1040 Foreign Account Tax Questions
If you hold foreign assets or foreign accounts, there are specific federal reporting rules you need to abide by when filing your personal income tax return. These regulations are outlined below.
The Tax Return Questions
The IRS includes detailed questions related to foreign account report filing and foreign trusts on the 1040 Schedule B (see wording below). Similar questions appear on Forms 1041 and 1065. These questions and answers are covered by the correctness and completion attestation the taxpayer makes under penalty of perjury when signing the return (also shown below). Be sure to advise the client of their FBAR filing obligations. It may be appropriate to advise them in writing due to the severe penalties for not filing.
From 1040 Schedule B (draft 2024):
You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.
Part III Foreign Accounts and Trusts
7a At any time during 2024, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions
If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements
7b If you are required to file FinCEN Form 114, enter the name(s) of the foreign country(-ies) where the financial account(s) is(are) located ▶ ______________________
8 During 2024, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions
From 1040 signature attestation:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Caution: Care should be exercised in answering those questions correctly since they are part of the return, and the return is signed under penalty of perjury.