How to Report Offshore Accounts Legally

If you keep money or investments outside your home country, you’re not breaking the law by default. Offshore accounts are legal. The catch is that most countries require you to report them, and the penalties for getting this wrong can be severe. I’ve helped hundreds of clients—from U.S. expats to executives with signature authority—get compliant without drama. This guide walks you through how to report offshore accounts correctly, with practical steps, examples, and the common pitfalls to avoid.

Why offshore accounts are legal—but reportable

There are legitimate reasons to bank or invest abroad: employment in another country, diversifying currency exposure, owning a vacation home, participating in a foreign pension plan, or managing a cross-border business. Regulators don’t aim to ban these; they aim to ensure the related income and balances are visible and taxed appropriately.

The U.S. operates two main reporting regimes—FBAR and FATCA—designed to surface offshore accounts and financial assets. Globally, the OECD’s Common Reporting Standard (CRS) compels banks in over 100 jurisdictions to report foreign-held accounts to taxpayers’ home countries. Financial institutions now send millions of records automatically each year. The IRS’s offshore programs have collected billions in tax, interest, and penalties over the past decade, and FinCEN receives well over a million FBAR filings annually. The information flow is constant, and matching algorithms are unforgiving.

Who must report: defining a “U.S. person”

If you’re a U.S. taxpayer, assume offshore reporting applies unless proven otherwise. “U.S. person” generally includes:

U.S. citizens (even dual citizens residing abroad)

U.S. lawful permanent residents (green card holders), regardless of where they live

Individuals meeting the substantial presence test

U.S. entities: corporations, partnerships, LLCs, trusts, and estates

A few points from experience:

Kids count. A minor with a foreign account (think grandparents opening a savings account overseas) may trigger FBAR filing, which parents file on their behalf.

Former residents sometimes forget that the year they leave can still be a U.S.-tax year. If you met the substantial presence test and held foreign accounts that year, you likely must report.

Entities and trusts often have separate, parallel filing duties. Don’t assume your personal filing covers company or trust accounts.

What counts as an “offshore account”

“Offshore” is about location, not currency or nationality. If the account is maintained by a financial institution outside the U.S., it’s offshore for FBAR and likely relevant for FATCA.

Common examples:

Checking, savings, and time deposits at non-U.S. banks

Brokerage and custody accounts at foreign financial institutions

Foreign pensions and retirement accounts (e.g., UK SIPP, Canadian RRSP/TFSA, Australian superannuation) often count for reporting, even if local tax rules treat them as tax-advantaged

Foreign life insurance or annuities with cash value

Commodities or precious metal accounts held at a foreign financial institution

Online payment accounts and e-money wallets maintained by foreign institutions

Accounts where you only have signature or other authority, even if the money isn’t yours (FBAR includes these; FATCA generally doesn’t)

A U.S. branch of a foreign bank is not “offshore” for FBAR purposes; a foreign branch of a U.S. bank is.

The two core U.S. reporting regimes

FBAR (FinCEN Form 114)

Who files: U.S. persons with a financial interest in or signature authority over foreign financial accounts.

Threshold: Aggregate value of all foreign accounts exceeds $10,000 at any time during the calendar year. This is an all-or-nothing test: once you cross $10,000, every account gets reported, even a $10 student account.

What you report: Institution info, account numbers, and the maximum balance for each account during the year.

How to file: Electronically via FinCEN’s BSA E-Filing system (not with your tax return).

Deadline: April 15 with an automatic extension to October 15—no separate request needed.

Currency conversion: Use the U.S. Treasury’s year-end exchange rates.

Signature authority nuance: You must file even if you don’t own the funds—e.g., corporate signatories—though certain employees of publicly traded companies or financial institutions may qualify for exceptions.

Penalties are steep. Non-willful violations can trigger five-figure penalties per violation (indexed for inflation). Willful violations can run up to the greater of $100,000 or 50% of the account balance per year, plus potential criminal exposure. In practice, most honest errors can be resolved civilly, but do not test the system.

Practical insight: The “maximum balance” trips people up. It’s the highest end-of-day balance, not the largest intraday spike. If you lack monthly statements, a reasonable estimate backed by documentation and explanation is acceptable.

FATCA (Form 8938)

Who files: “Specified individuals” and certain domestic entities holding “specified foreign financial assets.”

Thresholds vary by filing status and residency:

Living in the U.S.: Single or MFS: >$50,000 at year-end or >$75,000 any time; MFJ: >$100,000 at year-end or >$150,000 any time.

Living abroad (qualifying under IRS definitions): Single or MFS: >$200,000 at year-end or >$300,000 any time; MFJ: >$400,000 at year-end or >$600,000 any time.

What counts: Foreign financial accounts plus other foreign financial assets not held in an account, such as foreign stocks or bonds held directly, interests in foreign partnerships or corporations, foreign trusts, and certain foreign retirement plans and insurance policies.

How to file: Attach Form 8938 to your annual income tax return (and extend it when you extend your return).

Overlap: Many assets appear on both FBAR and Form 8938, but some 8938 items (e.g., shares of a foreign company you hold directly, outside a brokerage account) don’t go on the FBAR.

Penalties start at $10,000 and can escalate with continued noncompliance. The IRS also has extended statutes of limitations if you omit international information returns. A missed 8938 often acts like a red flag that prompts deeper review of foreign income.

Other IRS forms that commonly apply

Depending on what you own, one or more of these may apply in addition to FBAR and 8938:

Form 3520: Report transactions with foreign trusts and receipt of certain large foreign gifts or inheritances. Often triggered by distributions from foreign trusts or large gifts from non-U.S. persons (typically >$100,000).

Form 3520-A: Annual return for a foreign trust with a U.S. owner (grantor). Frequently paired with 3520.

Form 5471: For U.S. shareholders, officers, or directors of certain foreign corporations (including controlled foreign corporations, or CFCs). Various categories (1–5) with different triggers; penalties are $10,000 per form per year and add up fast.

Form 8865: For interests in foreign partnerships—similar penalty structure to 5471.

Form 8858: For foreign disregarded entities and foreign branches.

Form 8621: For Passive Foreign Investment Companies (PFICs)—common with foreign mutual funds, ETFs, and some money market funds. PFIC taxation is punishing without elections (QEF or mark-to-market). Many unsuspecting expats stumble into PFIC territory via local funds.

Form 926: For reporting certain transfers of property to foreign corporations.

Schedules B, D, and E: Report interest, dividends, capital gains, rental income, and partnership income, including foreign sources. Schedule B specifically asks whether you have a foreign account and whether you’re filing an FBAR.

From experience, the nastiest surprises come from PFICs and foreign trusts. Both carry complex rules and harsh default tax treatments. If you hold either, get expert advice before filing.

Step-by-step: how to report offshore accounts

1) Inventory every foreign account and asset

Make a list of anything outside the U.S. that might be a financial account or financial asset:

Bank accounts (including joint and minor accounts)

Brokerages and investment platforms

Foreign pensions and retirement plans

Foreign life insurance or annuity policies with cash value

Online payment wallets maintained by foreign institutions

Corporate accounts where you have signature authority

Direct holdings of foreign securities outside an account

Interests in foreign entities (companies, partnerships, trusts)

Tip: Check old emails for onboarding letters, account numbers, and compliance forms (W-9/W-8BEN). People often forget small, “dormant” accounts or those closed mid-year—those still count if open at any point in the year.

2) Confirm your U.S. filing status and residency

Your Form 8938 thresholds depend on whether you live in the U.S. or qualify as living abroad. If you’re abroad, check if you meet the bona fide residence or physical presence test for the entire tax year. If married, decide between MFJ and MFS early to calculate the correct thresholds.

3) Determine maximum balances and convert currency

For each account:

Identify the highest end-of-day balance in the calendar year.

Convert using the U.S. Treasury’s year-end exchange rate. Use the same official source consistently across your filings.

Document your method—save statements and your conversion calculations. Keep a one-page “summary sheet” per account with the max balance, the date it occurred, and the exchange rate used.

Foreign pensions and life policies often list “account value” on the annual statement. If they don’t, ask the provider for the December 31 value or a letter confirming year-end value.

4) Check thresholds and identify the forms

FBAR: If combined max balances across all foreign accounts exceed $10,000 at any time, you must file and include every account—no exceptions.

Form 8938: Compare the total value of specified foreign financial assets to your threshold based on filing status and residency.

Other forms: Scan your inventory for triggers—foreign trusts (3520/3520-A), PFICs (8621), foreign entities (5471/8865/8858), property transfers (926).

Create a simple matrix (asset vs. form) so nothing falls through the cracks.

5) Gather the required data

You’ll typically need:

Institution name and address

Account numbers

Ownership type (individual, joint, signature authority)

Maximum balance and currency

For entities: ownership percentages, revenues, assets, and other financials

For PFICs: annual statements, distributions, and election history

For trusts: trust deed, statements, names of trustees, beneficiaries, grantor details

Don’t wait until March to request foreign statements. Some banks take weeks.

6) File the FBAR electronically

Use FinCEN’s BSA E-Filing portal. Input each account, verify balances, and submit. Save the confirmation. If filing for minors, note that parents or guardians sign for them.

If you have dozens of corporate signatory accounts, check whether consolidated FBAR filings or employer certifications apply in your case.

7) Prepare Form 8938 and other forms with your tax return

Attach Form 8938 to your federal income tax return (Form 1040 or 1040-NR) and extend it along with your return if needed.

Attach other international forms (5471, 8865, 8858, 8621, 3520/3520-A) as required.

Make sure Schedule B is completed and consistent with your FBAR answers.

Consistency matters. If your FBAR shows five accounts but your return indicates you don’t have any foreign accounts, the IRS computer will notice.

8) Report the income

Reporting the account isn’t enough. Include foreign interest, dividends, gains, and other income on your tax return. Use Form 1116 to claim foreign tax credits, where eligible, to avoid double taxation. If you exclude foreign earned income (Form 2555), coordinate carefully with credits since the interactions can be counterintuitive.

9) Keep records and calendar next year’s tasks

Retain FBAR-related records for at least five years; keep tax return records at least three to six years (longer if foreign reporting is involved).

Maintain a master file with account details, exchange rates used, and copies of submissions.

Put a recurring reminder on January 15 to request year-end statements and set an April 1 soft deadline to complete the FBAR, leaving cushion for corrections.

Practical examples

Example A: Multiple small accounts, big aggregate

A single filer living in the U.S. has three foreign accounts: €4,000 in Germany, £3,000 in the UK, and CAD 4,000 in Canada. Mid-year, one account peaks at €7,500. After conversion, the combined maximum exceeds $10,000. Result: FBAR is required for all three accounts. Form 8938 is likely not required, because the combined value doesn’t exceed $50,000 at year-end or $75,000 at any time. Interest income, however small, still goes on Schedule B.

Lesson: Tiny accounts add up. People miss FBAR because each balance seems insignificant viewed alone.

Example B: U.S. expat with pension and brokerage

A married couple living in Singapore holds:

A foreign brokerage with a $300,000 peak

A local pension with $120,000 year-end value

A cash-value life insurance policy worth $50,000 at year-end

They file jointly and qualify as living abroad. Their combined specified foreign financial assets exceed $600,000 at peak, so Form 8938 is required. FBAR is also required (aggregate balance >$10,000). If the brokerage contains non-U.S. mutual funds, Form 8621 may be needed for each PFIC. They report interest/dividends/gains on the return and may use foreign tax credits for Singapore tax paid.

Lesson: Thresholds are higher for those living abroad, but PFICs complicate the picture. Don’t gloss over the underlying holdings.

Example C: Business owner with a foreign subsidiary

A U.S. entrepreneur owns 60% of a foreign corporation with a corporate bank account. The company is a CFC, triggering Form 5471. The corporate account goes on the company’s FBAR (if required) and possibly on the owner’s FBAR if the owner has signature or other authority. The owner doesn’t list the company’s account on Form 8938 if 5471 already reports the entity, but the owner may have a Form 8938 filing requirement if he also holds other specified foreign financial assets.

Lesson: Entity accounts multiply filing obligations. Watch for separate FBARs for the entity and the individual.

Example D: Signature authority only

A U.S.-based executive is a signatory on a Japanese subsidiary’s bank account. She doesn’t own the funds and receives no income. She must file an FBAR to report signature authority unless an exception applies. Form 8938 is not required because FATCA focuses on assets she owns.

Lesson: Signature-only accounts are a classic FBAR trap.

Common mistakes and how to avoid them

Not aggregating balances. Always add every foreign account to test the $10,000 FBAR threshold.

Using the wrong exchange rate. Use the Treasury year-end rate for FBAR and follow IRS instructions for 8938 (in practice, using Treasury year-end rates consistently is fine).

Skipping “closed” accounts. If the account existed at any time during the year, it’s reportable that year.

Forgetting joint, minor, or spouse accounts. Joint accounts belong on both spouses’ FBARs if both are U.S. persons. Parents file for minors.

Misclassifying foreign pensions and life policies. Many are reportable for FBAR/8938 and may create income or information return filings.

Ignoring PFIC issues. Foreign mutual funds and ETFs often trigger Form 8621 and punitive tax without elections.

Assuming FATCA duplicates cover everything. Some assets (like direct holdings of foreign stock) may appear only on Form 8938, not FBAR, and vice versa for signature authority accounts.

Copying balances straight from statements in foreign currency. Convert and document. Save your calculations.

Using foreign fiscal years for U.S. forms. U.S. reporting is calendar-year based for individuals.

Foreign crypto and online platforms

Crypto is evolving. As of this writing:

FBAR: FinCEN has signaled its intention to include virtual currency accounts in FBAR rules, but final regulations have not universally mandated this yet. If your crypto is held on a foreign exchange that also provides fiat account services, it may already be reportable as a foreign financial account. Many conservative filers voluntarily include foreign-hosted exchange accounts on FBAR to avoid doubt.

FATCA (Form 8938): Virtual currency held directly is generally not considered a specified foreign financial asset unless it represents an interest in a foreign entity or a financial account. If your crypto sits in a foreign exchange account, analyze whether that account itself is a reportable foreign financial account for 8938.

Hardware wallets and self-custody: These typically are not “accounts” at a foreign financial institution.

Practical tip: Document where the account is maintained, how it functions, and whether the platform holds fiat or securities-like products. When in doubt, disclose. The compliance cost is small compared to the risk of omission.

Deadlines, extensions, and amending

FBAR: Due April 15 with an automatic extension to October 15. No separate extension form required.

Individual returns: Due April 15 for U.S. residents, with an automatic two-month extension (to June 15) for those living abroad; file Form 4868 to extend to October 15. Further extensions to December 15 are sometimes available for those abroad with a reasonable cause letter.

Amending: If you discover omissions, you can file amended returns and delinquent FBARs. Expect to pay interest on underpaid tax. Whether penalties apply depends on facts and good-faith efforts.

Consistent dates make life easier. Many clients finish the FBAR by April to surface issues early, then finalize their return by June or October.

If you missed past years: getting compliant

There are structured ways back into compliance.

Streamlined Filing Compliance Procedures (still open as of this writing): For taxpayers whose noncompliance was non-willful. U.S. residents typically file the last 3 years of returns (with Forms 8938 and other schedules), 6 years of FBARs, and pay tax and interest plus a 5% miscellaneous offshore penalty on the highest aggregate balance of unreported foreign assets. Non-U.S. residents often owe no miscellaneous penalty if they qualify.

IRS Criminal Investigation Voluntary Disclosure Practice: For potential willful situations or where there are risk factors (e.g., shell entities, false W-8BENs). It’s more onerous, but it averts criminal prosecution if accepted. Expect a significant civil penalty framework (often a 75% fraud penalty on one tax year, among others).

Delinquent international information returns: The IRS has narrowed no-penalty paths. If you try to file missing forms without paying tax owed or without a credible reasonable cause explanation, penalties are likely. If you genuinely had reasonable cause, a carefully drafted statement can still be effective.

My rule of thumb: If your omissions are small, unintentional, and you have clean records and credible explanations, Streamlined often fits. If there’s any hint of willfulness—structured secrecy, false statements, or ignored professional advice—speak with a qualified tax attorney before acting.

How foreign banks and tax authorities share information

Foreign financial institutions collect your self-certifications (W-9 if U.S., W-8BEN if not) and report under FATCA to the IRS, either directly or through their local government. CRS does similar reporting among non-U.S. countries. The U.S. is not part of CRS, but FATCA gets the IRS much of what it needs. Data matching is routine: if your bank reported a $120,000 balance in Spain and your FBAR/8938 is missing or inconsistent, the IRS will notice.

Expect more—not less—information sharing. Banks sometimes freeze or close accounts when U.S. paperwork isn’t in order.

Planning tips to simplify compliance

Consolidate where reasonable. Fewer accounts mean fewer entries and less chance of missing one.

Avoid PFICs if you can. Use U.S.-listed ETFs or individual securities in an international-friendly brokerage instead of local mutual funds.

Keep a “compliance summary” per account: opening date, account number, institution address, ownership, peak balance, and currency.

Ask banks for year-end balance letters. These make max-balance calculations easier if monthly statements are sparse.

If you’re moving abroad, choose banks and brokerages that are accustomed to U.S. clients and will provide the documentation you need.

For executives with signature authority, coordinate with your employer’s treasury or compliance team to confirm which accounts you must list and whether any exceptions apply.

For trusts and pensions, get the plan documents and a clear understanding of how the U.S. treats them. Not all foreign retirement plans are equal under U.S. rules.

Special cases

Joint accounts with a non-U.S. spouse: Each U.S. spouse must include the full account on their FBAR. For tax return reporting, allocate income according to actual ownership or local marital property rules, as applicable.

Children’s accounts: Kids have the same FBAR thresholds; parents file for them. For Form 8938, if the child doesn’t file a tax return, 8938 may not be required for the child—but the parent’s separate filing isn’t a substitute for the child’s FBAR.

Employees with corporate signatory authority: FBAR is required unless an exception applies. Keep a list from your employer and review annually for changes.

Foreign real estate: Not reportable on FBAR or 8938 if owned directly. But if held through a foreign entity, the entity may be reportable (Form 8938, 5471/8865), and rents and gains are always taxable.

Moving to the U.S.: Pre-immigration planning can reduce complexity—e.g., sell PFICs before becoming a U.S. person, restructure certain trusts, and rationalize account structures.

Frequently asked practical questions

Do I owe tax if my accounts earned no income? No income means no income tax, but the reporting forms can still be required. FBAR and 8938 are disclosure regimes; they exist even when no tax is due.

Can I avoid reporting by closing the account before year-end? No. If it existed at any point in the year and thresholds are met, it’s reportable for that year.

How is “willful” determined for FBAR penalties? It’s a facts-and-circumstances standard. Willful blindness—ignoring obvious obligations—can count. Emails, advisor notes, and onboarding forms can all become evidence.

Are there state-level offshore reporting requirements? States don’t have FBAR equivalents, but they tax worldwide income if you’re a resident. California and New York, for example, will expect you to include foreign interest, dividends, and gains on your state return.

How long should I keep records? Keep FBAR records for at least five years and federal tax records for at least six years if international items are involved. Longer is better when entities or trusts are in play.

Quick checklists

Annual offshore compliance checklist

Confirm your U.S. filing status and residency for thresholds

Update your inventory of foreign accounts and assets

Obtain year-end statements and identify max balances

Convert balances using the Treasury year-end rates

Determine FBAR requirement and prepare FinCEN Form 114

Determine if Form 8938 applies and identify other necessary forms (5471, 8865, 8858, 8621, 3520/3520-A, 926)

Report income (interest, dividends, gains) and consider foreign tax credits

Review consistency across FBAR, Schedule B, and Form 8938

File on time and save confirmations, statements, and calculations

Data to gather for each account or asset

Institution name, address, and GIIN (if applicable)

Account/contract numbers

Ownership and signatory details

Highest end-of-day balance and the date it occurred

Year-end balance and currency

Source documents: monthly/annual statements, bank letters

For entities: organizational charts, financial statements, ownership ledgers

For pensions/trusts: plan/trust documents and annual valuations

For PFICs: annual information statements and transaction history

For non-U.S. readers: a quick note on CRS

Most non-U.S. countries participate in the OECD’s CRS, which requires banks to report accounts held by foreign residents to their home countries. Your local tax return likely includes a schedule for foreign income and assets, and many countries have separate asset reporting (e.g., wealth tax returns, foreign asset statements). Penalties for missing these can be stiff, and tax authorities exchange information routinely. If you’ve held assets abroad and never reported them, check for your country’s voluntary disclosure program; many have streamlined paths similar to the U.S.

Final practical advice

Start early. The hardest part is gathering data, especially for pensions and insurance policies.

Be consistent. Numbers across FBAR, 8938, and your return should make sense together.

Don’t guess on PFICs or foreign trusts. These are specialist areas; one wrong assumption can be expensive.

If you’re out of compliance, act before the IRS contacts you. Voluntary options are far better than reactive defense.

Keep it boring. Offshore reporting done well is dull, repeatable, and paper-heavy. That’s good. Quiet, predictable filings rarely attract attention.

Reporting offshore accounts isn’t glamorous, but it’s manageable with a checklist, a calendar reminder, and the right help for tricky assets. Over the years I’ve watched clients go from anxious and disorganized to routine, on-time filers. The key is to treat this as an annual process you control—not a scramble you endure.