Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department.

How does IRS find out about offshore bank accounts?

The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. The IRS will know you have a foreign bank account because your bank will tell the IRS you have a foreign bank account every year starting in 2015. …

How do offshore accounts avoid taxes?

An offshore tax haven is simply a place—be it a country, state, or territory—with relaxed tax laws (usually either no income tax at all, or tax at much reduced rates). Multinational companies establish subsidiaries in offshore tax havens to avoid paying the 35% corporate tax in the U.S.

Is the title of an offshore entity reportable on Form 8938?

If, however, the title is in the name of an offshore entity, then both the entity and its assets are reportable on Form 8938. Hold the offshore property in the name of a U.S. LLC, and the asset isn’t reportable on Form 8938. That doesn’t mean that nothing related to the property is reportable.

What do you have to report to the IRS Under FATCA?

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets (as described below).

How to report a foreign bank account to the IRS?

The first is simply a box to check. If you have a bank account in a foreign country, you are required to report the existence of that account to the IRS by checking the relevant box on Schedule B of Form 1040. However, depending on the balance of the account, you could need to make an additional, separate filing, as well.

When do you have to report foreign assets?

As of January 2013, only individuals are required to report their foreign financial assets. At a later time, a limited set of U.S. domestic entities also may have to report their foreign financial assets, but not for tax years starting before 2013. There are some exceptions to the requirement that you file Form 8938.