Where is the question?
Schedule B Part III of Form 1040 asks:
"At any time during [tax year], did you have a financial interest in or signature authority over a financial account located in a foreign country?"
"If 'Yes,' are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?"
"During [tax year], did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust?"
Two simple yes/no questions. Answer locks in your FBAR position.
When must I answer YES?
First question: Yes, if at any time you had any financial interest in or signature authority over a foreign account. Even one account with $100 → YES.
Second question: Yes, if the aggregate foreign balance exceeded $10,000 at any time.
Why does the answer matter so much?
If YES, you're affirming FBAR is required. If you didn't file FBAR, the IRS knows from your own statement.
If NO when YES was correct, you've made a misstatement under penalties of perjury. Shifts non-disclosure from "negligence" (non-willful) toward "deliberate" (willful) — FBAR penalty regime is brutal for willfulness.
Streamlined Procedure, non-willful certification becomes harder if you said NO on Schedule B in prior years.
Schedule B triggers FBAR/8938
The Schedule B question is the bridge between Form 1040 and FBAR/8938 disclosure. Saying YES should be matched by:
- Filing FBAR for that year
- Filing Form 8938 if thresholds met
- Reporting income from those accounts (interest, dividends, gains)
If any are missing, IRS sees a self-disclosed gap.
Foreign trust question
If you received a distribution from a foreign trust OR are grantor/transferor, answer YES. Triggers Form 3520 / 3520-A.
For NRIs:
- HUF (Hindu Undivided Family) often treated as a foreign trust
- Indian endowment policies may be foreign trusts
- Indian charitable trusts where you have an interest
Common Schedule B mistakes for NRIs
- Answering NO out of habit when should be YES (most common)
- Inconsistency: YES but not filing FBAR
- Missing trust question (HUF distributions)
- Treating signature-authority-only accounts (no financial interest) as NO
- Not filing Schedule B at all if no interest/dividend income — but foreign account question still applies
When is Schedule B not required?
Schedule B required if interest or dividend > $1,500 OR any listed conditions (including foreign accounts). For US persons with foreign accounts, even if no interest, Schedule B Part III applies.
Practical advice
- Always answer Part III accurately — this is your sworn statement
- Match YES to FBAR filing — no gaps
- Disclose foreign trust interests , including HUF distributions
- Don't play with the answer to avoid FBAR — willfulness is much worse than late disclosure
What if I said NO in past years?
If prior Schedule B says NO and FBAR was actually required, IRS sees a misstatement. One reason past non-compliance escalates penalties.
Solution: Streamlined Procedure with honest non-willful certification. Acknowledge in Form 14653 that you understood the question but answered incorrectly due to a misunderstanding.
IRS typically accepts non-willful narratives for NRIs because rules are objectively complex.
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.