FBAR Reporting for Foreign Annuities, Life Insurance and Trusts

We remind readers that FinCEN Form 114 (formerly TD 90-22.1), the Report of Foreign Bank and Financial Accounts (the “FBAR”), for calendar year 2013, is due by June 30, 2014.  The FBAR must be filed electronically.

As we advised previously, in 2011, the U.S. Treasury Department issued revised regulations regarding the FBAR.  The FBAR filing now applies to foreign annuity policies and foreign life insurance policies that are owned by U.S. taxpayers, and to some beneficiaries of foreign trusts.  If you are subject to the FBAR filing requirement, the 2013 FBAR is due by June 30, 2014.

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), if the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year.

1. Foreign Annuity Policies

The 2011 FBAR regulations extend the FBAR requirement to foreign annuity policies that have a cash surrender 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, which is usually the U.S. client. Such annuities are reportable even if they are deferred annuities and there are no present annuity payments.

2. 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 the policy has a cash surrender 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 of a foreign trust may still be subject to the FBAR, see 3 below.)

3. Foreign Trusts

The 2011 FBAR 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.

4. Additional Important Points

• Even if the annuity policy or insurance policy was cancelled in 2013, and the trust account closed during 2013, if they existed at any point during 2013, an FBAR is required.

• The requirement to file the FBAR exists irrespective of whether you filed IRS Form 8938, Statement of Specified Foreign Financial Assets.  This is yet another IRS form to report foreign assets, including foreign annuity policies, foreign life insurance policies, and interests in foreign trust.  We’ve written about IRS Form 8938, here.  Form 8938 is due with your annual tax return.

•  The June 30, 2014 deadline is the deadline for receipt of the FBAR by the Treasury Department.

•  Even if you have an extension for filing your tax returns, the 2013 FBAR is still due by June 30, 2014.  There are no extensions for the FBAR deadline.

•  The FBAR is now required to be filed electronically.

It is crucial to preserve the integrity of your offshore planning and to maintain its tax compliance by abiding by all IRS rules and regulations.  Please contact us for more information.

 

If You Have Foreign Assets, IRS Form 8938 Is Due April 15, 2014

Readers are reminded that IRS Form 8938, Statement of Specified Foreign Financial Assets, is due with their 1040 tax returns by April 15, 2014.  IRS Form 8938 was first introduced for tax year 2011, and is yet another IRS form to report ownership of foreign assets.  In many cases, Form 8938 is due even if the same foreign assets are reported on different IRS forms, such as Form 3520 for foreign trusts, Form 5471 for foreign corporations, and the FBAR form (Report of Foreign Bank and Financial Accounts, FinCEN Form 114) for foreign financial accounts.  If a taxpayer obtains an extension for submission of Form 1040, then Form 8938 should be submitted when the Form 1040 is submitted on extension.

The following are examples of foreign assets that are subject to reporting on Form 8938:

  • foreign bank and brokerage accounts;
  • stock of foreign corporations and interests in foreign LLCs and partnerships;
  • interests in a foreign entity such as a trust or foundation;
  • ownership of foreign financial instruments, such as bonds and promissory notes;
  • ownership of foreign investment instruments and contracts issued by a foreign entity, including foreign annuity policies and insurance policies;
  • interests in a foreign investment fund, hedge fund, mutual fund and private equity fund.

FATCA (the Foreign Account Tax Compliance Act) is coming into effect internationally and foreign financial institutions (FFIs) will soon begin to report to the IRS regarding US owners of foreign assets.  Thus, it is imperative to file Form 8938 before the IRS first learns of the asset from an FFI.

We can assist in determining whether you are subject to Form 8938, and can answer your questions regarding US tax compliance for foreign assets.  Contact us for a confidential consultation.

For our prior guidance on IRS Form 8938, please read our article here.

For a helpful comparison between Form 8938 and the FBAR, please click here.

2013 Year End Notes, Part 3: Offshore Considerations

During 2013, the IRS and U.S. Department of Justice (DOJ) continued to successfully attack offshore banking “secrecy”.  The IRS’ success against UBS and other banks eroded Swiss banking secrecy, effectively ending “going offshore” to hide money from the IRS. Going offshore for asset protection from civil creditors, however, is still viable and effective, but must be tax-compliant. Continue reading

FBAR Form is Due June 30, 2013 to Report Foreign Bank and Financial Accounts

We remind readers that the 2012 Report of Foreign Bank and Financial Accounts (the “FBAR”), Form T.D. 90-22.1, is due by June 30, 2013.

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 if the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year.

If you participated in the 2009, 2011 or 2012 IRS Offshore Voluntary Disclosure Program (OVDI or OVDP), you still must file an FBAR if you had a foreign financial account subject to the reporting threshold at any time during 2012.  Having participated in the voluntary disclosure program, you must ensure ongoing tax compliance regarding foreign assets.

The FBAR applies whether or not you participated in a voluntary disclosure.  If you have an interest in a foreign financial account (whether as owner, co-owner, signatory or power of authority), foreign mutual fund, foreign annuity policy, foreign life insurance policy or have a beneficial interest in a foreign trust, you may have an FBAR reporting requirement.

Please note the following additional points:

• A new FBAR form was introduced by the IRS in January 2012.  Even though the new FBAR form is substantively similar to the prior version, you should use the new form.

• Recently enacted Treasury Regulations now include foreign annuities and foreign life insurance policies owned by U.S. persons which have a cash surrender value, foreign mutual funds and foreign trusts as reportable via the FBAR.  Please see our article here.  Contact us if you have any questions about whether you are subject to the new FBAR rules.

• The requirement to file the FBAR exists irrespective of whether you filed new IRS Form 8938, Statement of Foreign Financial Assets.  We have written about new Form 8938 here.  Call us if you have any questions about new Form 8938.

• The June 30, 2013 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 2012 FBAR is still due by June 30, 2013.  There are no extensions for the FBAR deadline.

• Even if you closed a foreign account during 2012, an FBAR may still be due if your interest in the account (or annuity policy, mutual fund, etc.) existed at any time during 2012.

We can advise you regarding whether you are required to file an FBAR, and we can prepare the FBAR for you.  In light of the June 30, 2013 deadline, please contact us immediately.

FBAR Disclosure Applies to Foreign Annuity Policies, Foreign Life Insurance Policies and Foreign Trusts; Deadline is June 30, 2012

This is a reminder that the Report of Foreign Bank and Financial Accounts (“FBAR”), T.D. 90-22.1, for calendar year 2011, is due by June 30, 2012.
As discussed previously << http://www.assetlawyer.com/wordpress/?p=955>>, the U.S. Treasury Department in 2011 issued revised regulations regarding the FBAR.  The FBAR filing now applies to foreign annuity policies and foreign life insurance policies that are owned by U.S. taxpayers, and to some beneficiaries of foreign trusts.  If you are subject to the FBAR filing requirement, the 2011 FBAR is due by June 30, 2012.
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), if the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year.

This is a reminder that the Report of Foreign Bank and Financial Accounts (“FBAR”), T.D. 90-22.1, for calendar year 2011, is due by June 30, 2012.

As discussed previously, the U.S. Treasury Department in 2011 issued revised regulations regarding the FBAR.  The FBAR filing now applies to foreign annuity policies and foreign life insurance policies that are owned by U.S. taxpayers, and to some beneficiaries of foreign trusts.  If you are subject to the FBAR filing requirement, the 2011 FBAR is due by June 30, 2012.

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), if the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year.

Foreign Annuity Policies

The 2011 FBAR regulations extend the FBAR requirement to foreign annuity policies that have a cash surrender 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 the policy has a cash surrender value. The reporting requirement applies to the policy owner, if he/she is a U.S. person.

Foreign Trusts

The 2011 FBAR 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 as well as new IRS Form 8938.

Please also note the following with respect to the FBAR requirement:
  • Even if the annuity policy or insurance policy was cancelled in 2011, and the trust account closed during 2011, if they existed at any point during 2011, an FBAR is required.
  • The requirement to file the FBAR exists irrespective of whether you filed new IRS Form 8938, Statement of Foreign Financial Assets.  Please see our discussion regarding new Form 8938.
    Ownership of investment instruments and contracts issued by a foreign entity, including foreign annuity contracts and insurance policies, are reportable on Form 8938 as well as on the FBAR.
  • The June 30, 2012 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 2011 FBAR is still due by June 30, 2012. There are no extensions for the FBAR deadline.
  • A new FBAR form was issued in January 2012. Even though the new FBAR form is substantially similar to the prior version, you should use the new form.
  • It is crucial to preserve the integrity of your offshore planning and to maintain its tax compliance by abiding by all IRS rules and regulations.

Please contact us with any questions.

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