The FBAR form, Report of Foreign Bank and Financial Accounts, is due by June 30, 2016 for Offshore Assets

Once again, the FBAR deadline is upon us.  The FBAR, the Report of Foreign Bank and Financial Accounts, previously known as Treasury Department Form TD F 90-22.1 and now known as FinCEN Form 114, is due by June 30, 2016, for foreign financial accounts that existed during 2015.  Even if you are on extension to file your 2015 U.S. income tax return, there is no extension for the FBAR filing.  The FBAR must be filed electronically.

We’ve written extensively about the FBAR and the many different types of foreign assets that are considered to be “foreign financial accounts” and are required to be reported:

Do You Have an Offshore Account?

FBAR Reporting for Foreign Annuities, Life Insurance and Trusts

Offshore Asset Protection Trusts and FBAR Reporting

Ongoing U.S. Tax Compliance for Foreign Assets

Our attorneys advise U.S. taxpayers on whether their foreign assets are subject to the FBAR.  We also advise on how to correct past FBAR non-filings.  In some cases, FBAR non-filing can be corrected without penalties.  In other cases, such as when a taxpayer did not file an FBAR and also did not report foreign income to the IRS (interest, dividends, rents, etc.), then it may be possible to come into compliance via a pre-emptive Voluntary Disclosure to the IRS.  However, if the IRS already has information about the offshore assets (from the foreign bank, for example), or if the taxpayer is already under investigation or audit, then it may be too late for a voluntary disclosure.  Thus, proper timing is critical.  We can assist you with these issues regarding reporting foreign assets and minimizing penalties.  Please contact Rubinstein & Rubinstein for a confidential consultation.

Offshore Asset Protection Trusts and FBAR Reporting

We again 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 wrote previously, in 2011, the U.S. Treasury Department changed the FBAR filing requirements to now apply to U.S. grantors of foreign trusts, and in some cases their U.S. beneficiaries.

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.  If you are subject to the FBAR filing requirement, the 2013 FBAR is due by June 30, 2014.

U.S. grantors (also known as settlors) of foreign asset protection 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.

The 2011 revised regulations now extend the FBAR requirement to some U.S. beneficiaries of foreign trusts, including foreign asset protection 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 the assets of a trust or if the U.S. person received more than fifty percent of the 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 (asset protection trusts created by this firm are purely discretionary trusts) 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.  Usually, beneficiaries of a foreign asset protection trust 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.

Please also note the following with respect to the FBAR requirement:

  • Even if the trust account was closed during 2013, if the account existed at any point during 2013, an FBAR is required.
  • The requirement to file the FBAR exists irrespective of whether you filed new IRS Form 8938, Statement of Specified Foreign Financial Assets.  Please contact us for a copy of our memorandum regarding new Form 8938.
  • 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.

 We also take this opportunity to remind you again that foreign asset protection trusts also give rise to filing IRS Forms 3520 and 3520-A, as well as Form 8938.

 Having established an offshore asset protection trust to safeguard your assets from attack by creditors and litigants, it is crucial to preserve the integrity of the trust and to be in compliance with all IRS requirements.  Please contact us with any questions.

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