Foreign bank account reporting for folks who live in the USA

As nearly as I can tell, if tax forms had Facebook friends, this one would have the fewest. It only applies to people living in the USA who keep money in banks that are located outside the USA. Many of these people don’t even know they are subject to FBAR (pronounced eff-bar) reporting. The form is only available online. Filling it out probably won’t result in taxes, but not filling it out can result in fines and penalties.

The obvious question is, if it’s not a tax form that collects taxes, why is it a tax problem? I’ll share my understanding. If you are living in the USA, the USA wants you to pay income tax. The USA expects that you should pay income tax on whatever income you received during the year, regardless of the source. The source might be a W2 job in Mullica Hill, or interest from a bank in Mays Landing, or your share of the net income from a partnership in Mount Laurel. But it could also be some kind of income from a holding back home in Mexico or Mozambique. (They even expect you to pay income tax on income that you received from an illegal source, but that is outside the scope of this article.)

Beware of Tax Gossip!

So, this guy at the neighbor’s barbecue said his cousin told him about something his cousin’s friend did that saved a pile of money on taxes…Want to hear about it?

Surely we’ve all heard one like this!  And the clincher, of course, was that the guy was drinking the same brand of beer as the listener (or the person at the party with the most money,) so that makes the guy credible, right?  Wrong!  In my office, we call this “tax gossip.”