Foreign Money Tax Filter
April 13, 2008 5:06 PM Subscribe
Foreign Money Tax Filter: This is likely a silly question, but please humor me. Money sat in an interest-friendly account overseas for 20 years, was finally all withdrawn this year....
An older relative deposted a sum of money in an British bank many, many years ago. The money sat there and grew. 20 years later -- this year -- the relative had the money (principal + interest, and closed the account) sent over to the US and it was converted into dollars ($xx,xxx).
How do they claim this on their taxes? The sum total of it as interest income and just state that it's from a foreign bank? The money was earning interest overseas through out the years, but relative never claimed it on prior tax forms-- will this be a big problem for the IRS? Relative wants to just claim everything ($xx,xxx) on this year's tax form and pay all the tax on this interest income now.
Does this make sense? Apologies if there is an obvious answer. And I know you are not my tax accountant/lawyer!
An older relative deposted a sum of money in an British bank many, many years ago. The money sat there and grew. 20 years later -- this year -- the relative had the money (principal + interest, and closed the account) sent over to the US and it was converted into dollars ($xx,xxx).
How do they claim this on their taxes? The sum total of it as interest income and just state that it's from a foreign bank? The money was earning interest overseas through out the years, but relative never claimed it on prior tax forms-- will this be a big problem for the IRS? Relative wants to just claim everything ($xx,xxx) on this year's tax form and pay all the tax on this interest income now.
Does this make sense? Apologies if there is an obvious answer. And I know you are not my tax accountant/lawyer!
They should have declared it in previous years. You're probably going to have to have an accountant straighten this out.
posted by oaf at 8:10 PM on April 13, 2008
posted by oaf at 8:10 PM on April 13, 2008
Another partial answer: there is a difference between interest that is earned, interest that is capitalized and interest that is paid, not to mention OID (original issue discount) certificates. I am not an accountant but I gather that tax treatment can depend on whether the interest was actually paid (for instance, a certificate of deposit may earn interest for a long time but not pay until maturity) or whether it was just earned (computed, usually per diem) or capitalized (aggregated back into the balance). Not to mention that you're talking about a multinational situation.
So I would agree that an accountant knowledgeable in such things needs to be consulted.
posted by forthright at 8:53 PM on April 13, 2008
So I would agree that an accountant knowledgeable in such things needs to be consulted.
posted by forthright at 8:53 PM on April 13, 2008
For me at least, this shows up on the 1040 Schedule B part III, "Foreign Accounts and Trusts", where I get to check "No" and ignore the rest of the instructions. But if the account is worth more than $10,000, it looks like you need to file form TD F 90-22.1.
Seems to me that seeing an accountant would be a good idea if for no other reason than to figure out what to do about not having reported the interest income in previous years.
posted by hattifattener at 10:09 PM on April 13, 2008
Seems to me that seeing an accountant would be a good idea if for no other reason than to figure out what to do about not having reported the interest income in previous years.
posted by hattifattener at 10:09 PM on April 13, 2008
Response by poster: Thanks everyone for the helpful advice and links. I finally got through to the IRS help line today (I know, I know, we shouldn't have waited so last-minute to file). The gentleman on the phone said that a form should have been filed back when the relative came to the US, but there was no need to file the form now since the relative took out all the money last year and closed the account.
The IRS person also said that the money did not have to be declared, as it was wired from a British bank to the American bank; and the US Treasury Reserve was notified of this transfer since they had to do the conversion. He said if the money had been brought over from England to the US in an envelope, etc, then we'd have to pay taxes.
We'll follow up with an accountant in the next few days, but for the initial filing for tomorrow; I think relative just won't declare/or pay taxes on it.
posted by paperlanterns at 9:41 AM on April 14, 2008
The IRS person also said that the money did not have to be declared, as it was wired from a British bank to the American bank; and the US Treasury Reserve was notified of this transfer since they had to do the conversion. He said if the money had been brought over from England to the US in an envelope, etc, then we'd have to pay taxes.
We'll follow up with an accountant in the next few days, but for the initial filing for tomorrow; I think relative just won't declare/or pay taxes on it.
posted by paperlanterns at 9:41 AM on April 14, 2008
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posted by snookums at 5:23 PM on April 13, 2008