that you file a disclosure of the account if, at any time during the year, the aggregate value of your foreign accounts exceeds $10,000. Form TD 90-22.1 is used to make this disclosure, and it is due to the U.S. Department of the Treasury no later than June 30. If you had reporting obligations in prior years, your penalties for failure to report are substantial.
A bit of good news for those who failed to report their foreign accounts is that the Internal Revenue Service has made offshore voluntary disclosure permanent for now. However, I highly recommend you find a CPA who has worked in the area to assist you in making the appropriate disclosures.
Lastly, new for 2011, the IRS has created Form 8938 pursuant to recent tax legislation requiring further disclosure of foreign-based assets, including bank accounts. Apart from filing Form TD 90-22.1, you will need to complete this new form.
Ask the adviser
To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.