FBAR Mutual Funds and Is it Reported as a Foreign Account?

FBAR Mutual Funds and Is it Reported as a Foreign Account?

FBAR Mutual Funds

FBAR Mutual Funds: In general mutual fund analysis on a U.S. tax return is complicated. When it comes to the FBAR and Mutual Funds, it gets even more complex due to the difference between reporting the accounts vs. funds, and IRS vs. FinCEN.

As a reminder, the FBAR (aka FinCEN 114) is a Report of of Foreign Bank and Financial Account Form.

It is filed each year by any U.S. Person (whether or not they also have to file a tax return) when they have more than $10,000 in aggregate total in their foreign Accounts.

Are these Investment Accounts Included on the FBAR?

Yes, Mutual funds are reported on an annual FBAR statement.  The reason it can get so confusing is because when a person thinks about “reporting foreign accounts” individuals may not consider a foreign mutual fund as a “foreign account”

Common Issues Clients Come Across with FBAR & Mutual Funds

Rather, for many of our clients, understandably, they believe that an FBAR ‘account’ refers to bank accounts. Unfortunately, this can cause a major issue for individuals who have not been reporting their foreign mutual funds to the IRS and FinCEN.

Typically, these clients have one of the two following issues:

They Never Reported an FBAR

Unless this is an area law that someone is familiar with, the notion of having to regularly report or disclose foreign accounts, income, assets, or investments to the IRS by way of an FBAR (along with several other international informational returns) is not intuitive. To most people, since the money is outside the United States, their knee-jerk reaction is “the money is outside of the United States, so why does the IRS even care?”

Unfortunately the IRS does care…and they care a lot. So much so, that the penalties for not properly disclosing foreign accounts can far exceed any minor infraction you may have caused.

With that said, if you have never filed an FBAR and want to get into compliance, you may be able to limit, reduce, or even remove the penalties associated with non-compliance. You should consider speaking with an experienced offshore disclosure attorney before making any statements to the IRS.

The Client Did Not Include Non-Bank Accounts

Other clients file the annual FBAR statement, but were not made aware by their CPA or other person (or computer software program such as TurboTax) the extent to which they have to report. In this type of situation, the individual has presumably included their foreign bank account, but was unaware of any requirement to include investment funds, which they may not consider an account – such as a mutual fund.

Misunderstand the Reporting Requirement is Not a Crime

It is perfectly okay to misunderstand the reporting requirements. The IRS instructions are not very clear, and many non-international tax CPAs and attorneys are unaware the filing requirements, and/or what needs to be included on the FBAR. With that said, if you are already out of compliance then you should consider getting into compliance sooner as opposed to later in order to timely attempt to reduce or possibly eliminate any FBAR penalty.

Am I Going to Jail?

Most likely, you are not going to jail. Unfortunately, you have probably either spoken to, or read an article prepared by a “Fear Monger.” These articles are designed to unnecessarily scare you into believing you are heading straight to prison to serve-out a five year jail sentence, and/or pay a 100% penalty on the money.

This is just typically not true, and you should not let these individuals use scare tactics to get you thinking irrationally – speak to an experienced offshore disclosure attorney before making any proactive representation to the IRS.

What Else Do I have to File?

When a person has for mutual funds, there are many other issues they may have to contend with coming including filing a form 8621 -and possibly having to execute a much more complex tax analysis, (aka PFIC Excess Distribution Calculation).

Moreover, depending on whether or not the individual has other types of investments, there could be other international forms that are required – and other possible penalties looming as well.

Non-Compliance with U.S. Tax Law

Whether it is because you did not you had to report foreign accounts, thought you were below the threshold for filing, did not realize non-bank accounts were required to be reported, and/or have other unreported income, accounts, investments or assets – we can help.

Golding & Golding: About Our International Tax Law Firm

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

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience
  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.