WHEN IT COMES TO

the corporate and investing worlds, globalization has made the borderlines that separate nations increasingly blurry. Unfortunately, Uncle Sam doesn't have such a globally open mindset. To the government, the boundaries are quite distinct.

If you work abroad for part of the year, or earn income from investments overseas, the Internal Revenue Service expects to see that income on your tax return. Typically, there are four sources of income the IRS is interested in: salary and bonuses, interest-bearing bank accounts, investment portfolios and real estate.

The bad news is that you're most likely going to be subject to taxes both from the country you're living in and the U.S. The good news is that rather than getting double-taxed, the IRS offers some relief including credits and exclusions. If you have assets abroad or spent time working overseas last year, here's what you'll need to do this tax season.

Americans With Assets Abroad

As of 2006, Americans had more than $1 trillion in assets offshore, according to the U.S. Senate Permanent Subcommittee on Investigations, which tracks the movement of U.S. money abroad. That number is growing, says Carol-Ann Simon, a partner at BDO Seidman. After all, the slowing economy here at home has many U.S. investors looking beyond our shores for growth opportunities, especially in emerging markets like China and India.

Those who decide to pass on declaring their foreign assets may be in for an unpleasant surprise. While the IRS doesn't have a formal system to track the income received abroad, it may question income that's being moved around from one account or investment to another. The ramifications can be financially devastating. For example, if the IRS finds out that you transferred money from a foreign-based bank account into a U.S.-based account without filing the proper tax forms, they could potentially fine you anywhere from $10,000 to $100,000 or up to 50% of your balance, says Brittney Saks, a partner in the Private Company Services Group of PricewaterhouseCoopers.

To avoid any snafus with the IRS, here's how you should report your income if you own any of the following overseas assets.

1) Bank Accounts

If you have interest-bearing personal or business accounts with total assets of less than $10,000, you'll need to include those assets on Schedule B of your

. Should you have more than $10,000 in overseas bank accounts, then you'll need to file a form

in addition to the Schedule B. On the TD F 90-22.1 form, you'll need to include your account numbers and balances, as well as the country and financial institutions that your accounts are located in.

Unlike banks in the U.S., foreign banks don't send 1099 forms reporting the amount of interest an account holder's account gained in the past year. Instead, you'll need to reconstruct that interest on your own. One quick way is to add up all of the interest that accumulated on your monthly statements for 2007 and to include that income on your return, says Saks. Just don't forget to convert everything to U.S. dollars.

2) Investment Portfolios

Today most investors have some international exposure in their portfolios. Whether you set up your investment portfolio at a brokerage firm here in the U.S. or abroad, the concern come tax season is the same: Your portfolio's gains may be taxed by the U.S. and the country that it has international exposure to.

In order to avoid being taxed twice, you may claim a foreign tax credit. How it works is that the IRS will calculate the tax on your foreign-sourced income. If the foreign tax rate is higher than the U.S. rate, there will be no U.S. tax on the foreign income. If the foreign tax rate is lower than the U.S. rate, the IRS will tax you on the difference between the two rates. To claim this credit, complete Form 1116 and attach it to your U.S. tax return.

Vacation Home

After vacationing on a sun-soaked island, you decide you absolutely must purchase a vacation home there. But have you thought about the tax implications?

If you purchase a property purely for personal reasons meaning you're not renting it out or deriving any income from it then you're not likely to incur much of a tax hit in the U.S. In fact, your real estate taxes may even be deductible. If you own one residence in the U.S. and this is a second residence abroad, you may be able to deduct its mortgage interest, assuming that the mortgage balance between your primary and secondary residence doesn't surpass $1 million.

But keep in mind that as a nonresident owning real estate in another nation you may get hit with that country's foreigner's tax. In addition, you could face steep real estate taxes should you decide to sell the property.

Regardless, make sure to review the laws in the country you're considering buying property in and find out as much as you can about any unforeseen taxes and legal issues, Saks says.

Americans Temporarily Abroad

But the only way to qualify for these exemptions is if you limit your time abroad to six months or less, you haven't become an official employee of a company office in the foreign country, and the income you receive continues to come from the same American source.

If your American employer sends you abroad, you'll have the least tax complications. That's because about 85% of American companies use a "tax equalization policy" for the employees whom they send abroad, says Simon. Thanks to this policy, American employees won't pay more or less in taxes than if they were in the U.S. You can also be exempt from paying Social Security taxes of a foreign country if your employer applies for a certificate of coverage, which can be applied for at the Social Security Administration site.