Taxpayer asks:

My daughter went to Germany for a college semester and had a bank account there to pay her rent and living expenses. She never had $10,000 or over in it at any time and the account was closed before she came home.

I know she doesn’t have to file an FBAR, but I have a question about her tax return. We claim her as a dependent, but she usually files a 1040ez and gets back all her taxes paid each year on the little bit of money she earns working part time while attending college.

This year, Turbo tax is telling her that she can’t file a 1040ez because of the bank account. If she doesn’t have to fill out a FBAR why can’t she file a 1040ez? She is getting such a small amount back, I don’t see paying the extra $72 they are asking for to file a 1040. Is the 1040 really necessary?

Thanks!

Taxgirl says:

I’m afraid I don’t have good news for you.

There are three kinds of federal income tax forms for individuals: 1040, 1040A, and 1040EZ. The form 1040EZ is the most simple tax form – but that means there are drawbacks. Specifically, you can’t file a form 1040EZ when you also have to file certain schedules, including a Schedule B.

Even though your daughter might not have had any interest or dividends to report on a Schedule B, the form is required if:

You had a financial interest in, or signature authority over, a financial account in a foreign country or you received a distribution from, or were a grantor of, or transferor to, a foreign trust.

It’s super important not to just skip over Schedule B because the feds are continuing to give offshore accounts increased scrutiny. And while I know your daughter isn’t the poster child for offshore account tax evasion, the rules are pretty draconian and you don’t want to raise any red flags with the Internal Revenue Service (IRS) or accidentally fall into a compliance hole.

(More on FBAR and FATCA here.)

That said, I don’t know the pricing for TurboTax but if it’s less expensive, your daughter should qualify to file a form 1040A (downloads as a pdf). Maybe saves you a few bucks? If not, I’m betting your daughter had an amazing time in Germany! Totally worth the $72. Viel Glück!

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

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Kelly Erb is a tax attorney, tax writer and podcaster.

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