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There’s been a lot of discussion lately about foreign bank accounts. A recent court case settled criminal charges on a man for not reporting his foreign bank accounts to the US government. This is big—it used to be that the fines and penalties were very stiff, but criminal charges are even worse.
A question that I’ve been getting lately is this:
“I’m a US resident alien, I am not a citizen. According to the IRS Publication number 17, US Citizens have to report foreign bank account, but it doesn’t say anything about resident aliens. So do I still have to report?”
While I think that the wording in the Publication 17 is an excellent argument for not reporting, I know that the IRS expects resident aliens to report their foreign bank accounts and pay income tax on the earning of those accounts. Even though IRS publication 17 expressly refers to US citizens, other IRS publications refer to “US persons.”
According to the IRS, as US person is:
“United States person means U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.”
I copied that right off the IRS website so that’s not an interpretation of the meaning, that’s the IRS definition.
My experience has been that the IRS does expect foreign nationals living in the US and filing a regular 1040 income tax return to report foreign income and foreign bank account holdings.
My advice is that you are considered to be a US resident for income tax purposes; you need to report your foreign bank account earnings and holdings. The fines and penalties are very high, and the new court case involving criminal penalties makes the risk of not reporting that much higher.
If you have not been reporting your foreign bank accounts, but should have, you can apply for the Offshore Voluntary Disclosure Program. It allows you to go back and report those accounts from past years and pay the tax and reduced penalties. While the penalties for the Offshore Voluntary Disclosure Program are steep, they’re still much lower than if the IRS “catches” you not reporting. The fewer years that are involved, the lower the penalties will be.
Hi Roberta,
Yes.
As a resident alien with a bank account in another country and that bank account has less than $10,000, is it still necessary to complete Schedule B, Section III? Also, is it necessary to include the interest on Form 1040?
Hi Hala,
I am not an expert on foreign corporations. My best advice is to get advice from someone who is. What I’m hearing from you is that you want to open a company in the US–even though you personally won’t be here. If you have a company here – I would think you have “nexus”. So get some advice from a professional with international experience. It will be worth the money to do it correctly.
Hi, if open an offshore company in the US, and i do not live in the USA and will most probably never visit it,, and if the activiy of the comapny is a sort of e trading, with customers from all over the world, do i have to pay any tax on the income of my LLC?
Thanks in advance,
Yes Al,
a non-resident alien would not report a foreign bank account, but a resident alien would.
Non US-citizen is likely a Green Card holder or non-resident alien with more than 183 days presence per year in the US. He has to pay taxes in the US. If a Green Cardholder form 1040, if not a Green Card holder use form 1040-NR. If holder of of an A-visa (diplomatic via A1, and A-2) he will be exempt fron Substantial Presence Test and taxes are owed only on US-source income, plus … and this applies always to all such visa holders … the capital gains tax ! Capital gains tax (also those from overseas accounts) always to be paid to the US (even if capital gains have already been taxed in foreign country). A-visa holders (and so I think non-resident aliens in the US for less than 183 days) will be not reportable under FATCA on their foreign held accounts.
Hi Wesley,
if you are a US resident, and you have a foreign bank account with 10,000 USD value of more – even if you do not have any income on the account, you still need to report to the IRS that you have a foreign bank account.
Hi,
If a resident aline have a foreign bank account , but there is no interest or earn through that account, does he need to report his foreign account to IRS?
Hi Resident Alien,
A resident aliend earning interest income only from foreign accounts must report those accounts and also pay US tax on that foreign interest income.
The taxes that you pay in your foreign country can be claimed as a credit to offset the US taxes that you pay to the US. This avoids the double taxation problem.
Thank you for the information Jan. As a follow up, if a resident alien is earning interest income only from Foreign accounts, is reporting those accounts and income earned sufficient or will the person have to pay taxes in the US? Is there double taxation (from the host country and US) in this case?
Hey Brian, that’s a really good article about the taxation of non-resident gambling income. Really good. I actually took a class dealing with foreign income (that was not by Fast Forward Academy) and when the instructor got to the part about non-resident gambling income he said…and I’m not making this up he said,
“There’s a whole set of rules about foreigners gambling in US casinos. I guess Canadians have a gambling problem or something…” And that was the end of that. Needless to say, I haven’t taken anymore tax classes there.
It’s nice to know the real rules.
Adding to the concept that non-citizen US residents benefit from hiring Enrolled Agent tax experts, is the story about a non-resident alien at http://fastforwardacademy.com/blog/2014/01/24/how-income-received-by-non-residents-creates-jobs-for-enrolled-agents/. Seems that non-resident foreign citizens who incur US-based income have the greatest need for a tax professional.