Foreign Bank Accounts

[scazzusof]

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.

 

[Han]

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.

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 http://www.x-rates.com/ for the currency
conversions.

Hope this is clear and correct.
YMMV

 

[L K Williams]

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.

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

 

[raylopez99]

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.

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

 

[parrisbraeside]

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.

Form 1116

 

[ConanOBrien]

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.

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.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

 

[Han]

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

--
Best regards
Han
email address is invalid

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

 

[wuffa]

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.

the info listed below is from the IRS site at
http://www.irs.gov/businesses/small/article/0,,id=148849,00.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 $10,000 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 $10 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
(e-mail address removed).

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

 

[wuffa]

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.

yes jail

* Failure to File Penalty - up to $250,000 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 $500,000 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 $100,000 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."

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

 

[Doug]

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

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>