The Bank Secrecy Act doesn't prohibit you from owning a foreign bank account. It just requires reporting and disclosure. The rules apply to all citizens and residents of the U.S. as well as domestic corporations, estates, partnerships, and trusts.

You also must report even if your foreign bank account produces no taxable income. If it does produce taxable income (interest), you must report the income on your federal income tax return. There are special rules for converting the income into U.S. dollars. They are complex. We'll be happy to sit down and explain them. Sometimes, a tax treaty may also affect your taxable income. The U.S. has tax treaties with almost every other country.

Exceptions. Like all rules, there are some exceptions. One of the most important covers accounts in U.S. military banking facilities operated by U.S. financial institutions overseas. These accounts, which serve our military personnel, are not treated as foreign bank accounts for reporting purposes. However, if a serviceman or woman opens an account in a foreign bank while serving abroad, the reporting requirements would apply.

Special form. The IRS has a special form for reporting foreign bank accounts. It is Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder's reporting obligation. However, this form is not filed with your federal income tax return. It is sent separately to the IRS and is due by June 30.

QI program. Foreign banks participating in the IRS's qualified intermediary (QI) program must verify when accounts held by U.S. citizens have income from U.S. securities, withhold the correct amount of tax, and transmit the tax to the IRS. The IRS is reworking the program to improve compliance by requiring look-through by foreign banks to identify true owners. In the case of accounts held by entities, the bank would have to obtain the taxpayer identification number of the individuals controlling the entity.

If you have any questions about foreign bank accounts and filing requirements, please give us a contact us today.