Resources on the Form are:
- IRS links to the Form and Instructions, here.
- Section 6038D, here, which is the law requiring the Form.
- The IRS web site for the Form, titled Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”, here.
- Temporary Regulations, T.D. 9567, "Reporting of Specified Foreign Financial Assets," dated 2/21/12, here.
- IRS web site on FATCA, here.
- IRS web site titled "Basic Questions and Answers on Form 8938 (posted 2-29-12)," here.
By my reading, there is a significant distinction between Form 8938 and the FBAR as relates to beneficiaries of foreign trusts.
ReplyDeleteBeneficiaries of foreign trusts who are aware, or presumed to be aware, of their status as beneficiaries are required to file Form 8938. This is different from the FBAR requirement applicable to trust beneficiaries who have a
present beneficial interest in more than 50% of the trust’s assets or if the beneficiary receives more than 50% of the current income of the trust.
The beneficial interest in the assets of the trust must be a “present” beneficial interest for the FBAR to apply. A beneficiary of a purely discretionary trust, i.e., where trust distributions are made solely in the discretion of a trustee, does not have a “present” interest. However, with respect to the trust income, a beneficiary who receives more than fifty percent of trust’s “current” (i.e., annual) income has a financial interest that is reportable on the FBAR.
Form 8938 seems to apply regardless of whether the trust beneficiary receives a distribution, and regardless of any contingency of distribution.
Excellent post, Jack!
ReplyDeleteExcellent comments, Asher!
The bottom line: Very edifying.
The instructions say that if you were required to file a form for 2010 and did not do so, then you should file one for your 2010 tax year with your 2011 tax return.
ReplyDeleteThis seems to be a pretty annoying requirement. One has to back to 2010 and fill in all this information again, and current tax software will likely not do it. Of course, if you included all income for 2010 on your regular tax return, there would be no penalties since penalties only accrue if there is a tax loss.
This is my take on Form 8938 - http://mopsicktaxlaw.blogspot.com/2012/03/american-ex-pats-beware.html
ReplyDeleteOkay, I take back my previous comment. You are only required to file form 8938 for 2010 if your tax year started after March 18th 2010. So this should not be an issue for 'natural' persons, since their tax year starts Jan 1st 2010.
ReplyDeleteThanks but I am a little confused. Doesn't everybody's tax year in the US start on Jan 1 and end on Dec 31 every year?
DeleteI have tried to research this but have failed to find the correct information - I have a home in a foreign country that I have rented. Should this be included in 8938, the instructions on the form are not at all clear. Could someone kindly shed some light on this ?
ReplyDeleteThe bottom line is that real estate held in a taxpayer's individual name and not through a foreign entity is not reportable. But this is not tax advice to you and is just a way to help you get to the right conclusion by following the steps I outline below). Of course, the 8938 is just an information form. The key is to make sure any income is reported and any tax paid. You will still have to report your income from the rental.
ReplyDeleteThe statute is 26 USC § 6038D - INFORMATION WITH RESPECT TO FOREIGN FINANCIAL ASSETS., here:
http://www.law.cornell.edu/uscode/text/26/6038D.
Note that, for some of the defined terms, the link has further links to definitions, so I encourage you to look at the definitions.
Subsection (a) requires reporting of only foreign financial assets which are defined in (b) as follows (and the following a quote of the definitions from the statute):
(1) any financial account (as defined in section 1471 (d)(2)) maintained by a foreign financial institution (as defined in section 1471 (d)(4)), and
(2) any of the following assets which are not held in an account maintained by a financial institution (as defined in section 1471 (d)(5))—
(A) any stock or security issued by a person other than a United States person,
(B) any financial instrument or contract held for investment that has an issuer or counterparty which is other than a United States person, and
(C) any interest in a foreign entity (as defined in section 1473).
By the way, the instructions say essentially the same thing as the statute is more general terms that lay men should understand. Here are links to the instructions in pdf and HTML formats:
http://www.irs.gov/pub/irs-pdf/i8938.pdf
http://www.irs.gov/instructions/i8938/index.html
Best,
Jack Townsend
FBAR data seems better - it can be shared and traded. What's so great about 8938 data? I see nothing except its the latest way to ramp up the penalties. Everybody will be spending all their time filling out forms. Don't they have enough bludgeons?
DeleteThe IRS talks like police do about their war on drugs. Shulman says he's collected "x" billions from whoever under the successful OVDI. I'm not hearing him say what he thinks the big picture is.
The whole effort would look more credible and intelligent to me if they lived up to what they were claiming they'd do about education ten years ago.
I agree with Jack. I think that foreign real estate is not reportable. It makes no difference that it produces rental income. Of course, the rental income has to be reported. If the property is owned through a foreign corporation, the foreign corporation has to be reported. A more difficult question is does anything get reported if the foreign real estate is owned through a foreign disregarded entity? I think the answer should be no, as the general rule is that you look through the disregarded entity, but I am in the process of asking the IRS. A closely-related question is does anything get reported if the property is owned through a straw corporation that, under general principles, should be ignored? I think the answer should be no, but again I am posing the question to the Service.
ReplyDeleteOwnership of real estate through disregarded entities and straw corporations is quite common in many places, including London.
For people who are trying to compare the FBAR reporting rules with the new FATCA/Form 8938 reporting rules, they might like to look at Bruce, "FBAR and FATCA Foreign Financial Assets Reporting: Seeing Double? Not Really", BNA Daily Tax Report 12/22/2011. This contains a side-by-side comparison of FBAR and FATCA, which took forever to write. I learned today that the IRS is working on a similar side-by-side comparison.
Mr. Bruce,
DeleteThank you for your comments. I think they will be helpful for many readers.
Jack Townsend
One other point with respect to foreign real estate. I think the confusion many readers have is because, inside the OVDI program, the IRS is requiring that foreign real estate with U.S. tax noncompliance is included in the "in lieu of penalty" base. Keep in mind that the only obligation a U.S. citizen has for foreign real estate owned directly (i.e., not through entities) is to report any income with respect to the real estate. The IRS requires real estate inclusion in the in lieu of penalty base solely to get a standard settlement. For those who opt out, the IRS can only collect income tax, penalty and interest and the FBAR penalty (which will not include real estate). So those with significant real estate relative to foreign accounts should either (i) not get into the OVDI (or its carryforward program) or (ii) opt out.
DeleteBest,
Jack Townsend
Jack, Mr. Bruce,
DeleteI am not as convinced that the real estate is not reportable on the 8938.
I think we all agree that if the real estate is owned through an entity such as a foreign trust or LLC, then ownership of that entity is reportable. And, of course, if the real estate generates income (rental income, capital gain upon sale), then that income is reportable and taxable.
Less clear is whether personal ownership of the real estate itself should be reported on the 8938 as a SFFA not held in a financial account.
It seems possible that foreign real estate could be considered a foreign asset held for investment, especially if the real estate generates rental income, in which case the real estate would seem to be reportable on 8938.
Moreover, I understand the form to also apply if any tax attributes (income, deductions, gains, loss, etc.) or gross proceeds from the disposition of the asset would be required to be reported on the taxpayer's return. It seems that foreign real estate would trigger this in various ways.
Over a long period on this blog, I have learned to respect Asher's views, but I do disagree with him on this one. Directly owned foreign real estate (not through any type of entity) is not reportable on Form 8938, in my view.
DeleteNevertheless, the fix if anyone has any doubt about it is to put the real estate on Form 8938 or an attachment. Keep in mind that the threshold amounts should include the value of the real estate and thus could require some to file the form who might not otherwise have been required to file the form. But it is just an information form.
The key is that you have to properly report any income tax significant attributes -- rental income, deductions, etc. -- elsewhere on the Form 1040 whether or not the real estate is disclosed on Form 8938. And, at least in my view, if you properly report the income elsewhere on the Form 1040, it probably is not material whether or not you disclose it on Form 8938.
Best,
Jack Townsend
How do you close the offshore bank accounts and bring back the money to the US LEGALLY? I guess you need to fill form 105? Can Jack provide a stepwise procedure? I.e. Whether carrying a cashiers check or a demand draft to the USA is OK? All done legally by declaring at the customs. the reason is that the offshore banks do not give 1099 or proper interest info....Thanks.
ReplyDeleteWire transfer the money from the foreign bank directly into the U.S. bank. The form 105 is not required (see excerpt from the form 105 instructions below. Do not bring the money into the U.S. any other way without Filing the Form 105.
DeleteWHO MUST FILE:
(1) Each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place outside the United States, and
(2) Each person who receives in the United States currency or other monetary instruments In an aggregate amount exceeding $10,000 at one time which have been transported, mailed, or shipped to the person from any place outside the United States.
A TRANSFER OF FUNDS THROUGH NORMAL BANKING PROCEDURES, WHICH DOES NOT INVOLVE THE PHYSICAL TRANSPORTATION OF CURRENCY OR MONETARY INSTRUMENTS, IS NOT REQUIRED TO BE REPORTED.
[End of Quote from the instructions]
Jack Townsend
Is it true that any wire tranf. will be looked upon as "fishy" and wilfully avoiding 105? The problem we are facing is that the foreign banks do not provide complete 1099 type info - interest accrued/paid say for 2011 or the max balance. That makes me sleepless about the form 8938 to say the least. That is the reason we may want to simply close those offshore a/c and bring the money here. Is there a limit on how much can be wired? What is the harm in declaring at the customs a bankers DD or check? Thanks. I will have more questions.....
DeleteRe Anonymous' comment at 8:02 AM.
Delete(1) I don't think that a wire transfer is necessarily "fishy". Wire transfers are common and routine. Note, however, that a US bank on the receiving end of a wire transfer could file an SAR (Suspicious Activity Report) with the US Treasury Dept, which could be reviewed by the IRS. Not every inbound wire transfer will result in an SAR; however, sudden wires when the account holder did not historically receive wires, or a large amount, may be reasons for an SAR. I am not aware of any requirement that a bank alert an account holder that the bank has filed an SAR.
(2) The lack of a 1099 from a foreign bank can be overcome by looking at bank statements and extracting income and maximum balance in the account. At the very least, you can contact the bank and ask for this information.
No, wire transfers will not be looked on as fishy.
DeleteIn the world as we know it today, the normal process in moving significant sums of money is wire transfer (leaving a clear trail), which is why wire transfers are exempted from Form 105. I think Treasury has the authority to require reporting of wire transfers, but does not feel the need to do that because wire transfers are not off the radar screen as would be bringing in currency or cash equivalent (e.g., bankers draft or check) in one's clothing or luggage (which must be reported on Form 105).
There is no limit on the amount that can be transferred.
Asher does make the point that a wire transfer can cause the bank to generate an SAR. However, at least for most of the taxpayers with "minnow" amounts -- even exceeding $100,000 -- I doubt that an SAR would be generated. But, even if an SAR is generated, at worst, some agent (perhaps IRS) will inquire about it and, when you say you brought it here to make sure that it gets 1099 and reported on your returns, the agent may give you a hug or perhaps even a high five and maybe even a gold star in your file. I would not worry about an SAR and a follow-through inquiry.
You can still have foreign bank accounts (even without Forms 1099), but you just have to report them on your return (including the Form 8938, if applicable) and on the FBAR (if applicable). Still, unless there is some reason to keep the foreign bank account(s), I think the better part of wisdom is to bring them deposits into a U.S. bank and not have to worry about these forms.
Jack Townsend
Hi Jack
DeleteThe form says "Monetary instruments do not include (i) checks or money orders made payable to the order of a named person which have not been endorsed or which bear restrictive endorsements (ii) ...
Does a complete personal check (fully specified payee, amount, signature, date etc.) then be considered not a monetary instrument for this purpose?
Thanks.
I don't know the answer to that question. Could speculate, but that would not be helpful. Hopefully, one of our knowledgeable readers will post the answer.
DeleteThe solution, of course, is just to wire transfer the money. A lot cleaner. And, banks are supposed to file SARs for all sorts of suspicious deposits. This could include checks drawn on foreign banks. In short, I have a hunch (OK speculation) that the wire transfer is the cleanest of all and the one less likely to draw an SAR, particularly at the levels that most of the readers would be moving money from a foreign bank into a U.S. bank.
Jack Townsend
I did a wire transfer in the midst of my 2009 OVDP disclosure after notifying the assigned CI agent of my intention to do so. The agent did request to be copied on the transfer documents which I did. It was a large sum and was quick and efficient with no headaches what so ever. Whatever you do to bring funds stateside, do not do like this guy:
Deletehttp://www.justice.gov/opa/pr/2010/February/10-tax-143.html
His total amount was confiscated.
Anon123
He forfeited incident to a plea agreement. Whether, had he not pled, the Government could forfeit it all, is perhaps an open issue because of the Constitution's Excessive Fine prohibition. See United States v. Bajakajian, 524 U.S. 321 (1998), http://www.law.cornell.edu/supct/html/96-1487.ZO.html
DeleteAlso see the earlier blog posts on Excessive Fines, http://federaltaxcrimes.blogspot.com/search/label/Excessive%20Fines%20Clause
Jack Townsend
that virginia doctor, who sent money by post should be in jail at least for his stupidity.
Deletethe amount should be his yearly income and now he lost his license. This is inheritance and it should have costed him at most $40000 and he would have a fair chance to opt out.
Forfeited or Confiscated is there really a difference? The government had him over a barrel and used this position to take all his offshore funds. Kind of like what they are doing in their voluntary disclosure programs except they they only take 20% - 27.5% plus all the other gobbly gook in the programs unless you have a decent opt out result like Moby, Sally and hopefully many other to come. Its a legal blackmail system where the blackmailer is a powerful and broke organization desperately trying to increase collection of funds from a very vulnerable and confused target group. Namely immigrants and expats. Dr. Silva was neither of these but he did inherit the funds and probably should have made a disclosure prior to trying to sneak the funds back home and hide the past.
Delete"fully specified payee, amount, signature, date etc."
DeleteIt is common to send a/c payee crossed check to India where you have the name of the person.
A crossed a/c payee check in the indian bank means that the check can be deposited only in the
bank account of the person in whose name the check is issued.
If it is a blank check or a check that says self pay cash then you will have to declare. if you have sent a crossed cheque to your father/mother or relatives who has an account in India or other foreign country then i do not think you will have to file the FinCen 105. However to be on the very safe side, it does not hurt to file one. I think you need to file one within a month of sending the check. Too many rules and regulations in this area that i would err on the cautious side by filing the Form.
Because of the huge penalties to the bank for NOT filing a SAR when warranted, banks will generally err on the side of caution and file an SAR anyway.
DeleteBanks are specifically prohibited from informing a customer that an SAR has beeen or will be filed, and inquiring into whether an SAR will be filed could generate enough suspicion to cause one to be filed.
Because banks often file SARs when in doubt, there is a huge number of SARs filed so just the filing of one may not be enough to generate a lot of attention.
Can the IRS go after a spouse for FBAR penalties on his wife should have been filing (didn't have FBAR reporting requirements himself)? OR can they only go after the non-reported income and assess the tax liabilities related to the income for the years they filed jointly?
ReplyDeleteAny input would be great.
This is an interesting question. I am not a lawyer, but I would surmise
Deletea) Since the FBAR penalty is not a tax penalty, tax provisions (including innocent spouse relief) would not apply
b) Instead, general state law treatment of debts would apply. Penalties for violations preceding marriage would be the spouse's alone.
c) Penalties for violations during marriage would depend on whether the state is a community property state or not. In a community property state, debt is considered to be joint.
Thanks for the reply.
DeleteState of residence is not a community property state, however the couple will soon be moving overseas. The husband has filing obligations here in US, but wife plans to surrender green card upon leaving this year.
Just wondering if they could assess FBAR liabilities on the husband, if audited. All money overseas will remain in wife's name, so no reporting requirements initially, until retirement of husband is over $10,000 in that country at which point he will file FBARs.
If i bring in Canadian maple gold coins denominated
ReplyDeleteas 50 dollors, should the face value be used for declaration($50) or the market value($1700)?
Let me put it this way -- if I bought a rare stamp in, would the value be the penny or whatever its face value is ?
DeleteThere are two questions (and two answers.) One question is, what is the law. The other question is, what is likely to happen in practice.
DeleteMy take is that there is a strong likelihood that in practice they would be valued at bullion value, and you would have to fight this in court.
The rare stamp would be treated differently IMHO since it is not a monetary instrument and you would have a hard time convincing anyone that it is worth its face value.
Anon @Mar 13, 2012 12:18 PM
ReplyDeleteYour attempts to try and avoid a wire transfer are frankly bizarre. Indeed, they are far more likely to get you into trouble than doing a simple, clean wire transfer. With an international check, you have the possibility of an SAR, plus the possibility of long delays while the check is collected (and remains in limbo), plus foreign exchange risks etc. etc. Physically transporting items has its own risks such as loss, theft etc. And items declared at customs (if anonymous instruments) generate CTRs (currency transaction reports) as well. Just do a wire transfer, and it'll arrive immediately.
I am not sure if the foreign banks will do the wire tr. properly. What do I do if the money is not received by the US bank? That is why I am reluctant with a wire tr. and not trying to avoid it. carrying the checks and filling out 105 is more reliable??
DeleteThat's fine if you fill out the 105. The only obligation you have is to report. You will be much more likely to draw inquiry with the 105 than with a wire transfer -- not that you should be afraid of an inquiry, but it can be a hassle that would likely be avoided with a wire transfer. Plus, as another commenter noted, wire transfers are much safer than other means of bringing money into the U.S.
DeleteJack Townsend
Is a wire transfer better regardless of the banks involved? Say, from one of the 11 banks being investigated likely to be a red flag? AJ
ReplyDeleteYes, a wire transfer is better. It is a showing of good faith to send it through a relatively transparent system (wire transfer) rather than try to secretly bring it into the country some other way. And there is not flag in the bank system to file an SAR for wire transfers from those banks. Finally, and again, given the volume of all wire transfers and large amount wire transfers (a subset of all), for most "minnow" transfers, the system will just absorb the wire transfer without further ado, regardless of the banks involved.
DeleteJack Townsend
Hi Jack
ReplyDeleteRegarding the monetary instrument question: Wire transfer wasn't that common in my country. Things are different now.
As I read and re-read the statements in the form, it appears that they want information on "instruments" that can change hands for value. That could be why a check with payee name without endorsement or restricted endorsement is not considered a monetary instrument.
So how does one deal with history? If a legitimate and small transfer (out/inbound - does it matter?) happened years ago thru a duly completed personal check what if anything can be done now?
Thanks.
I am not sure I understand what you are asking. Things that happened years ago can't be undone. There is nothing that can be done about it now except (1) join OVDI which, in broad strokes, for the right price forgives past problems or (ii) wait out the statute of limitations.
DeleteJack Townsend
Hi Jack
DeleteI am the poster of the question above (Mar 13, 2012 09:21 PM). Sorry I wasn't clear before.
My facts are:
- Minnow in OVDI already
- Made 4 or 5 outbound transfers over the last decade (to help parents). One transfer was above 10K (still a minnow amount)
- Transfers were always a fully completed personal check that cleared like a domestic check would, except it took a few weeks
- Didn't know and didn't file form 105, don't think it applies in this case (hopeful is the word)
My questions are
(1) would all past sins (related to form 105 and any other forms that I will learn about in the future) be forgiven with the OVDI in-lieu of penalty
(2) whether this was really a sin (as I understand it, complete personal checks are not monetary instruments, per language in form 105)
(3) what is the SOL for form 105?
and this rhetorical squawk: how many forms with million dollar penalties does the government need for the same money.
Thanks, HF
My previous post:
The form says "Monetary instruments do not include (i) checks or money orders made payable to the order of a named person which have not been endorsed or which bear restrictive endorsements (ii) ...
Answers:
Delete1. Yes.
2. Don't know. You need a lawyer and fact specific development and advice.
3. Don't know. I suspect 5 years.
Jack Townsend
Many thanks Jack for making me (and perhaps some others here) aware of another trap. I wonder if there is a place to start reading, even if I could, that can exhaustively explain what can and cannot be done. A year into this mess I still can't wrap my head around how the barn door was so wide open and punishment so severe. Best wishes, HF.
DeleteIf it is a personal check (not a bearer check) then you do not have to file the FinCen 105.
DeleteI don't understand your obsession with avoiding the wire transfer. I think you need individualized counsel (and pay for it) before you try to rely upon comments on this blog that are made without all the nuance that is inevitably involved and that you do not give here.
DeleteGet a lawyer and deal with the nuance.
Jack Townsend
By the way, this anonymous posting a comment above form 105 is not I with 4 bank a/cs! I just wanted to clarify. How to use a better identifier than just anonymous, so as to avoid indistinguishable anonymous, I may be a novice using these blogs I have to admit.....anonymous-z.
DeleteMore Q's on wire transf.: Total offshore bank a/cs - 4 banks total about 500k. How much is minnows? if all this is wired, is that ok? Would like to do fully legally, do not want the wrath of the 'authorities'. All are CDs, kept renewing, all from taxed,post W-2 income from the US. Does Fatca force the foreign banks to send 1099 to IRS AND the customer? Otherwise, the customer has to estimate and can be at odds with the 1099 amounts. Ideally, IRS should have provided true amnesty saying bring all your offshore money here and pay just a 25% of max balance, no 8 year business, no piles of paperwork, way less work for all and time saved.
ReplyDeleteWith $500k involved, you really need to seek the advice of any attorney who can answer these questions in the context of all of your facts and circumstances.
DeleteBest,
Jack Townsend
"Effect of foreign jurisdiction laws. The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause."
ReplyDeleteI love it. The IRS says you have to break the law.
Those supposed foreign jurisdiction laws prohibiting a foreign depositor from disclosing information about his own account are shams, serving no other purpose that giving the foreign depositor (in this case a U.S. depositor) a way to claim that he or she is legally prohibited from disclosing account information. Foreign countries have no legitimate interest in prohibiting depositors in their banks from disclosing information about the accounts to whomever they choose.
DeleteFor example, if a U.S. depositor tells his children about the account, has he violated foreign law or, if he has technically done so, would the foreign country ever prosecute? The answer is no. If the U.S. depositor tells his Government about the account, has he violated foreign law or, if he has technically done so, would the foreign country ever prosecute the depositor. The answer is, of course, no.
Would these tax haven countries seeking deposits from others (including U.S. persons) get any deposits if they required absolute secrecy so that only the depositor and the bank would ever knew about the account? I am sure the Swiss would like a rule like that because it would permit them to steal the money when the depositor died or became incapacitated (because no one would know about the account), but I am equally sure that no non-Swiss person would deposit into a Swiss account if the Swiss would prosecute the disclosure of the account to whomever the depositor chose to make the disclosure.
Jack Townsend
What about joint accounts with non-US persons, where the non-US person does not agree to a disclosure to a a foreign government? Disclosure without agreement of all account holders could breach privacy laws.
Delete(Just curious.)
I think it would depend upon whether the non-US person is a real party in interest or just a name joint account holder. And, even then, if the U.S. person is also a real party in interest and not just a name joint account holder, I doubt that the tax haven jurisdiction with the so-called secrecy law could prosecute a person with a real interest for disclosing information about his or her account.
DeleteJust my view, but the truth is -- known to all -- that these secrecy laws are intended to thwart legitimate governments from getting information they are entitled to get. So you will find no sympathy in the U.S. for subjecting yourself to any risk of prosecution in a foreign government for supplying the U.S. information it is entitled to to enforce the tax laws.
Best,
Jack Townsend
I wasn't thinking about tax havens. I was thinking about joint accounts with one's spouse a regular country. (One for which the US would be a tax haven, what with its low tax rates.)
DeleteThe solution to the dilemma is not to have a joint account with one's spouse. But one needs to know about the problem first. One also has to hope that said spouse does not have an accident or become seriously ill.
Sally, and Jack;
ReplyDeleteI too am interested in this question - for scenario that jointly held 'personal'/'household' accounts, outside of US, in country (not a 'tax haven') of longterm permanent residence - co-owned with a spouse who has no US tax obligation, is not a US citizen/'person', and strongly objects to the disclosure of account#s and contents on the grounds that it breaches her/his financial information, and runs the risk of identity theft since FBARs (and FATCA?) information is not protected from sharing more widely as are tax returns. The country in which the accounts are held is where the couple live, work and they are just ordinary accounts. Any account interest is duly reported to the country of residence directly from the bank, for income tax purposes.
As well, in the case of completely non-personal non-US accounts belonging to: (a) an employer (with no personal interest or gain), or (b) voluntary/professional/charitable organization's accounts (ex. if us person holds role of treasurer or board member with co-signatory powers - again, no personal interest or gain) - how to solve the dilemma of reporting on 'foreign' accounts where the real owner (ex. non-US employer) has no tax or reporting obligation to the US, and objects to the reporting on these accounts? Disclosing the information over the objections of the legal owner of the accounts would be a privacy law issue, and also opens a board member treasurer up to breach of fiduciary duties.
This continues to be a real and vexing problem - is the only answer for US'persons' living outside the US, to avoid any joint spousal (or other familial accounts with non-US persons), any non-US employment where the duties include holding co-signatory powers, and any voluntary, charitable, community and professional roles involving the same?
Anonymous-vexed
Am I considered to have financial interest in a foreign bank account that I am joint on with my elderly father (non US citizen) if he is the principal owner of the account and pays taxes on the account in his home country? I know this is to be reported on the FBAR form but also on the 8938?
ReplyDeleteMy understanding is that you do have a financial interest in the account and thus have an FBAR reporting requirement and an 8938 reporting requirement. Keep in mind that these are information forms only. You need to properly report your income tax consequences from the account, which I presume would be only a proportionate share of the earnings in the account. You might want to attach a statement to the return explaining why your share of the income is less than all in the account.
DeleteJack Townsend
Jack,
ReplyDeleteIn what type of situations can a US person say that he does not have financial interest in a foreign bank account?
Can a US person who has a joint account with his parent not claim that he does not have financial interest in the account if the money belongs to his parents?
Thank you.
You should seek professional advice on this because it requires nuance beyond what we could develop here.
DeleteBest,
Jack Townsend
I just came back to this because I know you think it is an easy question as to which there should be an easy answer. The question is easy. The answer is not because it requires nuance that just can't be developed in a blog medium. The risk is that you get an answer not tailored to the specific facts and therefore take an action that will end up causing you great harm. That can only be developed with probing interaction with a professional who is sensitive the potential landmines that you could encounter.
DeleteBest,
Jack Townsend
if your name is on the account you have to file part IV of FBAR, signature authority but no financial interest.
DeleteI am not sure that the answer is right. It might go on Part III. But, if you report the account in good faith uncertainly as to which Part it applies to, I don't think the IRS / Treasury will quibble. Keep in mind that the ultimate issue in a good faith arrangement of this sort is whether the U.S. taxpayer(s) involved correctly report the income from the account. (I don't include in good faith arrangement drug dealers and that lot.)
DeleteBest,
Jack Townsend
Part III is for financial interest, regardless if the name is on the account or not. Part III can be used for nominee type accounts where ownership (financial interest) belongs to US persons. If the person above claims that funds belong to parents then he has no financial interest but has an authority over the account (move funds) that needs to be reported. Best advice is write an email to FBARQuestions@IRS.gov with a detailed description and they will guide you.
ReplyDeleteHi Jack, I have wire transferred post tax $11K to my savings account in India couple of times. Most or all of that amount was then transferred over to investment account. Most of it was then used to buy stocks. Of course 22K I transferred in 2011 does not reach the threshold for 8938, but total value of stocks held is over the threshold. How does one report this on 8938? I didn't find anything in IRS FAQ related to internal transfer between accounts. Thanks!
ReplyDeleteIf one holds shares of a foreign Mutual Fund, is it reported in Form 8938 Part II line 7 or line 8? Line 7 is for an asset that "is stock of a foreign entity or an interest in a foreign entity" and Line 8 is for an asset that "is NOT stock of a foreign entity or an interest in a foreign entity"...
ReplyDeleteAlso, at the risk of sounding naive, Is there a definition of an 'entity' for IRS purposes?
Any comments would be greatly appreciated.
Thanks,
HB
I've just encountered an interesting scenario with form 8938 that I have not been able to resolve and wonder if someone might be able to advise? The scenario is: taxpayer is to lodge a dual status return for 2012, non resident at the end of the year . Taxpayer lives abroad, tax home overseas, physically present abroad for more than 330 days, below applicable filing thresholds, so seemingly does not need to file form 8938.
ReplyDeleteHowever, for the physical presence test (same one as for foreign earned income exclusion), form 8938 says: "A US citizen or resident who is present in a foreign country... at least 330 full days". In this case the taxpayer was physically outside the US for the appropriate time, BUT was not a resident during the full 330 day period - part way through the taxpayer became a non resident. Does that suggest then that the taxpayer DOES have a 8938 filing requirement?
If yes, thist seems to go against the idea of greater flexibility to taxpayers abroad (ie with higher thresholds etc), and although the taxpayer is not required to report information for the period of non-residency, the taxpayer is obligated to file? In all the documentation I have seen thus far, the language refers to a 'resident who is present'. Perhaps a sharp legal mind (e.g. Jack?!!) or someone with experience in situations where something similar occurs with the FEIE might be able to advise? Thanks!