When closing a foreign bank account, it is important to be aware of the reporting requirements. Even if the account is closed, it may still need to be reported on the Foreign Bank Account Report (FBAR) for the year in which it was closed. It is also important to note that closing an account to avoid reporting requirements can be risky, as the IRS has taken an aggressive stance on foreign account compliance in recent years.
Can you avoid FBAR & FATCA by Closing an Offshore Bank Account?
- Closing an offshore bank account may not necessarily avoid FBAR and FATCA reporting requirements. Even if the account is closed, it may still need to be reported on the Foreign Bank Account Report (FBAR) for the year in which it was closed. Attempting to avoid reporting requirements by closing an account can be risky.
Timing the Account Closing
- Timing the closing of a foreign bank account can be important for tax reporting purposes. If you are a US taxpayer with a foreign bank account, you may be required to report the account on the Foreign Bank Account Report (FBAR) or Form 8938
- If you close the account before the end of the calendar year, you may be able to avoid reporting the account on the FBAR or Form 8938 for that year, provided that you meet certain criteria. Specifically, if the account was closed before December 31st of the current year and the account balance did not exceed the reporting threshold at any point during the year, then you may not be required to report the account on the FBAR or Form 8938 for that year.
- However, it is important to note that closing an account solely for the purpose of avoiding reporting requirements can be risky.
Closing an Account to Avoid Past FBAR & FATCA Reporting
- Closing an offshore bank account does not necessarily avoid past FBAR and FATCA reporting requirements. If you had an obligation to report the account in prior years but failed to do so, you may still be subject to penalties and fines even if you close the account. You may read about FBAR penalties in our article.
- The IRS has implemented programs to encourage taxpayers to come forward and disclose their offshore accounts, including the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures. These programs provide taxpayers with an opportunity to come into compliance and avoid or reduce penalties. You may read more about the procedures and how we can help here.
That is where we come in. Please contact us today at info@dimovtax.com or (833)829-1120 if you need more information or assistance with FBAR filing. Our team consists of licensed professionals with extensive expertise in handling FBAR forms, addressing penalties, and providing consultation on the tax implications associated with different approaches.
