FBAR Reporting for Foreign Annuity Policies, Foreign Life Insurance Policies and Foreign Trusts
by Asher Rubinstein, Esq.
Recently, U.S. Treasury Department regulations regarding Form TD 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) were changed. FBAR filing now applies to foreign annuity policies and foreign life insurance policies that are owned by U.S. taxpayers, and to some beneficiaries, along with U.S. grantors, of foreign trusts. If you are subject to the FBAR filing requirement, the 2010 FBAR is due by June 30, 2011.
The FBAR is required to be filed by a U.S. person who has a financial interest in, or signature or other authority over, any foreign financial account (including bank, securities or other types of financial accounts) in a foreign country, if the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year.
Foreign Annuity Policies
Recently promulgated regulations extend the FBAR requirement to foreign annuity policies that have a cash value and are owned by U.S. persons. Under the new regulations, such annuity policies are considered a “foreign financial account”, reportable via the FBAR by the policy owner. Such annuities are reportable even if they are deferred annuities and there are no present annuity payments.
Foreign Life Insurance
A foreign life insurance policy is now reportable as a “foreign financial account” if the insurance policy is owned by a U.S. person and has a cash value. The reporting requirement applies to the policy owner, if he/she is a U.S. person. It does not apply if the policy is owned by a foreign trust rather than a U.S. client. (Note, however, that a client who is a beneficiary or grantor of a foreign trust may still be subject to the FBAR, see below.)
U.S. taxpayers who are grantors (also known as settlors) of foreign trusts are deemed to be the owners of all trust assets for tax purposes. Thus, the FBAR filing requirement applies to such grantors, whether or not they actually control trust assets and whether or not they receive distributions from the trust.
Recently promulgated regulations extend the FBAR requirement to some U.S. beneficiaries of foreign trusts, such as foreign insurance trusts. The new regulations apply to U.S. beneficiaries of a foreign trust who have a reportable financial interest in the trust. A U.S. person has a reportable financial interest if the U.S. person had more than a fifty percent (50%) present beneficial interest in a trust’s assets or if the U.S. person received more than fifty percent of the current income of the trust. The beneficial interest in the assets of the trust must be a “present” beneficial interest for the FBAR to apply. A beneficiary of a purely discretionary trust, i.e., where trust distributions are made solely in the discretion of a trustee does not have a “present” interest. However, with respect to the trust income, a beneficiary who receives more than fifty percent of trust’s “current” (i.e., annual) income has a financial interest that is reportable on the FBAR.
Under prior FBAR regulations, there was ambiguity as to whether a discretionary trust beneficiary was subject to the FBAR. Beneficiaries of a foreign discretionary trust may only receive distributions at the discretion of the foreign trustee. The new rules clarify that only a present beneficial interest gives rise to the FBAR and only beneficiaries who receive more than fifty percent of a trust’s current income are subject to the FBAR.
Foreign trusts also give rise to filing IRS Forms 3520 and 3520-A. Please see our memorandum, IRS Reporting Requirements for Foreign Trusts.
Additional Important Points
- Even if the annuity policy or insurance policy was terminated, or a trust account was closed, during 2010, if it existed at any point during 2010, an FBAR is required
- The June 30, 2011 deadline is the deadline for receipt of the FBAR by the Treasury Department (unlike IRS Forms which must be postmarked by, e.g., April 15).
- Even if you have an extension for filing your tax returns, the 2010 FBAR is still due by June 30, 2011. There are no extensions for the FBAR deadline.
- A new FBAR form was issued in March. Please use the most recent version, which is available here.
- Original signed FBARs should be sent to:
Department of the Treasury
Post Office Box 32621
Detroit, Michigan 48232-0621
It is crucial to preserve the integrity of your offshore planning and be tax compliant.
Looking ahead, the recently enacted Foreign Account Tax Compliance Act (FATCA) will apply additional IRS reporting requirements, beginning in 2013.
Please share this information with your accountant.
Please contact us with any questions.