US citizens and residents are required to report their worldwide income on their US tax returns.
Maybe you’ve heard the stories in the news. The IRS is cracking down on persons with foreign bank accounts who don’t report their income. The penalties for not reporting can be severe. So how do you report your foreign bank account income anyway? Surprisingly, it’s not really all that hard.
The first thing to do is to take a look at your foreign bank statement. Did you earn any interest on the account? How much?
Okay, but I’m guessing your statement is in a foreign currency. So you’re going to have to use a currency conversion rate. While there are several currency exchange websites, I like to use the US Department of Treasury exchange. That’s the one the IRS links to, so when I’m working on tax forms I like to use that rate. Here’s the link: http://fms.treas.gov/intn.html#rates
When you go to the exchange site, you’ll notice that the list is by country name, in alphabetical order. So let’s say that your foreign bank account deals in rupees; we’ll scroll down until we find India-Rupee. The exchange rate for rupees on December 31, 2011 was 52.25 rupees to one US dollar. So if you had earned interest of 1000 rupees in an Indian bank, that would be the equivalent of $19.14 USD. (Because you would take 1000 and divide by 52.25. That equals 19.13876, which you’d round to $19.14.)
You’d report that interest on Schedule B of your US income tax return.
At the bottom of the Schedule B form there is a question:
At any time during 2011, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities, account, or brokerage account) located in a foreign country? See instructions.
It’s a yes or no answer. If you read the instructions, you’ll find that you don’t have to say “yes” unless your foreign bank account has had the equivalent of $10,000 USD or more in it. If your foreign bank or securities accounts do have more than $10,000 in them, you will be required to complete the FBAR form, also known as the TD F 90-22.1. (I’ll make another post about that later this week.) The FBAR is not sent with the 1040 so you can do that separately from your tax return.
If you are using tax software, you may find the questions to be a little different. They may specifically ask–did you have a foreign bank account and did you have over $10,000 in that bank account. Just answer the questions honestly and your software will guide you.
If you are filing an FBAR, the IRS wants you to list the name of the country that your bank account is in on your 1040. There’s a little blank space right after the question about foreign accounts.
And don’t forget to answer the last question about foreign trusts. To be honest, I don’t do foreign trusts, so I’ve never had to say yes. If you’re involved with a foreign trust, you’re going to want to look elsewhere to get more information. But, if you don’t have a foreign trust, you just have to remember to mark the box “no”.
Now that you see how easy it is to report your foreign interest income, you don’t have to worry about the IRS coming to call over your foreign bank account.
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Hi Mark,
Only the interest is taxed, but you may need to declare your foreign investment if you have over $10,000USD in a foreign account.
Hi Hemant,
In your case I would report the interest earned. You don’t report the loss on the currency until you pull the money from the Indian bank account. Kind of like the previous question. You realized the gain on the account because you were paid the interest. But as long as the money remains in an Indian account, you haven’t realized a loss yet. Once you take that money out of the Indian account, then you realize the loss (or gain) on the conversion.) That’s when you would recognize that on your tax return.
Hi JD,
I have argued over this with different accountants. Some people say you must report the interest as it is earned, even if it is not paid. I believe that you should not report the interest until it actually shows up in your bank account. So, if you can’t withdraw it – then you shouldn’t pay tax on it. I use this IRS link as my back up: Topic 403
But like I said, I’ve had other accountants tell me I’m absolutely wrong and that you must report the interest as it is earned. My argument is – if you can’t touch the money yet, you shouldn’t pay the tax. Like capital gains. If you don’t sell the stock, you don’t actually realize the gain so you don’t pay the taxes until you sell stock.
So, my opinion is to just report the interest when it is earned. But I’m just letting you know that if you ask someone else, you may just get a different opinion.
Hi Husky,
This is my opinion, you may get a different answer if you ask someone else. But I feel good about my answer.
Since you opened the account with 100,000 Euro – that’s the opening basis you are working with. (140,000 USD)
The 17,000 Euro in interest is converted to basis for each year it is earned. I would use the exact same figures as you already reported in your OVDP, that makes sense to me. (Technically, I’d use the conversion rates per year at the time the interest was paid.)
Then I’d use the conversion rate at the time you closed the account. And – kind of like a stock transaction – where you’ve got a DRP account, I’d report the different year’s interest separately. And I would report the currency conversion – and loss on the 8949.
The interest would be a one way conversion if you earned it and took it out, but you earned it, paid tax on it, and let it ride in that account. So I’m with you – claim that conversion loss on the interest. I’d line item it out though, be very clear so that the IRS sees what you are doing. You asked about triggering an audit. I don’t feel like it would be a trigger. But by spelling out what you’re doing very clearly, it helps defray any potential audit. Audits are for when the IRS has questions. Be clear in what you’re claiming – the loss due to the currency conversion – then they don’t need to ask – you spelled it out for them!
And yes, since it would go on Schedule D – the loss would be limited to offsetting only $3000 of ordinary income. But – if you have other capital gains, it can be used to offset those gains. Also, any remaining loss would be carried forward to the next year.
I hope that helps.
in june 2015, i opened a mutual fund account in india. i reported that in my 2015 FBAR and am going to so same in my 2016 FBAR. my question concerns the dividend that i will receive on maturity in january of 2019. i have not reported any dividend income on my 1040 for 2015 as i was under the impression that same needs to be reported on maturity om my 1040 for 2019. while going through answers in this forum, i have reported your recommendation of reporting accrued income e very year. i can understand that in case of interest income but how do you report in this case because value keeps on changing everyday.
thanks.
Hi Jan,
Are prinicpal amount invested (such as certificate of deposits or saving accounts) in foreign banks are taxable for US residents or just the interest earned is taxable. Please advise if these investments need to be declared. Thanks Mark.
I have foreign account where I have earned some interest, but this interests is less than the loss I have becuase of currency conversion. Do I have to still pay tax on interest?
E.g. I had deposited 100$ in India at currency conversion 1$=60 INR. I have earned 6$ interest but now the currency is 67 so in net I lost because current value of this invest will be 94.97$ even afte consodering interest!
Will you please advice?
Hi There,
I have deposit accounts in India and interest gets paid on maturity or at withdrawl. How should i calculate the interest earned for US tax year?
Should i just calculate the interest for the months in tax year and sum it for all accounts? or do you suggest some other option?
Thanks
Hello Jan,
First of all, Thank you for great and very informative blog. I have a question related to saving accounts and currency fluctuations for foreign savings accounts. Imagine that I have a saving account in Euro in country X. The currency of the country X is not Euro. I opened the account with the initial deposit 140000 USD converted to EUR which was 100000 EUR at the time. The interest rate is 2% yearly.
The account was never touched throught years. In 2016, the account was closed. At the time of the closing, there was 117000 EUR in the account(17000 EUR interest was accumulated) . 117000 EUR was converted to USD with the conversion rate of 1EUR=1.1 USD which totals up to 11700*1.1= 128700 USD. The interest on account was declared during 6 years and all penalties was paid with OVDP procedure.
My first question is as follows: I want to declare capital loss on this account provided that I am eligible. I researched alot about this, but I could not find a definite answer about how to calculate the loss. Is the loss 140000-128700=11300 (initial investment in USD – last account value) or
140000-100000*1.1=30000(Initial investment in USD-Inital investment in EUR*current conversion rate) or something else. Basically, are we including interest when we are declaring loss or not? Most of places I look at is telling me that interest is one way conversion. It should not be included in loss calculation. Only the original amount should be included. Because it is two way conversion(USD to EUR and then EUR to USD). In addition to that, if I am eligible to declare this as a capital loss, am I limited to $3000 per year since I am not a trader.
Another question is that: Can this trigger an audit or something else? Since the opening goes back beyond the span of OVDP. I did OVDP two years ago and amended the return last three years at that time.
Thank you
Hi Mark,
I count it the same as stock losses. In your case, since it’s under $3000 – it’s still treated as an ordinary loss anyway.
Hi Jan. Great info on your blog. I have a question about how to properly record my foreign currency transactions. In July of 2014, I exchanged $3,700 into Euros in my brokerage account. The purpose of this transaction was to use these funds to buy European stock. During ’14 and ’15, I used $1,000 of these Euros to purchase stock on exchanges in Europe, and still hold those positions. In December of 2016, I exchanged the remaining Euros in my account back to USD, receiving $2,100 back in USD into my account. My broker has issued a currency realized gain/loss statement as part of my year end tax statement. This statement shows my cost basis for the currency exchange as $2,700 and a currency exchange loss of $800. I have seen information that indicates that all currency exchange gains and losses should be reported as ordinary income or loss. Other information seems to indicate this $800 loss should be reported as a long term capital loss since it was part of an investing activity. Any opinion?
Hi Ravi,
Yes, I would file an FBAR. Since you have amounts through the year, you could use the actual conversion rates on the various dates. Here’s a link to get them: Conversion rates
Hi Jan,
Quick question – Have been receiving interest into my savings account in a foreign account through out the year. Do I sum all the interest for the year and then divide the conversion rate for US Dollar-Indian Rupee on Dec-31 of the year?
Secondly, have certificate of deposit in India worth more than $10,000 – do I have to answer – Yes to the total value of the foreign account and file FBAR?
Appreciate your response.
Thanks,
Ravi
Hi Martin,
I believe that you should pay the tax on the accrued interest. It’s cheaper. Other people have argued that you pay on the maturity of the deposit. My opinion is to pay on the accrual.
Hi Jan,
Do I need to pay U.S. taxes on accrued interest in foreign bank deposits? Or should I pay the tax on maturity of the foreign deposit?
Hi Tian,
Surprisingly, I get questions similar to this all the time. I hope my answer makes sense.
First, as a green card holder and resident of the United States, the US taxes your world wide income. (Which you knew, but I’m just spelling that out for other readers.)
The loan itself – being repaid is not income. Only the interest on the loan you receive is income.
So let’s say you receive a loan payment of 1,000 RMB, and 900 of that is principal and 100 of that is interest. You would only pay tax on the 100 RMB of interest. So with the value of the Chinese currency going down, when you convert the RWB to USD for your tax return, you will report a lower income than you would have in the past.
But your question, really, is about the loss of the value of the principal, right? Because, even though you received 900 RWB in principal, once you convert that money to USD, then it’s now worth 8% less. That’s your point, right?
So if you are keeping the money in a Chinese bank, and you have not converted these funds to USD, then you may not claim any loss – because it’s still in Chinese funds. There’s only a potential gain or loss if you convert the funds to USD. It’s kind of like when you hold a stock, if you bought shares of Pepsi, the value may go up or down, but you don’t claim the gain or loss until you actually sell the stock – it’s the same idea with foreign currency.
So, if this loan was made for a business venture – then you would claim the loss as an ordinary loss on your business return. If the loan was an invetment, then you’d claim the loss as a capital loss on your schedule D. If this is a personal loan you made (like to a close friend or to a family member), you receive no loss because it’s personal.
I hope that helps.
Hi Jan,
I am a Chinese citizen and a green card holder. I have a question about my tax return. I made loans in Chinese currency, RMB. The original capital was from my salary which was from Chinese employer and was also given in RMB. When calculating the return on these loans, do I need to consider the loss due to RMB-USD exchange rate? RMB has depreciated about 8% against USD this year. Thank you.
Hi Virginie,
It’s confusing isn’t it? Yes, you still have to do Schedule B even though you have less than $1500 in interest because you have a foreign bank account and you need to answer the foreign bank account questions.
Hello,
I’ve got a question about my schedule B. I have to fill the part III. But I Don’t have any us account and on my foreign account, I receive less than 1500 us dollars.
Should I fill the part I anyway ?
Thank you very much for your help !
Virginie
Hi Diane,
The bank account is not considered yours, but you will need to file an FBAR because of your signature authority. You’ll be doing that in part IV of the FBAR. Here’s a post about that. http://robergtaxsolutions.com/2014/06/how-to-file-your-fbar-2014/
Hello,
I am a dual citizen of the US and Canada, living currently in Canada. I am a part-time bookkeeper for my church. As the bookkeeper, am I able to be an “authorized signer” for my church’s bank account, or will that affect FBAR filing. In other words, if I become an authorized signer for my church’s bank account so I can sign cheques, will FBAR look at that bank account as mine, and I must account for it when filing FBAR?
Hi Raj,
I would file the 3520 form. I don’t see anything about there being an exception for filing if you don’t bring the money to the US. Besides, it’s just an information reporting form – you pay no tax with it. But- the penalty is high if you are supposed to file and don’t. So, I’d rather be safe than sorry. I’d file. https://www.irs.gov/businesses/gifts-from-foreign-person
Hello,
Last year, my parents transferred stocks of Indian companies worth more than $100,000 on my name. I did file FBAR for 2015 and reported my earnings on Form 8939 of my income tax. I did not transfer any funds to US. They are still in the Indian Banks. I did not file Form 3520. Do I need to file it? Or should I only file it if I sell the stocks and transfer the money in US.
Hi Willie,
I’m thinking of this investment kind of like a bond. You invest in a bond and you earn interest. You pay tax on the interest as “ordinary” income. Because that’s how interest is taxed.
And, like a bond, sometimes, the value of the bond grows and you have a capital gain. You said you had a 50% profit, so that’s not too shabby. Because you made the investment in USD and you are being paid back the investment in USD with a 50% capital gain, I would report it as a capital gain. And, you will be subject to the long term capital gain rates.
Yes, you will pay more tax than what you earned in interest, but you are getting a 50% profit on the investment so that sounds like a pretty good deal to me.
If the value of the currency had dropped, you would be wanting to claim that capital loss now wouldn’t you? So, pay the tax and laugh all the way to the bank!
Jan,
I have lived outside of the US about half my adult life and always done a good job of filing FBARs and tax returns.
A friend of mine in Latin America has a financial services business and three years ago I loaned his company money, against a promise to pay me back 3 years later with interest. (They cannot accept deposits from the public so this is not a CD. They term it as an investment.)
I wired him the funds in dollars, which he converted to local currency. The interest rate to be paid was set in local currency as his business operates in local currency. When the 3 years are up soon, I will have made a small 4% profit in USD but a 50% profit if you calculate the loan/investment in local currency…due to the strong dollar. The local currency has been depreciating about 10% a year.
He will convert the funds from local currency and repay me in USD. Would this be considered a capital gain of 4% in USD?
If I paid taxes on the local currency gain as interest, I would pay more taxes in USD to the IRS than I actually earned.
Thanks.
Willie
Hi Raj,
I would simply amend the returns. You weren’t required to submit FBARs so you don’t need to go through the streamlined filing compliance program. Just report the interest earned, pay the tax, and be done.
Hi Brian,
I am not qualified to tell you what you will or will not owe to Canada Revenue. Sorry.
Hello, I am a US citizen living in US. My problem is I did not report and pay tax on interest income from foreign bank on tax returns for 2 years. The account balance is equivalent of only $5000, so I don’t have to report FBAR. I did check “Yes” on line 7a on schedule B. Should I simply submit amended returns or go through streamlined domestic offshore program ? Thank you in anticipation of your response.
I am going to move from the us to Canada (non USC, Canadian citizen) in next couple years. I want to take advantage of the present drop of the loonie. Now getting roughly 2% interest on 250k with short tern bond fund in us currency at vanguard. I am able to exchange it to Canadian funds, deposit it into my Canadian bank and get 2% interest in a 2 year savings (GIC, similar to a cd in the states). Really a good move to perform at this time. Am I correct in assuming I will not owe taxes on the interest to Canada Revenue? ( I broke my tax ties years ago and will make sure my bank checks non – resident on the account). The IRS will want reporting of the assets (fabr now fen) and form 8938. Question- will i be responsible for taxes on the interest to the IRS only and when I do file 8938 reporting the interest I made, am I required to use the exchange rate of the currency into us dollars on the last day of the year or the day I actually got the interest? Thanks for the help.
Hi Priya
list all the accounts, original and the missed accounts.
Hi,
When we amend FBAR, can we just list missed accounts to the online version and give the prior BSA Identifier or do we have to list all accounts (original + missed)?
Hi Jan, Just came across this and found your answer (dt.October 3rd), Thank you so much for your clarification. Probably only way to get around to that will be – I can make arrangement with the Bank at roll-over do an interest capitalization for the principal rounded to $100,000 and the remaining interest shown as Interest Income in the paper document for U.S tax return (Showing effective interest rate is 5% and not 10%, although I do not think any bank will agree to that because of their local accounting rules as well as their system capability). Thank you again.
Hi Sarika,
Your note form Pub 514 is about how to compute a tax, it’s not about how to claim a loss on currency value.
Let me give you an American example. You have a paycheck, and state income tax is withheld. You get a deduction for the income tax you pay to the state. But your withholding is higher than the tax owed so you get a refund from the state. The next year, you pay tax on that state refund.
The foreign tax credit publication that you’re citing is closer to that. It doesn’t mean that you get to claim a loss on your foreign investment because the value of the currency went down.
Jan:
If I understand you correctly, you are saying that foreign currency losses under section 988 are not applicable in case of losses on term deposits in foreign currency, even if the loss results from having originally converted dollars to the foreign currency for creating the deposit and then reconverting the foreign currency to dollars at maturity. If so, you are saying that term deposits by individuals are not treated as investments for purposes of 988 or even for tax purposes generally (which would lead to capital losses not ordinary). I understand why IRS reps would prefer this line.
However, If that were the case, why would they talk of calculating section 988 loss or gain in case of foreign tax redetermination in publication 514? Clearly, no “investment in bonds, hedging or forex trading” is involved in foreign tax redeterminations.
“If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988).”
Hi Tom,
Interest earned on the account will be split between the time before she died and the time after she died. Technically, it’s her interest up until the day she died. It’s not your’s until after. Also, remember it’s not your money until it’s in your name. I realize I’m getting technical here – and you’ll also need to talk with your German accountant as well, but there could be more than just your mother and your tax return here.
In the US – there would be your mother’s interest income – before she died. There would be the estate income – which would wind up being taxable to you, but would go on the estate return (if there was one.) And then after the account was in your name, then there would be the interest on your return.
Since your mother wasn’t in the US, you won’t have a US estate return, but I don’t know what they do in Germany you’ll need someone to help you with that. Make sure your bases are all covered there.
Hi Tom,
I’m sorry for your loss.
First, I have a question for you. You say the account is still in your mother’s name? So do you have signature authority over that account? If not, then you won’t be required to file an FBAR. The money will be sent to you, but it sounds to me like you won’t have the bank account in your name at all.
But, I’m going on the assumption that you do have signature authority and have to file. In that case, there is no attachment to the FBAR. There’s an explanation section for filing late–but you won’t file late so don’t use that. And you really don’t need to explain anything. You’ll have a one shot FBAR and that’s it.
Is it wise to contact the IRS with FBAR questions? Well, the main number (1 800 829-1040) number is not a good resource. The number for FBAR questions is 866 270-0733. Here’s a link that has more resource information.
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Telephone-Numbers-for-FBAR-and-Title-31-Help
There is an email address: FBARquestions@irs.gov. I’ve actually used that and they’ve gotten back with me.
Also, I think this chart is probably the most helpful page on the IRS website. It compares the FBAR to the 8938 form and what needs to be reported:
https://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
If your inheritance is over $100,000 then you’ll need to complete a form 3520 for transferring the funds to the US. (see page 6, that’s what would apply to you.) https://www.irs.gov/pub/irs-pdf/f3520.pdf
Another question is, do I report the interest on the account since the day she died, or for the whole year (since she obviously won’t be able to file an income tax return in Germany for 2015)?
My mother in Germany died on 10/25 and my two brothers and me inherited her account. It is still in her name, and after paying off the last bills, will be closed before December 31. I will receive my third in the US. I have several questions about filling the FBAR properly for 2015. One is that since my wife is not a co-owner, has no signature power, nor any financial interest (inheritances are not community property), does she have to file a FBAR merely because she is my spouse, filing a joint income tax return?
There seems to be no space on the e-FBAR to explain briefly how this account become partly mine for a few weeks this year, that is an inheritance, owned jointly with my brothers for a brief time. Can one add a letter to the FBAR?
Is it wise to contact the IRS hotline by email or phone with technical questions? Do they give competent answers? Not all agencies have competent customer service.
Thanks.
Hi Asif,
As I understand it, your loan is neither a capital loss nor an ordinary loss. You made a loan for $150K, you were paid $150K. Okay, well, you made the loan in rupees and were paid back in rupees – so you had no loss. You did the loan in India, and were repaid in India, your repatriating the money back to the US isn’t really a factor.
Only if you are investing in currency — such as in a Forex trading program, can you claim a loss on the value of the currency. So I’m sorry, but it won’t qualify as a loss for you.
I realize this doesn’t seem fair, I’ve spoken with IRS representatives about this and that is how the people that I’ve spoken with have interpreted the rule. I feel for your situation, but the way the IRS interprets it is that you get to claim no loss.
Hi Jan,
Thanks for all the great information. I have a question that follows along the lines of those posed by Bobby and Abraham. In 2012, I gave a loan of 150,000 dollars to a family member in India (term loan w/ a 3-year term, interest rate above the AFR, single balloon payment of principal+interest). The funds for this loan were initially transferred from my US bank to my bank account in India (converted to rupees) and the loan was funded from my bank account in India. I understand that I have to report the interest earnings on my tax return here in the US. However, the value of my principal on repatriation back to the US following loan repayment depreciated by over 20% due to currency devaluation. Does the IRS allow the accounting of that as a loss? If so, would this qualify as a capital loss or an ordinary loss (Sec 988)? Thanks in advance.
Hi Abraham,
Your question is the perfect next question to follow Bobby’s. Your situation is different, you purchased a bond and you can sell the bond so you can claim a capital loss because of the currency. Here’s how.
You have the purchase price of the bond is $100,000 USD – using the currency conversion rate at the time of puchase. You sell the bond for the same price you paid for it in Brazilian reals, but the conversion rate at the time of the sale have the bond worth $70,000 USD. So in your case, you’re reporting the sale of the bond on form 8949 (which carries to schedule D) and you’re also reporting the interest that you earned on Schedule B.
Your case is different from Bobby because you can report a sale of the asset. Bobby doesn’t get that advantage, in his case when he takes his money out of the bank, it’s just taking money out of the bank.
On the flip side, had the currency conversion gone in your favor instead, you’ve be paying capital gains tax, while Bobby would just be enjoying that his money would be more valuable.
Hi Bobby,
I get this question all the time. So, you deposit $100K and you earn $10K in interest. But because of the FX conversion factor, you actually lost money.
Here’s the thing–the IRS doesn’t care that you lost money in the foreign currency market. Well, they kind of do, but not exactly. If you were investing in foreign currency as a “market” kind of investment, you could claim a capital loss on it, when you sell the investment. But that’s not really your situation now is it? You’ve deposited money into a bank account and are earning interest.
Now, if the FX conversion factor goes down, then you aren’t really earning $10K in interest, you’ll earn less because the conversion factor will be lower, right?
But, you won’t get to claim a loss on the investment. Sorry. I know everybody who asks that question wants the answer to be $5,000 is what you earn. But it’s not. It’s the $10,000 that you report – or whatever the conversion factor makes that $10,000 out to be. But you don’t get to subtract that $5,000 loss from the interest that you earned.
Hi Jan,
First of all, thanks for all the info. I have invested 100,000 dollars in a mortgage bond account in a bank in Brazil. I understand that I have to report the earning on my tax return here in the US. However, the value of my original account has depreciated a lot since the currency devalued almost by 30%. Does the IRS allow the accounting of that as a loss when I do my tax return at end of year? Even if I cash out the account and transfer it back to the US?
Thanks
Hello, If I deposit $100,000 for 1 year in a foreign country and at matury earned $10,000 as interest (Tax free) the total will be $110,000. However if due to FX conversion factor the Principle and Interest will be converted to $105,000, Do I report interest income $10,000 or $5,000. Or simply can I facor in the loss of $5,000 due to FX conversion before I rollover my deposit?
Hi Deborah,
Unfortunately, the US will still tax your South African interest even if it is not taxable in South Africa.
I am in the process of opening a foreign bank account (South Africa) and have the option of a tax free account for slightly less interest. If the interest is in a tax free account in another county, can I call it tax exempt interest on my U.S. tax return? Thank you.
Hi Steve K,
I agree with you. Report the interest on your schedule B and check the box that says no 1099 was received. That’s perfect.
Hi Vilkalp,
about the CDs. I’m going to say that you do need to report the interest on the CDs every year, even though you do not get to actually receive the interest. I’m treating the CD interest as OID (Original Issue Discount). The exemption is if the interest earned is less than 1/4 of one percent–then it’s considered di minimus and doesn’t have to be reported.
Now if you look around on the web, other people will have other answers. And, to be honest, I’ve waffled on this issue myself. But I really think the best thing to do is just report the interest, pay the tax, and be done with it. When you finally do get the interest payment, you’ll have accrued all the interest already and you won’t be hit with a huge bill either. So my opinion is to report and pay now instead of waiting to the end.
Hi Vikalp,
Yes, I would file the amended returns and the amended FBARs. Since you’ve been reporting the income, but merely didn’t know about the 8938 I believe you should be fine. Put that in the explanation on your form 1040X, you were reading on the internet that a form 8938 should be filed and you corrected the situation as soon as you learned of the requirement.
Hi Chuck,
I don’t know. I believe that a lot of it has to do with the bank. I know someone who got hit with some major fines and penalties because his foreign bank turned over all sorts of information going back several years. Other banks, I’m pretty sure they haven’t done that.
But I don’t know which ones have or haven’t. So why take the chance? I’d report the income anyway and make sure you file the FBARs as well. Better safe than sorry.