Foreign nationals living and working in California—particularly in cities like San Diego, Los Angeles, San Francisco, and San Jose (Silicon Valley)—are often surprised by how quickly U.S. tax obligations can apply. Whether you entered the United States on an H-1B visa, L-1 visa, O-1 visa, or another employment-based visa, it is essential to understand how U.S. tax residency rules work and what is required once they apply.
Many compliance problems arise not from intentional misconduct, but from misunderstanding when U.S. tax responsibilities begin and what must be reported. Unfortunately, the consequences of those misunderstandings can be severe.
When Do U.S. Tax and FBAR Obligations Begin?
U.S. tax obligations are not determined by citizenship alone. Foreign nationals living and working in California may be treated as U.S. tax residents under the IRS Substantial Presence Test, which looks at the number of days spent in the United States over a three-year period.
In some cases, a foreign national can become a U.S. tax resident much earlier than expected, sometimes during the first year of presence. Once classified as a U.S. person for tax purposes, worldwide income and certain foreign financial accounts become reportable to the IRS and the U.S. Treasury.
This is where many foreign nationals encounter FBAR exposure.
Understanding FBAR Requirements for Foreign Nationals
The Foreign Bank Account Report (FBAR) is required when a U.S. taxpayer has a financial interest in, or signature authority over, foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year.
Key points foreign nationals should understand:
- The $10,000 threshold applies to combined account balances
- Exceeding the threshold for even one day triggers the filing requirement
- FBAR applies to:
- Foreign bank accounts
- Investment accounts
- Certain foreign retirement and savings accounts
- FBAR is filed with FinCEN electronically, separately from an IRS or state income tax return
Failure to file an FBAR can result in significant civil penalties, interest, and, in serious cases, criminal exposure.
“I Didn’t Know” Is Not a Defense for Foreign Nationals Living and Working in California
Many foreign nationals living and working in California assume that a lack of knowledge will excuse noncompliance. Unfortunately, the IRS and U.S. courts almost always reject that argument.
The IRS frequently characterizes this defense as “willful blindness”—a legal concept that applies when an individual had the ability and obligation to understand their duties but failed to do so. Courts have repeatedly upheld substantial penalties where taxpayers claimed ignorance but had access to professional advice or sufficient warning signs.
If you are able to live or work in the United States while maintaining foreign accounts, the IRS generally expects you to understand and comply with U.S. reporting requirements.
How to Come Into FBAR Compliance in 2026
As of 2026, the IRS offers specific paths to address past failures or inaccuracies in FBAR and offshore reporting. The correct approach usually depends on whether the IRS views the conduct as non-willful or willful.
Common compliance options include:
- Streamlined Foreign Offshore Procedures
(For qualifying non-willful taxpayers living outside the U.S.) - Streamlined Domestic Offshore Procedures
(For qualifying non-willful taxpayers residing in the U.S.) - IRS Voluntary Disclosure Practice (VDP)
(For taxpayers with potential willfulness or higher risk exposure)
Choosing the wrong path can significantly increase penalties. Early analysis and careful strategy matter.
Integrated Tax, Accounting, and Legal Guidance Matters
Foreign nationals living and working in California often face overlapping tax, reporting, and legal issues—particularly when employment income, foreign assets, and residency rules intersect.
Janathan L. Allen, APC, and Allen Barron provide integrated tax, accounting, and legal services to help foreign nationals in California, and throughout the United States, to understand their obligations, evaluate FBAR exposure, and pursue the appropriate compliance strategy under current IRS rules.
Early guidance can reduce risk, preserve options, and prevent issues from escalating.
We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
