Hi

I have a foreign account. In 2008 I lost my job and I had to borrow money from my friend to pay installments on my retirement home in the foreign country. Since the loan was payable in foreign country my friend wired the money to my foreign back account using which I paid my home. I need to return the loan back to him over a period next 10-12 years. The loan was around 80000 USD.
Will IRS be treating this loan as taxable income? I have a promisary note of the loan and the lender has another copy. Since the FBAR penalties are stiff I am really concerned.

Please Advice and help. Thanks for reading this post and taking time to answer it.

--AV

Anyone on this question please?

Thanks

If it is a loan, why should I treat it as income.

If your friend is not a US citizen or resident, he can even give you gift without any US tax implications.

If you earn any interest in your bank account, do report it on your US tax return.

The FBAR requirements pertain to reporting all foreign accounts if the maximum total value of accounts > $10K . If your foreign account surpassed 10K, then you must report it. The source of the funds (whether it's a loan, a gift, or your own money) is irrelevant. This is very important.

Also, you must report any interest earned in this account on your income tax return. If the account was < 10K, there was no FBAR fileing requirement. If the account was > 10K but there was no interest earned (not even a penny or the equivalent), then you're OK, and you can just file FBARs. Otherwise, you could have a problem if there are delinquent FBARs for prior years (you still have time for 2010).


There are a some other complications if you took a personal loan (but those are smaller). You can check IRS rules regarding personal loans -- if they are below market interest rates, then they might be considered income.

I think the maximum interest is 1500 USD. Correct me if I am wrong. Thanks.

The FBAR filing requirement holds if you have a foreign financial account over $10K. If your foreign bank account had more than that when your friend wired to it, then you need to report that sum. It will not be counted as income, but you need to report it nonetheless, and report any income earned by that account. The FBAR filing is important.

It does not matter if you earned less than 1500 in interest and dividends from all sources (including US sources) that year. The FBAR filing requirement still holds. On schedule B, you can avoid filing out the section that asks about foreign accounts if you have less than $1500 in income all told, but the FBAR must still be filed. That is an independent requirement.