There is absolutely nothing wrong with having a foreign bank account. The problem comes along when the existence of the account is not disclosed and income associated with the account is not reported.
You have probably heard about people “stashing” money in overseas or offshore bank accounts. The United States is actively working to uncover these people with the assistance of foreign governments and financial institutions. If the IRS gets information from its “sources” and you have not filed your required reports – you will be in trouble.
The deadline for filing an FBAR is the end of June for the 2012 calendar tax year, so it’s time to get your ducks in a row. This year June 30th falls on a Sunday, so I suggest getting the form(s) filed by Friday June 28th.
Always send via a trackable method (i.e. certified mail). This is a deadline you cannot miss!
How do you know if you need to file?
In very basic terms, the answer is US persons (citizens, legal residents, tax residents or entities) need to file if he/she/it has:
A financial interest in a foreign financial account that has an value of over $10,000 at any time during the year, or
Signatory authority in such an account.
Foreign financial accounts are defined very broadly to include normal financial accounts such as checking accounts and brokerage accounts. They are also defined to include insurance policies and annuity policies.
Additionally, if you are required to file an FBAR, you are likely required to file other forms or reports with the IRS. There are reports for people who own foreign partnership, foreign corporations, or who are even beneficiaries of foreign trusts (among others).
Unfortunately, the number of required reports is really absurd. There is even a report you have to file if you own a Canadian Retirement Account.
It is important that you contact your tax advisor to make sure you are following the rules. Consulting with a professional is smart for various reasons – one of the best is that it can absolve you from IRS penalties.