Expert Tax Advice Needed from a *General* Standpoint - Foreign Bank Accounts

Factual Questions
1

Understanding in full that tax advice received here should not be considered a professional service nor professional advice, and that I should not necessarily base any financial or tax compliance decisions on any information received here…

My question is about 1040, Schedule B, Part 3 - Foreign Accounts and Trusts.

Situation - assume I have a bank account in England that has, just this year, more than $10,000US in it.

  1. Assuming as well that this is a “net” account which means all interest automatically has tax paid on it to the UK, is all I need to do on the 1040 to declare the existence of this account?

1a) Does the answer change if it’s a US Permanent Resident filling out her form?

  1. For a simple bank account, do I need to note this interest on Line 8 and then fill out the horrifyingly complicated form 3520? What’s a “Foreign Trust” defined as - it’s not a savings/checking account, is it? The instructions say “A foreign trust is any trust other than a domestic trust.” (Gee, no shit?) I mean, this is NOT made up of money transfered into or out of the UK, it’s money entirely residing within the UK…

  2. I know that I’ll also have to file TD F 90-22.1. What is that form used for? Does filing it mean I’m pretty much going to be audited, and thus I may as well get attorneys involved at this stage?

3a) Does the answer change if it’s a US Permanent Resident filling out her form?

I’ll appreciate any solid help. This is getting a bit scary, especially that form 3520…

2

Where to start…first off, I worked for H&R Block as an editor and checker, and took just about every course for individual tax prep that they offered. However, it has been ten years at least since I worked for them. With that understood…
First, a trust is a different thing, so don’t worry about Form 3520. Feel better now?
Second, in every case I’ve encountered and read about, a permanent resident of the US and a US citizen are treated as the same thing.
What this is is ‘passive income from a foreign source’. You do have to report the income on your 1040, but you can take a deduction on the taxes paid, assuming you itemize deductions. These subjects are covered in Tax Topic 856, and in Publication 514 This would be done using Form 1116 (instructionshere). Warning, the two preceding links are to PDFs.
Oh, yes - as far as the odds of audit…dunno. Better that than the $10,000 fine for not filing the TD F 90-22.1, however…

3

Well, that helps out some, Galen.

Sadly, form 1116 has a Paperwork Reduction Act note that it takes about 7 freaking hours to fill it out and take care of all the details.

All over a simple checking account?