FBAR & Foreign Investment Accounts (2018) – What Do I FBAR Report?
When it comes to having to disclose foreign accounts on an annual FBAR (Report of Foreign Bank and Financial Account Form aka FinCEN 114), it is fairly simple form when it is timely, and only involves bank accounts.
That is because even the IRS and FinCEN instructions are relatively clear when it involves bank accounts.
Namely, that if you have foreign bank accounts, then you are required to disclose the bank account information on an annual FBAR in any year that the aggregate value of all of your foreign accounts exceeds more than $10,000 on any given day of the year.
FBAR is More than Bank Accounts
We understand that depending on the type of accounts, the number transactions and/or whether or not you have a passbook account will determine if you receive monthly statements and how detailed the statements are.
This can make it difficult to determine what the maximum balance is, as long as the filing is timely and you acted diligently in trying to obtain the information — any mistakes will usually be relatively heartless.
The same cannot be said if you completely omit certain accounts. The following is a list of different types of accounts which typically have to be reported on an FBAR, even if you they are not considered to be “an account.”
Foreign Mutual Funds
We will start with the most complicated, which is the mutual fund. The reason why the foreign mutual fund is so important is that because not only is it an account with a reporting/disclosure requirement, but oftentimes there may be a complicated tax analysis attached to it on the accrued, non-distributed growth.
Complicating matters even further is the fact that most mutual funds are considered to be PFICs (Passive Foreign Investment Companies) and may require a very time-sensitive detailed analysis situations in which you have an excess distribution.
In addition, beyond just mutual funds per se, investment funds in general must be reported on an FBAR.
This typically would include:
- Mutual Funds
- Investment Funds
- Equity Funds
Mutual Fund vs. Shares of Stock
It should be noted, that if you happen to own a share stock, such as a share of Apple, that does not have to be reported because it is not an account. In other words, it may have to be reported on a different form such as a Form 8938, but since it is not an account that is not included on the FBAR, unless…
If you have a trading account such as the stock account that holds various different types of investments, the account number is reported in the aggregate total, and while the individual shares themselves and not reported – the total value of the account is reported.
Unlike the United States in which social security social Security is not identified by any specific account beyond your Social security number, various other countries have different form of retirement investments which are considered mandatory retirement accounts.
Three (3) Common Examples:
- Superannuation Fund
- CPF (Central Provident Fund)
- EPF (Employee Provident Fund)
As with the mutual funds, whether 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, whether or not there is a tax liability at the current time is not the same as to whether it must be reported. Whether or not you are receiving income from the retirement plan at this time is immaterial.
If it is a retirement account, and there is an account number or identifier with the account, then more likely than not (subject to any exceptions, exclusions, or limitations) it must be reported.
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 which requires 30 years of premiums before it matures, you may be able to surrender the policy earlier for much lower value.
Since the policy has not reached maturity, it has not reached its matured value. Therefore, 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).
FBAR is the Tip of the Iceberg
The reason why the FBAR is so common, is because it has some pretty egregious penalties. The penalties far outweigh any potential injury you probably could have caused to the US government by failing to report.
With that said, there are a laundry list of other forms you may have to file in order to properly report your account information to the IRS, and they all come with their own share of penalties as well.
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.