Attention US Expatriates - Does Your Foreign Bank Account Unintentionally Make You a Tax Evader?

How many times have we heard that ignorance of the law is not excuse? Nowhere is this more important than when dealing with the Internal Revenue Service. One area in which U.S. Expatriates living abroad run the risk of unintentionally becoming classified as a tax evader is in the area of foreign bank accounts. A little knowledge of the reporting requirements can help avoid this possibility.

The first thing one has to keep in mind is that living abroad does not mean one can avoid filing a U.S. tax return each year. Even if no money is owed, you are still required to file an annual return just as if you were living in the United States. Citizenship in the U.S. carries with it the burden of filing these returns wherever you live. There is no exemption for those choosing to live as expatriates abroad.

One of the most frequently occurring tax problems of U.S. citizens living abroad is the failure to properly report foreign bank accounts. By keeping in mind a few basic requirements, a person can avoid inadvertently becoming classified as a tax evader.

It is not illegal to have a foreign or offshore account, but it is illegal not to report it. There are specific criteria and forms for reporting them. Some accounts, depending on the total deposited amounts in foreign accounts may not have to be reported, but be sure you know the rules.

A specific form; "Report of Foreign Bank and Financial Accounts (TD F 90-22.1), is provided by the IRS for reporting purposes. One key phrase on the first page will let you know immediately if you have to file this form or not: "No report is required if the aggregate value of the accounts did not exceed $10,000". So, if your financial interest in foreign monetary accounts does not and did not exceed this amount at any time during the previous year, you do not need to file the form with your annual U.S. tax return.

The geographical location of the account and not the nationality of the bank determines whether the account is considered a foreign account. A deposit in a U.S. bank that is located abroad is a foreign account. A deposit in a foreign bank located on U.S. soil is not. The exception to this rule applies to banks located in a foreign country that are designated by the U.S. Government to operate solely for the benefit of the U.S. military and its personnel.

You must report accounts in which you have a financial interest. This includes any account in which the person is an owner even if held in the interest of another person. There is more detailed definitions included in the instructions for the IRS form noted above.

When in doubt as to whether to report an account, check with a tax attorney or directly with the IRS. You do not want to unintentionally become a tax evader.

Dr. Lamar Ross, a cultural anthropologist by training, has a special interest in training individuals for expatriate living and providing information on unique travel destinations. He is an author, educator, photographer, internet entrepreneur, and international traveler. He has lived in the United States, Mexico, Puerto Rico, and India and has traveled extensively in 29 different countries. He is presently waiting on final receipt of his pensionado visa for Panama. He speaks both English and Spanish fluently and has a basic ability in several other languages. For more information on expatriate living, check out the blog Expatriate Traveler Notes