There is a lot of misinformation about the filing requirements for IRS Schedule B, especially for taxpayers who have foreign bank accounts. Failure to file Schedule B when required will result in an incomplete tax return, which can lead to big problems. The IRS may reject your tax return and you may be subject to penalties and interest.
Schedule B is a form you file with your regular income tax return by April 15 (or October 15 with an extension). It is most often used to identify interest and dividend income. It is also used to alert the IRS that you have foreign bank or other financial accounts.
If you have interest or dividend income from accounts located in the United States, you must file Schedule B if the total amount you earned from all such accounts during the year exceeded $1,500. You list the payer’s name and amount earned from each account in Schedule B.
If the amount you earned did not exceed $1,500 (excluding foreign accounts), you don’t need to file Schedule B to list it. Instead, you list such interest and dividend income on your Form 1040 and add it to all your other taxable income
If you have foreign bank accounts, the rules change. You are required to file Schedule B if 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.”
There is no dollar threshold on the duty to report foreign accounts on Schedule B. You should report any such accounts. To do so, complete Part III of the form. You are not required to list the amounts you held in such accounts on Schedule B. Instead, you merely answer “yes “that you had a foreign account. You are also required to state whether you were required to file FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
If you have foreign accounts, you may have to file other forms in addition to Schedule B. For example, if you have a foreign trust, you must file IRS Form 3520. If you have a foreign business, you must file IRS Form 5471. However, for most taxpayers, the most commonly filed forms are Form 8938 and the FBAR form.
You must file IRS Form 8938, Statement of Specified Foreign Financial Assets, with your income tax return if:
For married couples filing jointly (as almost all do), these thresholds are increased to $100,000 and $150,000, respectively.If you live abroad, the thresholds are greater: $200,000 at the end of the year or $300,000 at any time; $400,000 and $600,000 if you’re married and file jointly.
Unlike Schedule B, Form 8938 requires you to provide detailed financial information about your foreign accounts.
There are hefty fines for failing to file Form 8938: “Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.” These fines can reach tens of thousands of dollars.
The Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR), is a separate form you must file to report foreign accounts. You must file an FBAR if the aggregate value of such accounts exceeds $10,000 at any time during the calendar year. The FBAR must contain the name and address of each financial institution in which you held an account during the year, the account number(s), and the maximum amount in the account during the year
It’s important to understand that the FBAR is not a tax form and is not filed with your tax return. Instead, you must separately file it with the Department of Treasury. You file the form electronically at https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html. The form is due by April 15 each year, with an automatic six-month extension to October 15 allowed.
There are very hefty fines for failing to file an FBAR, and the FBAR filings are intertwined with the requirement to file Schedule B and disclose your foreign accounts. According to the IRS, your penalties may include, per year: “If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply.”
If you did not file Schedule B and you did not disclose your dividends and interests from domestic earnings on your tax return, you should amend your return to disclose the income and pay any tax, interest, and penalties. This will likely satisfy the IRS.
If you had foreign accounts you failed to disclose on Schedule B, things get much more complicated. Did you simply not file Schedule B although you had foreign accounts? If so, you did not “affirmatively” conceal ownership of your foreign accounts. Thus, you may be able to amend your tax return to include a proper Schedule B without having to pay any penalties, provided you filed any required FBARs and were not required to file Form 8938. However, if you were required to file Form 8938 but did not do so, amending Schedule B and including 8938 forms may result in penalties, since you would basically be announcing to the IRS that you did not disclose your foreign accounts to them before.
On the other hand, did you file a Schedule B for your domestic accounts but not disclose your foreign accounts? Did you affirmatively answer on your Schedule B that you did not have any interest or signatory authority over a foreign financial account, when you actually did? The IRS would consider this an outright lie, and therefore it will not be as easy to amend your Schedule B.
If you did not file FBARs and a Schedule B, or did not file the FBAR and misrepresented your foreign accounts on Schedule B, you should contact a tax attorney to discuss the potential penalties and courses of action.