IRS Audit Reasons - Failing to Report a Foreign Bank Account

It is very common to have a foreign bank account in a global economy. If you have been working in a foreign country or have investments abroad, then you surely have a foreign bank account. Failing to report one or more foreign bank accounts often results in an IRS audit.


Having foreign assets such as real estate property or a business also falls under the same category. Some tax filers fail to report more than one foreign bank account having lower balances. The IRS tracks the cumulative financial records for foreign assets and foreign bank accounts.


Who Needs To Report a Foreign Bank Account?


The misconception with foreign bank accounts is that you need to report these accounts only if you generate taxable foreign income. Report a foreign source of income as foreign residents require different tax filing. Even if your foreign account has lower balances and you don’t use them for regular income, you’ll need to report such bank accounts.


You will need to report one or more foreign bank accounts if you qualify for the following conditions:

  • You have a stake in the foreign bank accounts, brokerage accounts or mutual funds, etc. in any foreign country.

  • The cumulative balance in one or more foreign bank accounts equals or exceeds $10,000 in one calendar year.

  • You have a foreign account outside of the US in any country including the US territories.

You need to report these foreign bank accounts through the Financial Crimes Enforcement Network’s BSA E-filing system electronically. The date of reporting these accounts is set as the last date of tax filing each year i.e. April 15th.


The IRS requires you to maintain the foreign bank account records for up to five years including necessary account ownership details.


Who Needs To Report Foreign Assets?


Under the Foreign Account Tax Compliance Act (FATCA), all US citizens and residents need to report foreign financial assets. These foreign assets must be reported on aggregate values of all assets. Married couples filing taxes jointly, also need to report the assets.


All US citizens and residents must report foreign financial assets, whether they live inside the US or outside. Even if one of the spouses owns foreign assets, they must be reported to the IRS.


Unlike the FBAR, you file for foreign assets directly with the IRS on form 8938.


Generally, you’ll need to report the foreign assets if:

  • You reside inside the US and have foreign assets of $50,000 or above

  • You reside in a foreign country and own foreign assets above $200,000

  • You jointly file taxes and the aggregate value of assets is $100,000, or $400,000 for US residents and foreign residents respectively

How to Determine Foreign Asset Valuation


The threshold asset valuations listed above are at the last date of the tax filing. The threshold for foreign asset valuations during the year is usually higher than these limits. All tax filers need to determine the foreign asset valuation using the fair market value estimates.


Published information and market analysis provide a credible starting point in determining the fair market value of foreign assets.


Foreign Assets and Foreign Bank Accounts – Differences and Similarities


You’ll report the foreign bank account details with the FinCEN through the BAS E Filing system separately. Your foreign assets valued at the latest fair market value will be reported to the IRS on form 8938. The foreign assets may include foreign financial assets held such as mutual funds, stocks, real estate investments, etc.


Some key points to remember when filing for foreign bank accounts and foreign assets.


Feature Point Foreign Assets on form 8938 FBAR with FinCEN

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Who must Report Individuals and specified entities All US persons including

meeting the foreign assets criteria individuals and trusts

meeting the FBAR criteria

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Reporting value $50,000 at last date $10,000 in one or more

foreign bank accounts.

$75,000 at any date during the year


Double the threshold for joint filing

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Valuation Maximum Fair market value Converted to US dollars by

converted to US dollars the year-end rate

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Filed With IRS with tax filing FinCEN through BAS E

Filing System


Failing to report any financial assets can result in heavy penalties. Failure to report foreign bank accounts even without income-generating sources can also lead to heavy penalties. Both of these mistakes are high-risk red flags that often result in IRS audits and questioning.

Photo by Anastase Maragos on Unsplash


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