Are there Exceptions to Reporting Foreign Accounts to IRS

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Exceptions to Reporting Foreign Accounts 

Exceptions to Reporting Foreign Accounts

Exceptions to Reporting Foreign Accounts 

Exceptions to Reporting Foreign Accounts: When it comes to international information reporting, the IRS has very strict requirements for US Persons with accounts located overseas. There are many different reporting forms that a US Person may be required to file, such as the FBAR (FinCEN Form 114); Form 8938 (FATCA), and Form 8621. While there are several other disclosure forms to report assets, such as Form 5471 (Foreign Corporations) and Form 8865 (Foreign Partnerships) — the Foreign Account Reporting requirements are generally the most encompassing. Let’s review the (few) common exceptions to reporting foreign accounrs and assets:

FBAR Exceptions to Reporting Foreign Accounts

As provided by FinCEN, the following types of foreign financial accounts are exceptions to reporting foreign accounts on the FBAR:

      • Certain Accounts Jointly Owned by Spouses. The spouse of an individual who files an FBAR is not required to file a separate FBAR if certain conditions are met as previously discussed; refer to “Reporting Jointly Held Accounts.”

      • Correspondent/Nostro Account. Correspondent or nostro accounts (maintained by banks and used solely for bank-to-bank settlements) are not required to be reported.

      • Governmental Entity. A foreign financial account of any governmental entity is not required to be reported by any person.

        • Example: A state administered college or university is not required to file an FBAR because it is a governmental entity.
        • Example: A government employee retirement or welfare benefit plan is not required to file an FBAR because it is a governmental entity. •

      • International Financial Institution. A foreign financial account of any international financial institution (if the United States government is a member) is not required to be reported by any person.

        • Examples are the World Bank and the International Monetary Fund (IMF).

        • United States Military Banking Facility. A financial account maintained with a financial institution located on a United States military installation is not required to be reported, even if that military installation is outside of the United States.

Form 8938 Exceptions to Reporting Foreign Assets

There are also exceptions to reporting foreign assets on Form 8938 (Specified Foreign Financial Assets) as well.

Duplicative Reporting

You do not have to report any asset on Form 8938 if you report it on one or more of the following forms that you timely file with the IRS for the same tax year.

      • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.

      • Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

      • Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

      • Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

Instead, you must identify on Form 8938 the form(s) on which you report the specified foreign financial asset and how many of these forms you file. See Part IV. Excepted Specified Foreign Financial Assets, later.

Joint Form 5471 or Form 8865 Filers

      • If you are included as part of a joint Form 5471 or Form 8865 filing and provide the notification required by Regulations section 1.6038-2(i) or 1.6038-3(c), you are considered to have filed that form for purposes of the requirement to report specified foreign financial assets on Form 8938. See Part IV. Excepted Specified Foreign Financial Assets, later.

Foreign Grantor Trusts

      • If you are considered the owner under the grantor trust rules of any part of a foreign trust, you do not have to report any of the specified foreign financial assets held by the part of the trust you are considered to own if you satisfy the following conditions.

        • You report the trust on a Form 3520 that you timely file with the IRS for the same tax year.

        • The trust timely files Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, with the IRS for the same tax year.

Instead, you must identify on Form 8938 how many of these forms you file.

Excepted Specified Foreign Financial Assets

      • If you are a specified individual, you must include the value of the assets reported on Forms 3520, 3520-A, 5471, 8621, and 8865 in determining whether you satisfy the reporting threshold that applies to you.

See Reporting Thresholds Applying to Specified Individuals, earlier.

Domestic Investment Trusts

      • If you are considered the owner under the grantor trust rules of any part of a domestic widely held fixed investment trust under Regulations section 1.671-5, you do not have to report any specified foreign financial asset held by the part of the trust you are considered to own.

There are a few other limited exceptions for Form 8983 which are not very common in practice.

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

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