Foreign Investment Accounts & FBAR: (New) Update

Are Foreign Brokerage Accounts Reported for US Tax and FBAR?

Foreign Investment Accounts & FBAR

 When it comes to the FBAR and US Persons, one of the most complicated aspects of reporting foreign bank and financial accounts is just trying to determine which accounts are included on the form. For reference, the FBAR is a FinCEN form, but it is enforced by the IRS. While most people are aware that FBAR filing includes bank accounts — that is just the tip of the iceberg. FBAR investment account reporting includes a variety of different types of holdings overseas, including foreign pension, overseas life insurance, stock accounts, mutual fund and other fund accounts, and more.  Let’s take a quick review of some of the more common types of foreign investment accounts that are reported on the FBAR:

FBAR Baseline Filing Rule

If you have foreign bank and/or financial accounts, and the aggregate value of all of your foreign accounts exceeds more than $10,000 on any given day of the year.

Foreign Mutual Funds

Foreign mutual funds are a favorite enforcement priority of the IRS. This is primarily due to the fact that mutual funds (and other investment funds) fall under the Form 8621 PFIC reporting requirements as well — which can be very complicated.

Reportable Funds

• • • Mutual Funds

    • ETF

    • Investment Funds

    • Equity Funds

    • SICAV

Mutual Fund vs. Shares of Stock

Shares of stock are not reported UNLESS they are held in an account. For example, if you personally own a share certificate of stock, such as a share of Apple — that individual share (or shares) does not have to be reported on the FBAR because it is not an account. But, if the share of stock is in an investment, trading, holding or other accounts then it is reportable.

Trading Account

If you have a trading account such as a stock account that holds various different types of investments, the reported value is the account number along with the total value of the account.

Retirement/Pension Accounts

Foreign pension accounts are reportable on the FBAR. Typically, in countries with a 3, 4 or 5-pillar system, pillar one is not reportable (OASI) — social security equivalent.

The other pillars are (generally) reportable.

Three (3) common examples of reporting:

• • • Australian Superannuation Fund

    • CPF (Central Provident Fund)

    • EPF (Employee Provident Fund)

As with mutual funds, whether or not there is an immediate tax liability on the retirement will be determined by the particular type of retirement, the particular country issue, and whether there is a tax treaty or other agreement with the country at issue. But, please keep in mind the reporting is not the same as tax.  In other words, whether or not you are receiving income from the retirement plan is immaterial to the reporting requirements. There may be tax implications if you are receiving income and/or if the fund is ‘accruing’ income and it is located in a non-treaty country.

Insurance Policies

Even foreign life insurance policies are considered to be accounts. Therefore, if you are the owner of a foreign life insurance policy and the life insurance policy has a surrender value, then it typically has to be reported annually on the FBAR. A surrender value usually just means if you want to, you can sell the insurance policy or redeem it prior to the policy reaching maturity.  For example, if you own a $100,000 life insurance policy that requires 30 years of premiums before it matures, you may be able to surrender the policy earlier for a much lower value.

Since the policy has not reached maturity, it has not reached its matured value. As a result, you generally do not report the matured value, but rather the surrender value (aka the cash equivalent if you were to sell it or redeem it at Fair Market Value at the time you are reporting).

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.