Foreign Investment Accounts and FBAR

Foreign Investment Accounts and FBAR

Foreign Investment Accounts & FBAR

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 about 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

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 account 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 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, please keep in mind the reporting 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.

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 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. 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).

FBAR is the Tip of the Iceberg

In conclusion, 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 many 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.

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Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure and reporting compliance.

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