If you’ve read my articles, you know I’ve always tried to warn players of what to do if you have a bank account in a foreign country. Now, you can add another warning, and yet another form you have to consider filing if it applies to your situation.
To recap, when you file your tax return, you need to check the “yes” box on the Schedule B stating you have a foreign bank account, and then list the country in which it’s located. Then you need to consider something else. If you have $10K in the account at any time in the past year, you have to file a Form 90-22.1, Report of Foreign Bank and Financial Accounts. This form doesn’t go with your tax return. It’s filed separately, due June 30 the following year, and there’s no extension for this form. If the IRS determines that, oops, you forgot to do it or were not aware, the penalty is up to $10K. If they think you did it on purpose, the penalty is the greater of $100K or 50 percent of your account balances offshore. Ouch. Now, as if there weren’t enough forms, they have a new one as of 2011. This is called Form 8938, Statement of Specified Foreign Financial Assets. This one is a little more specific, so you need to see if this applies to your situation.
You have to file Form 8938 if you’re living in America and have $50K ($100K if married) in a foreign bank account on the last day of the tax year (Dec. 31) or $75K ($150K if married) in a foreign bank account at any time during the tax year. If you’re living abroad, the amounts are a little more.
On this form, you report the maximum value of your foreign financial assets, which include financial accounts with foreign financial institutions. This return has to be filed with your individual tax return by the due date, including extensions. The penalty for not filing this can be $10K for failure to disclose you have the account and an additional $10K for each 30 days of non-filing after the IRS notifies you to file it. It also can impose criminal penalties (possible jail time).
Note that money on PokerStars or other Internet poker sites does not count as foreign accounts at this time, but that could always change.
So what if you left on Black Friday and went to Costa Rica or Mexico and opened a bank account and you are required to file this form? And, what if you already have filed your tax returns? Never fear, I have a solution! As soon as possible, you need to file an amended tax return and include the Form 8938. Your explanation is you weren’t aware of this form and amended your return as soon as you realized that you were required to file it.
Why all of these foreign forms? The IRS knows there are a lot of U.S. citizens with accounts that aren’t being reported. Doing these forms does not guarantee you an audit, but if they find out you didn’t do these forms intentionally, it will guarantee you a lot of sleepless nights and you’ll become the IRS’ new best friend. Good luck at the tables, wherever they may be.
— Ann-Margaret Johnston is a practicing CPA in North Georgia. She is the author of the book titled How to Turn Your Poker Playing Into A Business. Go to pokerdeductions.com where you can find answers to poker tax questions. Email her at email@example.com.