Reporting requirements for expatriate American
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Dear Tax Talk,
I am an expatriate American who has lived overseas 40 years. I never filed a tax return because my modest income was below reporting requirements. Last year I inherited $300,000 from a relative and have the money in a foreign bank. The interest earned on the money last year barely came to $2,000. I did not file a tax return this year because all my income is below reporting requirements. Two questions:
1. If I file an FBAR and enter my Social Security number, can this raise questions about why I have never filed a tax return? I read on the FBAR form that information I send is not confidential and can be shared with other government agencies. I am concerned that never having filed a tax return and suddenly declaring that I have a significant amount of money in a foreign bank will be investigated. As the money was wired to my foreign bank from California in three transactions, I wonder if the government already knows that I have a foreign account. I believe banks are required to report these types of transactions.
2. Does the U.S. government have the authority to freeze foreign bank accounts?
Just because you dread the thought of an IRS inquiry doesn’t mean you can ignore the FBAR requirements. FBAR is a Report of Foreign Bank and Financial Accounts which is required of U.S. persons such as citizens, residents and companies. An FBAR is a disclosure to the Treasury Department on a prescribed form of the existence of a FBA that exceeds $10,000 at any time during the year in which a U.S. person has a financial interest in or signature authority over it. The disclosure includes the bank, account number and maximum value during the year. The prescribed form is TD F 90-22.1, which is due annually to the Treasury Department in Michigan by June 30.
The information is fairly confidential, but I assume that the Treasury Department, which is the parent of the IRS, divulges the information to IRS to see if an individual has interest income commensurate with the values reported. I also assume the IRS gets hundreds of thousands or more reports and does not have the resources necessary to follow up on all of them. If you ever have an inquiry, you would be able to establish the source of the funds and the fact that you are under the reporting thresholds. The inheritance is not taxable income and you are not otherwise required to file a return if your income is below the threshold for reporting.
Since the money was transferred from California, I assume the relative was American. However, if the deceased was a foreigner, you may have other reporting requirements. See IRS Form 3520 for more information.
The U.S. government has lots of powers and I assume it could get an order to freeze a foreign account. Usually this is only done when there is an indication of something nefarious. Your situation is hardly that.
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