Are Foreign Bank Accounts Legal for US Citizens?

Yes, foreign bank accounts are legal for U.S. citizens, but they come with strict reporting and tax obligations. Many people open foreign bank accounts for various reasons, such as diversifying assets, conducting international business, or simply holding foreign currency. However, the U.S. government requires that all U.S. citizens and residents report foreign bank accounts to ensure compliance with tax laws.

Under the Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act (BSA), U.S. citizens with foreign accounts must disclose these accounts to the IRS and the U.S. Department of the Treasury if their total value exceeds certain thresholds. This involves two main reporting requirements:

1. FBAR (Foreign Bank Account Report): Any U.S. citizen with foreign accounts that have a combined value of over $10,000 at any point during the year must file an FBAR using FinCEN Form 114. This form is filed annually with the Treasury Department.
2. FATCA Reporting: Under FATCA, U.S. citizens with foreign financial assets that exceed specific thresholds may also need to file IRS Form 8938. This requirement varies based on filing status and residency, with different thresholds for individuals living in the U.S. and those living abroad.

Failing to comply with these reporting requirements can result in severe penalties, including fines and possible criminal charges.

Opening a Foreign Bank Account for Asset Protection

Opening a foreign bank account is a useful tool for asset protection planning. Most creditors and their attorneys will not expend the resources required to garnish a foreign bank account.

However, if there is a lot of money in the foreign bank account and the judgment is large, the creditor may attempt to go after it. In these situations, the accounts are better situated in an offshore trust.

About the Author

Gideon Alper is an attorney who specializes in asset protection planning. He graduated with honors from Emory University Law School and has been practicing law for almost 15 years.

Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.