5 Things Our Clients Get Wrong: Foreign Account Reporting

November 29, 2021By: Abby Eisenkfrat, EA

I meet many tax preparers who say “I don’t do foreign account reporting”. This is so wrong. If you touch a tax return, you need to ask each and every client a series of questions to ensure that any foreign financial accounts and assets are reported. The IRS is looking closely at taxpayers as well as their preparers, to see what questions were asked and what guidance was provided. 

Much of the information goes on Form 1040 – foreign wages, interest, dividends, capital gains, rental property, sole proprietorships, etc. Also interests in foreign corporations and partnerships. And there’s much more. It’s not just an FBAR (FinCEN 114), which is sent separately from a tax return. There are a lot of questions to ask, and due diligence is a must. 

When you do a proper interview, and you discover that the client has extensive reporting that requires services outside of your comfort zone, you can refer to a more experienced practitioner. My point is that you can’t complete a tax return and omit this reporting. The penalties can be monetary, civil, and/or criminal, and you certainly don’t want to be responsible for the omission of a reporting document that can result in a $25,000 penalty (especially when you can’t talk your way out of it). 

Show your expertise – when your clients make incorrect assumptions and omit important filings, you will step in and save the day. Here are 5 things clients get wrong when it comes to this special reporting: 

1) One and done? “I thought I only had to file the FBAR my first year in the U.S.” [We know otherwise – it’s an annual filing when the threshold is met.] 

2) “My account never went over 10,000 Euros.” [That may be, but the threshold is $10,000 USD.] 

3) “My account was under $10,000 USD.” I used the current conversion rate. [It is never a good idea to let our clients do the currency conversions. Very few understand year-end and average exchange rates that must be used.] 

4) “I thought it was $10,000 in each account.” [Nope – it’s aggregate, meaning you can have numerous accounts under $10,000, but once you add the highest balance of each account together and they meet the $10,000 USD threshold using the correct currency conversion rate, you must report all accounts.] 

5) “It’s not my account. My father put everything in his name for tax purposes.” [If your name is on the account, if you have signature authority, if you have financial interest – you will be reporting the account. A non-resident alien is not the best source of information when it comes to U.S. tax reporting.]

6) BONUS: “I cannot touch the money in my pension, so the account is not mine.” [Regardless of when you can access the funds in a foreign pension, reporting is required. The account belongs to the taxpayer and it is for their benefit; no one else.] 

If you would like to learn more and get done-for-you templates, organizer, worksheets and cheat sheets for an insanely low price, visit www.TaxSmartTraining.com. Get the tools you need to report; due diligence – DONE!