Foreign Bank Accounts

I have a question for a tax expert. How do you go about reporting taxes on capital gains made in foreign countries? Also, what is the tax rate on that income? Thank you in advance.

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Reply to
scazzusof
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I have always reported the income on the day it was credited, then converted the euros into dollars as of that date. Cap gains occur (I think) when you transfer money from the foreign country to (in my case) the US. Then subtract from the US$ received in the transfer (ie minus transfer costs), the US$ value of the currency on the day you originally took possession in the foreign bank account. I have used

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for the currencyconversions. Hope this is clear and correct. YMMV

-- Best regards Han email address is invalid

Reply to
Han

You report dividends, interest, and capital gains from foreign investments just as you would such transactions on US investments. You must translate the amount into US dollars using the rate that applied on the date the transaction took place. So you need to keep records on dollar equivalents when you make such investments. For example, you bought 1000 shares of stock in a Thai company on 2/15/97, when the stock was trading at 100 baht. The exchange rate on that date was 25:1. So, you invested

100,000 baht or $4000. You sold the stock when it was trading at 150 baht, or 150,000 baht. On the date of the trade, the exchange rate was 40:1. So, you gained 50,000 baht, but you LOST $250 because the dollar equivalent of the sales proceeds was just $3750! Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
Reply to
L K Williams

If you are a US citizen, you report cap gains for stocks like any other stock. Same for dividends and interest. Forms 1040 and the schedules A/B, D. You do, however, have to fill out a Treasury Form (google it) if you have a foreign stock account or a foreign bank account with more than $10000 USD in it (collectively). But this has nothing to do with taxes, it's an annual requirement for foreign accounts. You mail the form to Detroit, Michigan, not to the IRS. Also if you trade foreign stocks through a US based brokerage (like Charles Schwab) you do not have to fill out this annual Treasury form, however, if you own a mutual fund not registered in the USA you do (I have heard). BTW the penalty for failure to fill out this Treasury Form is a long stint in jail, so please be careful that you are religious in filling it out annually and filing it. RL

Reply to
raylopez99

Form 1116

Reply to
parrisbraeside

Jail? I dont think so. As long as you've paid your taxes, and have no other crimes (e.g. money laundering), you are not going to jail. There is a civil fine of, i believe, 10k, and even that may be able to be offered down to a lesser amount.

Reply to
ConanOBrien

"ConanOBrien" wrote in news:132g2djekqqufc2

I once sent in the form, but forgot to sign it (it was computer-generated), and got a nice letter asking me to sign it. Did, and no consequences.

-- Best regards Han email address is invalid

Reply to
Han

the info listed below is from the IRS site at

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8849,00.html Report of Foreign Bank and Financial Accounts

Do You Have a Foreign Financial Account?

If you own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account, then you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if

  1. The person has financial interest in, signature authority or other authority over one or more accounts in a foreign country, and
  2. The value of the account exceeds ,000 at any time during the calendar year. A United States person is not prohibited from owning foreign accounts. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad. Definition of Terms

A "United States person" is: A citizen or resident of the United States, A domestic partnership, A domestic corporation, or A domestic estate or trust

A foreign country includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands). Reporting and Filing Information

A person who holds a foreign account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder's reporting obligation. A foreign account holder must mail the Form TD F 90-22.1 on or before June 30 of the following year to: U.S. Department of the Treasury P.O. Box 32621 Detroit, MI 48232-0621.

The FBAR is not to be filed with the filer's Federal income tax return. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both. Exceptions to the Reporting Requirement

There are exceptions to the reporting requirement. These exceptions include:

  1. Accounts in U.S. military banking facilities operated by a United States financial institution to serve U.S. Government installations abroad are not considered to be accounts in a foreign country for purposes of the reporting requirement.
  2. An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation, is not required to report having signature or other authority over a foreign account if the officer or employee has no personal interest in the account.
  3. An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding million and 500 or more shareholders of record, is not required to report having signature or other authority over a foreign account if the person has no personal financial interest in the account, and the officer or employee has been advised in writing by the chief financial officer of the corporation that the corporation has filed a current report that includes the foreign account. FBAR Assistance

Help in completing Form TD F 90-22.1 is available at

1-800-800-2877, option 2. The form is available online at IRS.gov and MSB or by telephone at 1-800-829-3676. Questions regarding the FBAR can be sent to snipped-for-privacy@irs.gov.
Reply to
wuffa

yes jail

  • Failure to File Penalty - up to 0,000 and/or up to 5 years in prison for any person "willfully violating" the requirements to file. (31 CFR 5322a penalty)
  • Fraud Penalty - up to 0,000 and/or up to 10 years in prison for any person "willfully violating" the requirements to file "as part of a pattern of any illegal activity involving more than 0,000 in a 12-month period." (31 CFR
5322b penalty)
  • False Information Penalty - fine or up to 5 years in prison for any person providing false, misleading, fictitious, or fraudulent statements on TD F 90-22.1; or up to 8 years in prison if the false information involves domestic or foreign terrorism. (18 CFR 1001 penalty) Law Governing the Report of Foreign Bank Accounts The law requiring US citizens and resident aliens to report their foreign bank accounts is found at 31 CFR 103."
Reply to
wuffa

I think Ray and Conan are both probably correct. I can easily see a jail term being on the books but probably not being applied too often. Probably only if they want to get you for something else, which I am not a very big fan of! One of the sorriest examples I can think of is some cases from the late 60s and/or the early 70s of anti- war activists being prosecuted for tax evasion. And the judge decided, apparently, that they could not even bring up selective prosecution as a defense. I am not a lawyer, but this did not exactly strike me as a shining moment in legal history. It's a type of morality alright, kind of a childish type, maybe appropriate for talking with elementary school kids about acting up in the cafeteria, but not for adults when the stakes are quite a bit higher. In fact, I lean toward the position that even in the worse cases of tax evasion, no one should be sent to jail. The most we should do as citizens acting together through our government is to garnish wages and/or attach assets. That is, we should treat all tax cases as civil cases. I would say that too harsh a punishment, even in the background, erodes the trust between citizen and government that ought to exist. And I might even quote the philosopher Jeremy Bentham, 'Punishment deters by its likelihood, not its severity.' Harsh punishment is basically the lazy person's way of trying to solve a problem. The areas of tax administration which we know work-the self-reporting aspects (brokerage firms sending in 1099s, etc), and the working toward greater system-wide confidence that other people are also paying their fair share so I'm not going to be the one of rare stooges-all these can be bit by bit improved, as they are being improved (I really do tend to be an optimist! although perhaps not in this particular posting). I'm not even crazy about the goody-goody aspects where you half bludgeon people into confessions, "At any time during

2006, did you have an interest in or a signature or other authority over a financial account in a foreign country . . ." Then they essentially ask you the same question again in slightly different form. It's similar to how they ask you at the post office if you have anything potentially dangerous in your letter, and they use a long memorized phrase. I just don't think it's very effective. (I acknowledge that cases like Al Capone are difficult. I am learning in my early middle years (I'm 44) to tolerate uncertainty and not look toward over-arching theory to answer every question.)

-Doug

Reply to
Doug

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