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A person who immigrated to the US 10 years ago still has two bank accounts abroad that she did not close. No money has been added to the accounts since then, there was no activity and no interest generated, i.e. there was no income.

She has not reported the foreign accounts on a FBAR form nor on her tax returns, although it represents more than $10,000 total; she would like to regularize her situation.

The specific question is:

  • will these assets be considered as income by the IRS, even though the account money predates her becoming a US person?
  • Even if there was no income, is it possible that the person still had to pay other taxes related to foreign assets (i.e. does the IRS tax assets, not only income?)
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  • Assets aren't taxed in general, though income from capital gains is taxed. I don't know whether gains or losses due to foreign exchange rates would be relevant here. Someone surely knows at Personal Finance & Money, which is a better venue for this question.
    – phoog
    Mar 9, 2021 at 16:55
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    I’m voting to close this question because it's much better asked at money.stackexchange.com Mar 9, 2021 at 18:03
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    This is a question about US tax laws, and is prfectly on-topic here, althoguh it could surely be asked on Money.SE Mar 9, 2021 at 19:03
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    @RayButterworth last I checked it is not necessary to submit a balance sheet as part of the immigration process. The misrepresentation here is a tax matter, not an immigration matter. Furthermore, a bunch of money in an account is not income, so there is no reason to declare it as such. As ohwilleke's answer shows, solving this problem is more complicated than simply declaring (falsely, i might add) that the money is income.
    – phoog
    Mar 10, 2021 at 12:40
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    I recommend that, altho this is tax versus immigration, the person should contact an immigration attorney, because if there were an omission on an official document, that could affect immigration status even if the person were naturalized afterwards.
    – Tiger Guy
    Mar 10, 2021 at 19:24

1 Answer 1

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will these assets be considered as income by the IRS, even though the account money predates her becoming a US person?

No.

Even if there was no income, is it possible that the person still had to pay other taxes related to foreign assets (i.e. does the IRS tax assets, not only income?

There are fines related to failure to disclose foreign bank accounts which are quite draconian. The fines are high out of concerns about money laundering and terrorism funding, without a legislative, IRS or judicial recognition that these issues can arise in far less nefarious circumstances.

But the fines are not truly taxes. They are fines for failure to file an information tax return or make a disclosure that is required by statute.

If the disclosure had been made in a timely manner, there would have been no actual tax due and it is not illegal to have the accounts, so long as they are disclosed.

Resolving an irregularity of this kind is quite tricky, can go very badly if done incorrectly (e.g. hundreds of thousands of dollars of civil tax fines or worse and possible impairment of immigration status), and calls for specialist international tax administration counsel.

I've encountered a case like this in my own practice and referred it out to specialist counsel rather than handling myself, even though I regularly handle less demanding international tax questions in my practice. This is a "brain surgery"/"rocket science" class difficulty problem as far as lawyer expertise requirements are concerned.

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  • Thank you for your answer. I did find on irs.gov: "The IRS won’t impose a penalty for failure to file delinquent FBARs if you reported your foreign income properly and paid any associated taxes on your U.S. tax return and it hasn’t already contacted you about an audit or request for delinquent returns for the years covered by the delinquent FBARs." (taxpayeradvocate.irs.gov/get-help/international/…). Are these "penalites" the same as the ones you mentioned here ? Can this statement from the IRS be trusted, for her to step forward?
    – Harvey
    Mar 13, 2021 at 18:25
  • @Harvey I would talk to a pro first.
    – ohwilleke
    Mar 16, 2021 at 1:45

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