FBAR and Form 5472: two filings with no tax, and steep penalties

If you are a US taxpayer and during the year had authority over foreign financial accounts whose combined value exceeded $10,000 at any point, you have to report them.

Read that sentence carefully, because every word is a trap.

Combined value, not per account. Three accounts with $4,000 each trigger the requirement.

At any point, not at year end. If you briefly had 12,000 in the account in March because you sold a car, you have to report, even if the balance sat at 500 for the rest of the year.

Authority, not ownership. Signing authority over your parents' account or your employer's business account also triggers the requirement, even though not a cent of it belongs to you.

Financial accounts, not just bank accounts. Brokerage accounts, certain insurance policies with a cash surrender value and accounts with payment providers all count.

If you hold a green card and still keep a checking account, a savings account, a brokerage account and a life insurance policy back home in Europe, you have almost certainly crossed the threshold before you've even thought about it.

The penalties aren't based on a tax, because there isn't one. They are based on the violation itself and, in willful cases, on the account balance.

For non-willful failures there is a fixed amount per violation and per year. For willful ones there is an amount that can reach a substantial share of the account balance.

The difference between the two categories is the single most important point of the whole topic, and it hinges on how you present your own case. That is why the worst possible response is to quietly add a missing report in the next round without sorting out the prior years. In US practice this is called a quiet disclosure, and it is considered risky behavior.

This requirement applies not to individuals but to companies, and it is the most common serious mistake we see.

If a US company is at least 25 percent owned by a foreign person, it has to report every year which transactions took place between it and that owner. And "transaction" is a broad term: contributions, distributions, loans in either direction, services, rent, royalties.

For several years now this has expressly applied to a foreigner's single-member LLC too, which is exactly the structure marketed online as the hassle-free solution.

This company is tax-transparent, in many cases it pays no US tax, and it still has to file a return with this form every single year. Even if it's dormant. Even if nothing happened. The report then simply says: nothing happened. How to set up and run this structure properly is the core topic of our sister site zerotax.llc.

It starts at $25,000. Per company, per year, per form. And it can be imposed again if you don't file after being asked to.

For a company that has never made a sale, that is more than any business idea is worth, and it's why, in every first consultation about an existing LLC, this is the very first filing we ask about.

The good news: in many cases it can be fixed if you come forward on your own and explain the circumstances credibly. The bad news: there is no statute of limitations as long as the return hasn't been filed. The clock only starts running once you file.

Besides the account report there is a second, similar requirement that is part of the tax return and covers foreign financial assets. It has different thresholds, a different scope and goes to a different office.

Many people believe that filing one of the two takes care of the other. It doesn't. Their content overlaps heavily, but legally they exist side by side.

So if you have foreign accounts, check both. And if you hold a foreign shareholding, also check whether further reporting duties follow from it, because US law has separate forms with separate penalties for interests in foreign corporations and for certain foreign funds.

It helps to know the reason, because it explains the harshness.

The United States taxes based on citizenship and residence, worldwide. A system like that only works if the government knows what sits abroad. But it has no access to foreign banks.

So it shifts the job of gathering information onto the taxpayer and makes breaching that duty more expensive than the tax itself. From the system's point of view, that's consistent. From the point of view of a European with a savings account at the local bank, it looks absurd.

Both are true at once, and only one of them gets you anywhere.

A German family moves to Florida on a green card. The husband works there, the wife keeps renting out their condo in Hamburg. Both have kept their German accounts, plus a brokerage account and an endowment life insurance policy.

A local tax preparer does their US return. He's good, he's affordable, and he has never had a client with ties to Germany. He doesn't ask about foreign accounts, because his clients don't have any.

Three years later the family wants to naturalize. While preparing, it turns out the account report was never filed, the life insurance is treated differently in the US than either of them thought, and the rental income was declared but allocated incorrectly.

None of it was intentional. All of it can be fixed. And all of it could have been avoided if someone had asked in the first year what was still sitting in Germany.

Hence the simplest rule of this whole topic: if you have ties to two countries, you need an advisor who knows both. Not two who each know one.

One point that regularly catches Europeans off guard and ties in with reporting duties: US tax law treats most European investment funds as passive foreign investment companies.

What that means is quick to say and hard to believe. The income is taxed under a special regime that can end up at a very high rate plus interest. On top of that comes a separate form per fund, per year.

So if you have a European ETF savings plan and are moving to the United States, talk about it before you move. Afterwards, the cheap solution, selling the holdings before the move, is no longer available.

That is one of the reasons tax planning before you leave is worth so much. The place to start is US tax planning for entrepreneurs.

This case deserves a closer look because it's so common. A great many Europeans hold a US LLC that does nothing. A project that never got off the ground. A shop that closed.

A dormant company is perfectly fine legally. What doesn't exist is a dormant reporting duty. The state wants its annual report, the IRS wants a return, and the form on transactions with the foreign owner is due as well, even if the answer is that there were none.

If you no longer need such a company, dissolve it properly. That costs money once and ends the obligations. If you want to keep it, you have to maintain it, which takes about two hours a year.

What you should never do is let it drift and hope for the best. In this system there is no statute of limitations for returns that were never filed, and the clock only starts once you file.

And one more tip that saves money every year: the foreign account report gets an automatic extension to mid-October, no request needed. So if you don't make it in April, you have another six months. That extension only covers this one report, though, not the return and not the owner form.

Put the two together and you see the pattern of this area of law: the government gives you time if you come forward, and it shows no mercy if you stay silent.

First: in the United States you can lose a lot of money without owing any tax at all, simply through missing forms. Most European countries have no such category, so it is systematically underestimated.

Second: the thresholds are lower than anyone expects. $10,000 across all accounts combined, at any point during the year, including other people's accounts you have signing authority over.

Third: almost all of it can be fixed if you come forward on your own, before the IRS asks. After that, the inexpensive routes close.

If you are a US taxpayer: List every foreign account you held last year, with its highest balance. Include the ones you only have signature authority over.

If you own a US company: Check that a return with the owner disclosure form was filed for every year since formation. That includes the years with no business.

If there is a gap: Talk to someone before you file anything. The order and the way it is presented can change the outcome by orders of magnitude.

The way back into compliance is explained in Streamlined Filing. What ongoing support covers is set out in Tax Support for Foreign Companies.

And if you are not sure whether this applies to you at all, talk to Mount Bonnell Advisors in Austin, Texas. Getting that question answered in twenty minutes is the cheapest insurance you will find in this area of law.

Update: What happens next is covered in: On Thursday, October 15, the last extension for your 2025 US tax return runs out.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.