Do Estate Executors Report Foreign Assets: IRS Overview

Do Estate Executors Report Foreign Assets

Do Estate Executors Report Foreign Assets

Do Estate Executors Report Foreign Assets: When a US Person passes away and leaves an estate that needs to be administered — an estate administrator may be appointed to oversee the distribution of assets and facilitate the closure of the probate. The actual term “estate administrator” may vary based on the jurisdiction and the way the estate plan/probate was established. One unforeseen dilemma that some US personal estate administrators find themselves in is with the IRS. Specifically, when the Taxpayer has been appointed as the administrator of an estate that contains offshore assets in which the state administrator has signature authority — and possibly an interest in the account depending, on their relationship to the deceased. Let’s go through a few of the basics that US Person estate administrators for estates with overseas assets should be aware of:

Estate Executor Relationship to the Decedent

It is important that the US person understand whether or not they have an interest in the estate or not. For example, sometimes a child will receive the bulk of the income and assets is assigned as the estate administrator and clearly has an interest in the account, whereas other times, it may be a sibling or other third party who does not have any interest in the estate (will not be inheriting or receiving any assets once it is distributed).

Foreign Accounts, Assets or Income and Estate Executor

If the estate includes overseas accounts, assets or income — there is an additional level of complexity in accordance with US international information reporting requirements. That is because if the Taxpayer has signature authority and/or amen interest in the foreign assets or other monies abroad — there could be some additional reporting required for the estate — and possibly the individual. Two of the most important reporting requirements involving overseas monies are FBAR and FATCA. And, the failure to be in compliance with these reporting requirements may result in fines and penalties — although the Internal Revenue Service has developed various amnesty programs to facilitate safe compliance for late-filed forms.

FBAR for Estate Executors

With FBAR, US persons who have an ownership or interest in a foreign account are required to disclose this information on the annual FBAR (aka FinCEN Form 114). In addition, even if the Taxpayer does not have ownership or interest in the foreign account — but has signature authority — they are also required to report. In the now all too common scenario, an estate administrator represents the estate for which foreign accounts in the name of the decedent have been transferred into an estate account in which the US person Taxpayer has signature authority — and now may have an FBAR reporting requirement which they have missed. As a side note, FBAR is not filed with the tax return — but is separately filed with FinCEN.

FATCA form 8938 for Estate Executors

The rules involving FATCA (Foreign Account Tax Compliance Act), are more complicated. FATCA is relatively new and for US Taxpayers, they are required to disclose specified foreign financial assets on IRS Form 8938 — which is filed along with a tax return. The difference between the FBAR and Form 8938 is that Form 8938 is only required when the taxpayer has an interest in the foreign asset. Whether or not an estate administrator has an interest in the foreign asset may hinge on their relationship with the decedent — and whether they will be inheriting or receiving any of the money when it is distributed.

International Tax Amnesty 

Oftentimes, the estate administrator learns that the decedent had foreign accounts for several years prior to passing away — which were not reported to the US Government. Before filing the estate tax return and/or final tax return for the decedent, the estate administrator should consider the different international tax and reporting tax amnesty options:

• Voluntary Disclosure Program (VDP or “New” OVDP)
• Streamlined Domestic Offshore Procedures
• Streamlined Foreign Offshore Procedures
• Delinquency Procedures
• Reasonable Cause

Can I Just Start Reporting Foreign Accounts This Year Instead?

No, unless the current year is the first-year you had a Foreign Account Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.

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