Are Foreign Brokerage Accounts Reported for US Tax and FBAR?
Contents
- 2 FBAR Baseline Filing Rule
- 3 Foreign Mutual Funds
- 4 Retirement/Pension Accounts
- 5 Insurance Policies
- 6 Current Year vs Prior Year Non-Compliance
- 7 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
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 thereporting 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 aquiet 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 Specialistthat 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 & Goldingspecializes exclusivelyin international tax, specificallyIRS offshore disclosure.
Contact our firm todayfor assistance.
As a seasoned expert in international tax law, particularly with a focus on offshore disclosure matters, I can attest to the complexity and nuances surrounding the reporting of foreign bank and financial accounts for US persons. My extensive experience in this field includes navigating the intricacies of the Foreign Bank Account Report (FBAR) and its enforcement by the IRS.
The FBAR, administered by FinCEN but enforced by the IRS, goes beyond the common understanding that it involves only bank accounts. It encompasses a myriad of foreign investment accounts, making it challenging for taxpayers to determine which accounts should be included on the form. In this context, I'll delve into the key concepts mentioned in the provided article:
1. FBAR Baseline Filing Rule
The FBAR filing requirement is triggered if the aggregate value of all foreign bank and financial accounts exceeds $10,000 on any given day of the year.
2. Foreign Mutual Funds
Foreign mutual funds pose a notable enforcement priority for the IRS due to their inclusion in the Form 8621 PFIC reporting requirements. This adds a layer of complexity, making it crucial for taxpayers to understand the intricacies of reporting various types of funds, including Mutual Funds, ETFs, Investment Funds, Equity Funds, and SICAV.
3. Retirement/Pension Accounts
Foreign pension accounts, excluding certain components like the OASI (social security equivalent), are reportable on the FBAR. Common examples include the Australian Superannuation Fund, CPF (Central Provident Fund), and EPF (Employee Provident Fund). Tax implications may vary based on factors such as the type of retirement plan, the country involved, and existing tax treaties.
4. Insurance Policies
Even foreign life insurance policies with a surrender value are considered accounts and must be reported annually on the FBAR. The surrender value, representing the cash equivalent if the policy were to be sold or redeemed at Fair Market Value, is the key factor for reporting.
5. Current Year vs Prior Year Non-Compliance
Taxpayers who have missed tax and reporting requirements for prior years need to approach current-year submissions carefully. Filing without adherence to approved IRS offshore submission procedures may result in quiet disclosures. Consulting with a Board-Certified Tax Law Specialist specializing in offshore disclosure matters is recommended.
6. Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
Differentiating between willful and non-willful conduct is critical. Non-willful individuals stand a better chance with streamlined procedures, while willful taxpayers should consider the IRS Voluntary Disclosure Program. Intentional false narratives under streamlined procedures may lead to significant fines and penalties.
In conclusion, the intricate landscape of foreign investment accounts and FBAR reporting demands meticulous attention and expert guidance. For tailored assistance in international tax matters, individuals can reach out to a specialized firm such as Golding & Golding, which exclusively focuses on these complex areas of tax law.
