- 1 What is Financial Interest in a Foreign Account?
- 2 An Owner of Record on the Foreign Account
- 3 Acting as an Agent for Another Person
- 4 US Corporation with +50% Ownership
- 5 Grantor Trust Owners May Have to Report FBAR
- 6 Current Year vs Prior Year Non-Compliance
- 7 Golding & Golding: About Our International Tax Law Firm
What is Financial Interest in a Foreign Account?
One of the most complicated aspects of filing the annual FBAR Form is that it is not limited only to U.S. Persons who have ownership of a foreign financial account. Rather, the FBAR (used to Report Foreign Bank and Financial Accounts) may also be required for taxpayers even when they only have signature authority or other authority over the foreign account. The reason why the ‘financial interest’ aspect is so important, is that when a person has a financial interest in a foreign account, they have a higher likelihood of being punished by the IRS for noncompliance. Let’s look at some common examples of what constitutes a financial interest in a foreign account.
An Owner of Record on the Foreign Account
When a US person is the owner of record on a foreign financial account, they are generally required to report the FBAR in any year that they meet the threshold for filing. For example, Matthew is a US Citizen who has a foreign bank account in a foreign country. Since Matthew is the owner of record on the account, he would be required to file an FBAR.
*FBAR reporting is based on the annual aggregate total of all of the accounts combined and not just the value of each individual account.
Acting as an Agent for Another Person
If instead of being the owner of the account, let’s say that Matthew asks his friend Felicia (who lives in the foreign country where the account is located) to open the account for Matthew under her name — but using Matthew’s funds. In this type of situation, since the money belongs to Matthew — even though the account is technically under Felicia’s name — Matthew would generally still be required to report the account on his FBAR. Likewise, if Felicia is a US Person she too would have to report the accounts on the FBAR, even though the funds do not belong to her.
US Corporation with +50% Ownership
In a common example, two individuals are joint owners of a US corporation. The US person has 60% ownership in the company whereas the foreign person has 40% ownership. The Corporation is considered a US person since it was founded under US law and US persons include entities as well. In this situation, the US person would have to report the accounts on the FBAR, since he has more than 50% ownership in the US corporation.
Grantor Trust Owners May Have to Report FBAR
Let’s say a US person (Renee) is the grantor of a US Trust and the trust has ownership of a foreign financial account. Since Renee is the grantor — and is considered the owner of the trust — she would typically report the foreign account information on the FBAR. It is important to note that with FBAR reporting for trusts, the individual’s relationship to the trust is a key factor for FBAR reporting. In this example, since Renee is the grantor, she would have to report the FBAR — as distinct from other types of interest in the trust such as a remainderman, in which there is no present beneficial interest (and Renee would not have to file the FBAR if she does not have a present interest in the trust).
Current Year vs Prior Year Non-Compliance
Once a taxpayer misses the reporting requirements for prior years, they will want to be careful before submitting their current year FBAR. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass file previous FBARs without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely FBARs, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.