412 thoughts on “How to Report Your Foreign Bank Interest on Your US Income Tax Return”

  1. Hi Mark,
    Go ahead and file your amended state tax returns now. If you owe, go ahead and pay the tax. The sooner you file the sooner you put an end to the penalties and interest. Unlike the federal returns, the states don’t waive late payment penalties for the streamline filing compliance.
    I would just file the three years like you did for the federal.

  2. Thank you very much Jan for your kind reply.

    I filed my SDOP and IRS cashed my check.

    When do I file my State amended returns for the 3 years? Do I need to wait for a few months or can I file it right away? Do I need to file amended returns for more than 3 years?

    Regards

  3. Hi Ron,
    You’re going to want to do the Streamlined Compliance for US Taxpayers residing offshore. Here’s a link to information on that: http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

    You’re going to file 6 years of FBARS, and 3 years of tax returns. I’m guessing you won’t owe any US tax.

    The nice part about your situation is that you’re out of the country, You won’t be hit with the 5% penalty on your assets.

    Does your not owing tax preclude you from doing the compliance procedures? If you had filed tax returns, I’d say yes. But your problem is that you haven’t filed at all.

    Personally, I would do the compliance procedure just to be on the safe side. That’s my opinion, I don’t have a hard and fast rule to go by. (And trying to get an answer from the IRS is practically impossible.) You might get away with just filing the FBARS and old returns, but I feel the compliance program gives you a little more solid ground. And since you don’t have the 5% penalty–you’ve got nothing to lose.

  4. Hi Mark,
    With the Streamline Filing Compliance procedures, I’ve been writing one check. When doing the Offshore Voluntary Disclosure Program, I’ve been writing separate checks for each item.

  5. Hi Jan,

    Thank you for having such a wonderful site. Your willingness to help is greatly appreciated. I hope my question is not too trivial for this column, but I have not been able to find an answer and I cannot locate an email address for the IRS to ask the question.

    I am an American citizen and my wife is a U.S. green card holder. We have been living in my wife’s home country since the end of 2008. We failed to file our tax returns and FBARs because we were unaware of the reporting requirements. We believed that since we lived offshore and paid taxes on our foreign income to a foreign country that we were not required to report that income on a U.S. tax return. Because of our not filing tax returns, we had no idea that FBAR even existed. We would like to enter the Streamlined Foreign Offshore Procedures in order to become compliant with our tax returns and FBAR reports.

    We believe we meet the eligibility requirements, but we have a question about the following SFOP requirement: (2) “have failed to report the income from a foreign financial asset and pay tax as required by U.S. law…”. We did fail to report interest income from our savings account, but the annual interest when converted to U.S. dollars amounts to less than $1.00 for each of the three tax returns years. Because of the Foreign Income Exclusion and standard 1040 exemptions, no tax would be due on any of the required tax returns; does our not owing any tax on income from a foreign financial asset preclude us from using the Streamlined Foreign Offshore Procedures?

    During some of the FBAR reporting years, we do have accounts to report because my wife had signature authority, but no financial interest in her father’s foreign accounts in our country of residence (my wife’s father is neither a U.S. Citizen nor a U.S. resident).

    Thank you in advance for considering my question and for your reply.

  6. Hello Jan,

    Please guide on the SDOP if we need to write separate checks for every year and Title 26 or just 1 check with the Grand Total?

    Regards

  7. Hi NJ,
    So you’re from India an you want to open up a US CD? I’m guessing that you are living in the United States. After you open a US bank CD, every year that you own the CD and earn interest, the bank will issue you a document called a 1099INT. It will show the interest earned on that certificate and you will report that number as the interest earned on the account.

    Even though you leave the interest in the bank account, you still report the earnings as income.

    If you are not living in the US, but living in India–you will still report your US income while you are living overseas. Of course, you don’t have to file if you do not make enough income to file and you don’t expect a refund. But, if you do need to file from India, you would just report the interest on your 1040NR.

    An important thing about being in India is that the US has a tax treaty with India and you would receive a favorable tax rate (as opposed to many other countries.) When you live abroad, US companies are required to withhold 30% of the earnings of a foreign person.

    So if you’re living in India, you wouldn’t have to pay 30% tax on your interest so you’d have to file a tax return (1040NR) to have that extra tax be refunded. Or, and in my opinion I think the better option, you complete a form W8 for the banking institution. Here’s a link: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

    In section 2 you’re going to claim tax treaty benefits. State that you are from India, and that you are relying on Article 11 to claim a 15% tax rate on your interest income.

    If you fill out the W8 first, the bank will only withhold the 15% tax on your interest income and you won’t need to file a 1040NR to get your money refunded. A little paperwork up front will save you time and money.

  8. Hi Tax Extension,
    I’m sorry about replyng so late, I’m afraid that I was busy filing October extension returns myself.
    You asked a really good question–where to you put those penalties and interest on your 1040? The answer is, they don’t go there. Really confusing, right?
    Now in my tax software, I get a worksheet computing it, but there’s no place on the 1040. The revised amount does print out on a payment voucher, but that’s about it.
    I guess it’s because the actual tax amount is a solid number, but the penalties and interest fluctuate.
    I recommend paying the balance due (if you can) as soon as possible. Yes, the IRS will send you a bill if you don’t, but the sooner you pay, the sooner you put a stop to the penalties and interest.

  9. Amy, that is my best guess. I haven’t actually looked at your paperwork etc., but from what you’ve told me in online, I’m thinking that’s what I would do.

  10. Hi Jan,
    I am from India and interested in opening a Fixed deposit (CD in US) for over $10,000. What all forms and paper work will I have to file for my taxes. Also, while the bank will be giving interest on a quarterly basis, I will not be withdrawing that interest. Instead, all the interest will be realized at the maturity (probably 1 year) of the CD. In such case do I report the interest earned once the CD matures or say if in 2014 I earned X dollars, I should go ahead and report whatever interest is earned.

    Thank you in advance for your help and suggestions.

  11. Hello Jan,
    I had done an extension for 2013 back early April. Turns out I under paid then. Now I additionally owe $1750. Interest and late payment on that works out to approximately 30 + 55, $85. (assuming Oct 15 payoff date) I used that calculator you referred to above & added a few more $.

    Where exactly in 1040 should I include this additional amount? Line 77 doesn’t seem appropriate. The tax software (taxact) didn’t do this for me.

    Or can I just wait for them to bill me? If they do send me a bill, is that considered an audit in anyway? Just want to steer clear of any audit however trivial…
    Thanks!

  12. Hi Jan,
    Thanks for your reply. Just to confirm that I understood correctly – I do not have to do streamline filing, and it is sufficient to file delinquent FBAR. Also, I will not have to pay the 5% penalty if I do this. Is this correct?

    Thanks again for your help!

  14. @ Anon 282–I’m thinking streamline program for you. I’m going to give you that same advice as Anon 281 though, sit down with a professional.

  15. Okay, I’ve got a couple of Anon posts and I think they’re different people so this is for Anon post 281.

    You say that you’re financially illiterate so I suggest that you hire an accountant just to cover yourself. In the US, ignorance of the law is not an excuse. This is especially true if you are intelligent in other areas. For example, the IRS would treat a doctor more harshly for messing up on her taxes because she should be smart enough to know better whereas someone who flipped burgers at McDonalds might not get that same treatment.

    If you reported the income that you earned on the accounts on your US tax return, then you can just file your delinquent FBARS without a penalty.

    If you have income, but didn’t report it, then you might want to do the streamline compliance procedure.

    But sit down with a professional. I think it makes sense for you to do that.

  16. Hi Anon,
    No I don’t have any updates. With the process being so new, I’m not sure if anything has actually closed yet. But, the IRS says you don’t get a “case closed” notice so that doesn’t help matters much.
    About the only thing I can tell you is that when you send your check in–they do cash that right away! On the plus side, that’s one way to tell that your package was actually received.
    I’ve been kind of watching for posts about court cases, but the court case posts that I’ve read aren’t really about the new streamline provisions (not enough time for it all to go to court.)
    I wish I had better information for you, but that’s as good as I’ve got for now. Sorry.

  17. Hi Jan,
    Thanks for a very informative post. Until this day, I had no idea that something called FBAR existed. I have been a student in US for around 6 years (hence filing mostly as non-resident alien), and 2013 tax returns were my first tax return as a resident alien. I did not know that I have to report my foreign bank accounts.

    I interned in Finland in year 2010 (while I was still non-resident alien) and had a bank account where all my internship stipend was and it was all properly taxed by Finland. I never bothered to close the account since I thought it may be useful if I decide to move there. Its balance is around 11,000 euros. I am going to close this account now and file FBAR for 2014 next year indicating I had this account.

    However, I am not sure of what to do about the 2013 taxes for which I have obviously missed the deadline and my understanding is that I was supposed to file an FBAR. The interest earned for 2013 was only around 5 euros. If I opt for streamlined filing, then my understanding is that I will have to pay a penalty of 5% on the max amount (11K euros) which may come out to be around 750$. Is this correct? Is there an alternate way in which I can approach this so as to incur less penalty?

    Thank you.

  19. Hi Jan,

    Thank you for your very kind reply .. It’s very much appreciated .. assuring to know that there are other folks in same shoes as me.

    In my case, tax all the years was always self prepared for last 12+ years; I really didn’t know my obligation to report. I always thought the Foreign account question was for Citizens or GC holders;

    for the rental real estate, I did yearly maintenance and deprecation on my deductions.. did i miss anything else?

    again thank you from the bottom of my heart..

    regards

  20. what if i had some bank accounts from 2008-2011~ and I did some FBARS but not really on others. I just inherited money and had no idea what I was doing and I brought all the money back to the US, I earned maybe 700 dollars max! should I even Remind the IRS or just keep a low profile Because the punishment are RIDICULOUS, and I am Financially illiterate

  21. Hi Susan,

    Yes, you do need to submit the FBAR electronically This might help: http://robergtaxsolutions.com/2014/06/how-to-file-your-fbar-2014/

    A TIN is a taxpayer identification number. If you have a social security number, then that’s your TIN. If you don’t have a social security number you should have a Taxpayer Identification number.

    Yes you’re filing late. Be sure to put an explanation as to why you’re filing late on the FBAR. If you haven’t been notified by the IRS that you need to report, and if you’ve reported all your foreign income and paid the tax, then the IRS won’t impose a penalty for the late filing of your FBAR. See this post from the IRS about that: http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures

  22. Hi Andy,
    sorry, I missed the other question. The nice thing about the IRS is that they will compute you penalty and interest for you and send you a bill. (Okay, maybe that’s not so nice but they will send it.)

    But you can compute it and send it along, that’s fine. It might save you a little money on extra interest.

  24. Hi Anon,
    No talking about suicide, okay? Trust me, it’s not that bad.

    Okay first–in your case I would definitely go with the streamline filing compliance. It sounds to me like you weren’t willfully ignoring the law, you just didn’t understand it. And yes, there are a whole lot of Indians (and Australians, and Russians, and Israeli’s, etc, etc. etc,) that are in the same boat you are.

    Now it used to be the if the extra tax was over $1500 a year, there would be a problem with the streamline filing, but the IRS waived that requirement.

    Also, you mentioned that you had rental real estate–gee, did you take your deductions for that rental real estate? ALL of the deductions? It might even help offset your taxable interest income.

    And don’t forget that you get a credit for the tax that you paid to India on that bank interest too.

    Now I’m sure that you’ve read the rules about the streamline procedures already, but I’m putting the link here again anyway: http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

    The penalty is 5% of your highest aggregate balance so if you’ve got $120,000 in your offshore account, then that penalty will be $6,000.

    You will also file tax returns for an additional three years and pay the excess tax and interest on that. That will be in addition to the $6,000.

    So financially, I think that’s a better program than the Offshore Voluntary Disclosure Initiative.

    The hardest part for everyone that I’ve talked to is the “reason” for not reporting the income. Just saying that you didn’t know has had some trouble in the courts so you’ll want a better–or shall I say, a more thorough, explanation. For example: did you have an accountant that didn’t tell you about it? Did you get bad advice from somewhere?

    Honestly, there’s been a lot of confusion about what should and should not be reported and I know a lot of people have been confused over the NRO and the NRE accounts. And to be quite honest, if you call the IRS and ask for clarification on the rules they will tell you to look at the tax treaty. Ahem, I have read the tax treaties for a number of countries, including India and they’re difficult for me to understand and I do this for a living. (And don’t get me started on investment vehicles that were created after the treaties were signed and how they are affected by all this! Sorry for the rant.)

    So what I’m telling you is that you’re pretty normal. Not understanding the rules is pretty normal. I know that some lawyers strongly urge people to do the OVDI over the streamline filing because you get a final determination letter and the case is closed. I see their point. Personally, I lean towards the streamline filing–especially for folks like you who really didn’t willfully try to hide assets from the IRS but merely misunderstood the rules. That’s my personal opinion, not a professional assessment of your situation. But if you have a reasonable explanation for why you didn’t file your FBARS–I’d go with the streamline.

  25. The “Record of Authorization to electronically File FBARs”
    1. Do I need to fill this out and send it out electronically IF I am filing a return myself?

    2. The word “TIN” on line 10 and 14, what does “TIN” mean ?

    3. If I am to file for year 2013, am I supposed to have sent this out by June 30, 2014 ???

  26. Hi Jan,

    I filed for and extension in April, and sent a check for estimated taxes. However, I finally completed my taxes a week ago, and mailed a check for an additional $670 in taxes. Should I have calculated interest @ 3%, and also the accuracy penalty of 0.5% per month from April to September and included that? Or can I send a separate check for the interest/penalty right now?

    Thanks for your time!

    Andy

  27. Hi Jan,

    This is a really useful blog! I owe the IRS $940 for the 2011 tax year, and $760 for the 2012 tax year, and will be submitting amended returns in less than a week, as part of the Streamlined Program. I know I have to pay 3% compounded interest, and a .5% penalty/month on these underpayments, and was wondering if there is an online calculator for interest and penalties?

    Many thanks!

    Andy

  28. My present balance is around $120K .. what’s the worst case scenario for me? will i be losing more than that??

  29. Jan,

    I am in deep trouble with this FBAR, global reporting.. i have been having multiple CD’s with my Indian banks for 15+ years; never knew about global income reporting, FBAR etc. the CD’s are mixed of NRE (Tax exempt) and NRO; so never bothered to report as i never checked Yes on Foreign Account question

    When I calculate my tax deficiency for the last 12+ years to IRS, it comes to total around $6500

    if i go for OVDI, my complete balance around $200K would be wiped out as i have rental income too from the property i brought and the max value would be more than 100K. besides i don’t the strength to stay in OVDI for 2+ years..

    I am on H1 Visa here since past 15+ years and my GC is in last stage

    i am not sure if i qualify for SDOP

    i have a family of wife and 2 small kids to look after and the 200K is my life savings as i am 40+ years and really can’t afford to lose all of it

    what are my choices here? Please respond at the earliest. Are there other Indians like me or am i the only dumb person who didn’t know inspite of being here for such a long time?

    i filed my FBAR this june and also filed my tax reporting all my foreign income and now feel like a sitting duck.

    Please advise what are my valid choices? I am on the verge of committing suicide and taking my family along with me..

  30. Hi Alex,

    If you sold property and India and had capital gains, and you are a US resident (or citizen) then you will need to report the capital gains on your US tax return. You will take a credit for the taxes you paid to India on those gains against your US income taxes.

    Also, you may be required to file an FBAR and maybe even a form 8938 to report the foreign bank account that your money is in.

    So that’s your tax filing requirements. And you report those things whether you keep the money in India or transfer it to the United States.

    So transferrring the money doesn’t have any tax implications, it’s the selling the property and having foreign bank accounts that does.

    As far as transferring money from India to the US, I know there are rules about that but that’s out of my area of expertise and you’ll need to speak with your banker about that.

  31. Hello Jan,
    IF one has sold their inheritance land in India and got cash/capital gains from the sale (on which taxes have been paid in India) and now would like to get that amount transferred to the US then are there any tax implications for that from the US standpoint? Also how much can be transferred from a bank wire transfer / year without any tax implications?

  32. Hi Minnow,
    I realize that with foreign banks you’re not getting a 1099 INT or 1099 OID, but you should get something that tells you how much interest you’re earning. Basically you’re going to have to work with what you get, make the currency conversion and report it to the best of your ability.

  33. Hi Jan,
    I read your response above where some folks have asked about multi-year foreign CDs in a foreign bank that do not periodically pay out interest until maturity (or is prematurely broken with minimal penalty). Now. such CD’s are indeed accruing interest internally. Being foreign bank, most don’t provide 1099 INT or 1099-OID.

    So should accrued interest be reported as interest income?

    IRS publication 550 here says: http://www.irs.gov/publications/p17/ch07.html#en_US_2013_publink1000171435

    Certificates of deposit (CDs). If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.

    They also talk about OID:
    “Original issue discount (OID) is a form of interest. You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer.

    A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. OID is the difference between the stated redemption price at maturity and the issue price.”

    Appreciate your thoughts on this.

  35. Hi Will,
    for your Massachusetts returns you will probably need to pay a late payment penalty and some interest on your balance due amounts. I don’t know of any state right now that is abating interest and penalties. Sorry.

  36. Hi Suzanne,
    You can contact me directly at JRoberg @RobergTaxSolutions.com.

    I generally charge $100 an hour for a consultation and most people pay me by credit card. Most email type enquiries average $50.

  37. Hello Jan,
    I’d like to talk to you briefly about services you offer. I exploring the streamlined “domestic” program. Thanks.

  38. Hello Will,
    I read your post above. Could you share how your streamlined domestic submission is doing? Did you hear back? Did you prepare it yourself? How long or details were your reasons in the explanation and did you see a profressional to draft that?

    Your comments much appreciated!. Thx

  39. Good Morning Jan,

    I’ve read through your site here which is so helpful (and I’m truly very grateful for that!) but still have questions related to the definition of my tax home and some FBAR issues, and they are relatively lengthy (about 770 words).

    Can I still post them here or somewhere (an email?) for your kind advices?

    I am currently in China so I cannot call or come to your office as for now.

    Many thanks!

    Suzanne

  40. Hi Josef,
    That’s a really good question. The foreign tax credit can be limited, but it’s not a standard number like $10,000. The limit comes based upon what you would pay on your US taxes for that same income.

    Now, sometimes there are tax treaties that come into play here so there may be some information there that I don’t have. A round number like $10,000 doesn’t seem to make sense to me, but sometimes, the tax really is a round number. That’s what I would look at first–would your total US tax only be $10,000–if so, then that’s your answer.

  41. Hi Andy,
    The way I understand it is that tax exempt in India does not mean tax exempt in the US. So do report that income on your US tax return.

    Also, do prepare the FBAR.

    Of course, make sure that you file either the 2555 foreign income exclusion or the 1116 credit for foreign taxes paid with your US tax return.

  42. Ihave a question regarding form 1116 foreign credit limit that I can claim in my Tax return, I work abroad and my earning are 100% from foreign source, and I have paid 29000$ as taxes, I have been using a web site to simulate the due amount, but he limited the credit to 10000$, value non mentionned no where in IRS website, so please advise if it’s true or there is a raison behinde that.

    regards

    JB

  43. Hi Jan,

    I recently filed amended tax returns and FBARs pursuing to the new IRS Streamlined Domestic Offshore Procedures (SDOP) for US tax payers residing in the US. My question is about amended state returns resulting from SDOP.

    I completed 3 amended state tax returns for the state of MA (matching with the 3 amended federal returns that were filed for SDOP). Do I need to include any additional penalties or interest to my MA amended returns or is interest automatically abated pursuing to the IRS SDOP procedures?

    Thanks,
    – Will

  44. My wife receives interest income from a 15-year bond issued by HUDCO, a public sector undertaking in India (http://www.hudco.org/writereaddata/TrancheIII14.pdf). This interest is non-taxable in India. We’re US citizens living permanently in India and file Indian tax returns. We also file our joint 1040 every year reporting all of our worldwide income.

    Question: When we file our 1040, how do we handle this bond interest income which is non-taxable in India?

    1. Will the US consider this income as taxable even if it is non-taxable in India?

    2. Should we simply show it as “tax-exempt” interest on 1040 line 8b and attach a statement saying it is tax-exempt foreign bond interest?

    3. Should we include this foreign bond on the FBAR?

    Thanks!

  46. Hi Al,
    You may qualify for the Streamlined filing compliance program. It seems to me that you have not been contacted by the IRS about your offshore bank accounts. Here is a link for information on that program: http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

    If you can qualify for that, I would recommend it.

    If you cannot, you may need to try the Offshore Voluntary Disclosure program. http://www.irs.gov/uac/2012-Offshore-Voluntary-Disclosure-Program

    Here’s the thing–you weren’t intentionally withholding information, you just didn’t know. That’s why I’m all in favor of doing the streamlined compliance.

    Yes, you’ll have to pay tax on unreported interest, and yes there is a penalty, the the penalty with the streamlined compliance program is only 5% of your balance instead of the 50% that the IRS can hit you with in the event they go after you. That’s pretty intimidating (not to mention expensive.)

    If you have been paying tax to Bulgaria on the interest that you’ve earned there, then you may be able to claim a credit for taxes paid to Bulgaria. You’ll need to use form 1116 to do that.

  48. Hi Rob,
    I am not sure about a deduction for your foreign interest income, but if you had to pay tax in your home country on that interest, you would qualify for a credit on those foreign taxes paid. You would need to file a form 1116 to get it.

  49. Hi Mouli,
    you asked if you still have to report the interest income, even though the value of the account went down. And the answer is yes–here’s the counter example.

    Let’s say the value of the Rupee went up substantially so that an initial deposit of $10,000 is now worth $20,000 because of world banking issues. Would you want to have to pay tax on income of $10,000 because the US dollar devalued? I don’t think so.

    So, you still pay tax on the interest, but you don’t pay tax (or get a deduction) for the currency fluctuation.

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