Dear Tax Talk,
My business partner and I recently opened a business overseas. As part of that process, we opened a corporate banking account at Barclays Bank. Do I need to notify the IRS/Treasury Department of these accounts (one is for U.S. dollars and one is for local currency) if I am not liable for income taxes on any interest made on these accounts because these are not personal accounts, they are my business accounts?
Although the business may be a separate entity, U.S. citizens and residents must report foreign bank accounts in which they have a financial interest or signature authority. The government is on the warpath, attacking Americans with unreported foreign accounts. Even though the interest earned on the account may or may not be taxable to you, the fact that you have the account requires you to file a disclosure report with the Department of the Treasury when certain conditions are met.
First off, foreign accounts are only reportable if at any time during the year the sum of all of the accounts equaled or exceeded a balance of $10,000. To be reportable, you have to either have a financial interest or signature authority over the account.
A financial interest exists if you are an owner of record or if you have a controlling (more than 50 percent) interest in an entity — domestic or foreign — that owns the account. You’re also considered owner if you have an agent acting on your behalf as owner of the account. If the account is in the name of a trust created by you, you may be considered to have an ownership interest.
You have a signature authority, if you can — by presenting a document such as a check or wire transfer instruction — dispose of the money or other property in the account.
If you meet the requirements for filing, you must file Form TDF 90-22.1 by June 30 of each year. Failure to comply with the FBAR, or Foreign Bank Account Reporting, requirements can subject you to severe penalties including forfeiture of up to one-half of the account balance.
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.