How do I calculate taxable foreign bank income for IRS tax reporting and the highest bank balance for FBAR (FINCEN 114) reporting? The accounts are held in foreign currency and the interest income is non-taxable in the foreign country.

For example, a foreign bank savings account was opened with balance 70K out of which 60K is later used to open a foreign bank CD with tenure > 365 days. Now balance in savings is 10K. Both savings and CD are opened in 2013.
Now, Say,

the paid interest on savings account is x.
the paid interest on CD is y.
the accrued interest on CD is z.


If 1099s are not mailed, is the taxable income going to be x+y+z ?

Similarly, what needs to be reported on FBAR - should it be :


(60K+y+z) + (10K+x) OR
(60K+y) + (10K+x) OR
70K (highest balance in savings account BEFORE CD got opened)OR
60K + highest balance in savings account AFTER CD got opened OR
(60K+y) + highest balance in savings account AFTER CD got opened OR
(60K+y+z) + highest balance in savings account AFTER CD got opened OR
the highest (maximum) among bullets 1,2, 3, 4, 5 and 6 above.

The taxable income, reported on Schedule B, IS X, Y and Z.

As for the FBAR, #6 is your answer.

The FBAR answer is, I think, incorrect.

You are required to report the maximum in each account during the year. That would be:

Savings $70k + x

CD $60k +y+z

No, because that would give the impression that the OP had $130K when in fact he has only $70K.

Yes it does give that impression, but the instructions say, "Step 1. Determine the maximum value of each account (in the currency of that account) during the calendar year being reported....".

So if you have $6,000 in one foreign account, then move $5,000 of it to another foreign account, the aggregate maximum values of both accounts is $11,000 and you have to complete an FBAR (because the total exceeds $10,000). You have only ever had $6,000 in total. It may be crazy but that is what the FBAR instructions require.

The instructions are NOT clear, which is why I called the FBAR Hotline and asked.

They want the highest value IN AGGREGATE, which that point when all accounts, added together on a specific date, is at its highest point.

I fill out the FBAR the way that MidAtlantic does. I see no ambiguity.

In 95% of all FBAR submissions, the method of determining highest value really does not matter, because the IRS just marks the requirement completed and goes on to the next case. They do NOT focus on any amounts under $100,000 In my opinion.