Tax Tip Tuesday: Foreign Bank Account Common Mistakes — And How to Avoid Them
- May Sung
- Mar 17
- 6 min read
If you have a foreign bank account, you are not alone. Many US citizens, green card holders, and Americans living abroad maintain financial accounts outside the United States — whether for work, convenience, or simply because they have built a life in another country. Having a foreign bank account is completely legal. What gets people into trouble is not knowing what comes with it.
The IRS and the Financial Crimes Enforcement Network (FinCEN) have very specific rules about reporting foreign financial accounts, and the penalties for missing those requirements can be steep. Below are some of the most common mistakes we see — and what you need to know to avoid them.
Mistake #1: Not Knowing You Have a Reporting Obligation
This one catches more people off guard than you might expect. A lot of taxpayers assume that because their money is sitting in a bank overseas, it is out of reach of the IRS. That is not how it works.
Under the Bank Secrecy Act, if you are a US citizen, permanent resident, or certain foreign nationals who meet the substantial presence test, and the combined balance of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, you are required to file a Report of Foreign Bank and Financial Accounts (FBAR) — formally known as FinCEN Form 114. Not at the end of the year. Not on average. At any single point during the year.
This requirement applies whether you live in the US or abroad, and whether or not your accounts generated any income.
Mistake #2: Confusing FBAR with FATCA Reporting
These two get mixed up constantly, and it is an easy mistake to make — but they are not the same thing, and filing one does not cover the other.
FBAR (FinCEN Form 114) is filed separately through the FinCEN BSA E-Filing System. It is not attached to your tax return. The filing threshold is $10,000 in aggregate across all foreign accounts at any point during the year.
FATCA (Form 8938 – Statement of Specified Foreign Financial Assets) is filed with your federal income tax return (Form 1040). The thresholds are higher and depend on your filing status and where you live:
Single filers living abroad: $200,000 on the last day of the year, or $300,000 at any point during the year
Married filing jointly living abroad: $400,000 on the last day of the year, or $600,000 at any point during the year
Single filers living in the US: $50,000 on the last day of the year, or $75,000 at any point during the year
You can meet the FBAR threshold without meeting the FATCA threshold, or you may be required to file both. Each form has its own rules, its own deadlines, and its own penalty structure. Do not assume one covers the other.
Mistake #3: Not Reporting Accounts You Don't Think of as "Bank Accounts"
When most people hear "foreign bank account," they picture a checking or savings account at an overseas bank. But the definition under FBAR is much broader than that.
The following can all trigger a reporting requirement:
Foreign brokerage and investment accounts
Foreign mutual funds
Foreign pension and retirement accounts
Accounts held under a foreign corporation, partnership, or trust in which you have an ownership interest
Accounts over which you have signature authority — meaning you can control the funds even if the account is not in your name
That last point trips up a lot of people, especially those who manage finances on behalf of a foreign employer or business entity. If you have the ability to move money in a foreign account, you may need to report it — even if none of that money belongs to you personally.
Mistake #4: Assuming No Tax Owed Means No Report Required
This is one of the biggest misconceptions we run into. Reporting and owing taxes are two completely separate things. Even if your foreign account earned zero interest, even if the funds were already taxed before they went in, even if you owe absolutely nothing to the IRS — you may still be required to file.
The FBAR and FATCA reports exist so the US government has visibility into foreign financial holdings. That obligation does not go away just because there is no tax bill attached to it.
Mistake #5: Missing Filing Deadlines
The FBAR deadline is April 15, with an automatic extension to October 15. You do not need to request that extension — it is automatic. But many people miss it entirely, sometimes for years, simply because they did not know it existed.
Form 8938 follows your regular federal tax return deadline, including any extensions you have filed for your 1040.
Missing these deadlines — even by accident — can be costly. Non-willful FBAR violations can carry penalties of up to $10,000 per violation. Willful violations can result in penalties of up to the greater of $100,000 or 50% of the account balance per violation. And "I didn't know" is not always enough to avoid those penalties once a pattern of non-filing has been established.
Mistake #6: Not Taking Advantage of Voluntary Disclosure Programs
If you have not been reporting your foreign accounts and are just now finding out you should have been, the most important thing you can do is come forward on your own — before the IRS comes to you first.
The IRS has programs specifically designed for taxpayers who need to catch up on foreign account reporting:
Streamlined Filing Compliance Procedures — for taxpayers whose failure to file was non-willful. There are two versions:
Streamlined Foreign Offshore Procedures — for taxpayers living outside the US. You will need to file amended or original returns for the past 3 years and FBARs for the past 6 years. If you qualify, there is no penalty.
Streamlined Domestic Offshore Procedures — for taxpayers living in the US. A 5% miscellaneous offshore penalty applies based on the highest aggregate balance of unreported accounts during the covered period.
Delinquent FBAR Submission Procedures — for taxpayers who missed FBAR filings but reported all their income correctly and have not yet been contacted by the IRS. You can file the late FBARs with a statement explaining why they were late. In most cases, penalties are not imposed.
Delinquent International Information Return Submission Procedures — for taxpayers who missed other international reporting forms such as Form 5471, Form 3520, or Form 8938, but reported all income correctly and have reasonable cause for the late filing.
Once the IRS has opened an examination or launched a criminal investigation, these programs are no longer on the table. The window to take advantage of them closes fast.
Mistake #7: Overlooking Foreign Pension and Retirement Accounts
Foreign pension plans are one of the most commonly overlooked foreign financial accounts. If you are working abroad and participating in a local employer-sponsored retirement plan — such as Australia's Superannuation, Canada's RRSP, or the UK's NEST — those accounts may need to be reported on both your FBAR and Form 8938.
Beyond the reporting side, the tax treatment of foreign pensions is complicated and
depends heavily on whether the US has a tax treaty with the country where the plan is held. Some treaties allow for tax deferral on pension income that accumulates in the foreign plan. Others do not, meaning that income could be currently taxable in the US even if you have not received a distribution yet. Getting this wrong can mean both missed savings opportunities and unexpected tax bills.
Mistake #8: Trying to Handle It Without Professional Help
We understand the temptation to figure this out on your own — especially when the filing requirements seem straightforward on the surface. But international tax law has a way of getting complicated quickly. The interaction between FBAR, FATCA, foreign tax credits, tax treaties, and other international provisions is not something most people can navigate confidently without experience in this area.
The cost of getting it wrong — whether that means missed filings, incorrect reporting, or forfeited treaty benefits — almost always exceeds the cost of getting proper guidance upfront. An experienced international tax advisor can review your full situation, identify what needs to be filed, and make sure nothing falls through the cracks.
If you are a US citizen or resident with foreign bank accounts, the reporting requirements are not something you want to ignore. The penalties are real, the rules are strict, and the IRS has more visibility into foreign financial accounts than ever before. The good news is that whether you are just now learning about these obligations or have missed filings in prior years, there are options available to get you back on track — but acting sooner rather than later always works in your favor.
If you have questions about your specific situation or need help getting into compliance, reach out to May Sung, Tax Principal, directly. She can walk you through your options and help you figure out the best path forward.
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