Ownership of Joint Accounts - Whose Income; Whose Accounts? (4/6/12)

Robert Wood and Jamie Ogden, lawyers at Wood LLP in San Francisco, have published a very interesting article that I recommend to readers struggling with the consequences of foreign accounts where, for U.S. income tax and FBAR purposes, the U.S. reporting for the accounts and income is murky.  Robert W. Wood and Jamie K. Ogden, Who Pays Tax on Joint Bank Accounts?,  135 Tax Notes 113 (Apr. 2, 2012), here.

The authors focus on the income tax issues rather than FBAR and Form 8938, but the issues discussed should bear on FBAR reporting and Form 8938 reporting as well.  (See my comment below.)

Although the issues are complex, key general -- emphasis on general -- rules of thumb related to foreign accounts are:

1.  Beneficial ownership is the key to income tax consequences.

2.  Local law -- i.e., foreign law -- generally determines who is the beneficial owner of the account.

3.  Nominal local law ownership as opposed to real beneficial ownership cognizable as such under local law will not determine the U.S. income tax reporting obligation.  For example, agents are not taxed; principals are.  Where the taxpayer seeks to deflect U.S. income tax consequences to a foreign person, the taxpayer will have to prove that his or title ownership under local law is nominal, such as in the status of agent rather than principal.  Proof of the nominal relationship could be an issue.