Sunday, April 1, 2012

IRS Comparison of Form 8938 and FBAR (4/1/12)

The IRS has posted a web page titled "Comparison of Form 8938 and FBAR Requirements", here.

Addendum 4/4/12:  In the comments below, readers will find discussions of whether Indian Demat accounts are reportable on Form 8938 and/or FBAR and whether they should be included in the penalty base in OVDP and OVDI.  As of this posting on 4/4/12, I am not sure of the answers to these questions but will post in the blog itself if I get reasonably certain answers.  Otherwise, readers should refer to the comments.  For discussions as to the general characteristics of these Demat accounts, see the following:
  • Securities and Exchange Board of India Frequently Asked Questions, here in html and here in pdf.
  • Wikipedia, here.
Update 4/5/12:  On 4/4/12, I polled a practitioner group that I belong to in order to determine if anyone knew how these accounts should be treated.  No one responded.  Since someone in the rather large group responded, I have to assume that most did not really know what I was talking about and that, if there were experience in the group, no one acknowledged it.  I am a bit surprised at that.  Hopefully some reader will be able to offer further insight.

Update on 4/11/12:  See Sebastien Chain and Tamara Woods, Form 8938 – Foreign Reporting Trap for the Unwary (Tax Blawg 4/11/12), here.

43 comments:

  1. I own a number of inherited direct equities that are held in a foreign brokerage type of account that only allows me to view or sell them. The individual stock values are relatively small amounts (few thou each). Reading the comparison chart it sounds like I am only required to report these as a single account on 8938 and not at all on the FBAR. Does that sound right? The problem is that on my ODVI package the attorney counted each one separately on the FBAR and that put me over the 25 account threshold for reporting the details on the form itself. Reading the OVDI FAQ's I am unclear if including these on the FBAR was correct.
    1. Should I amend the FBARs already submitted to take out these stocks, which means I will have to add the details of all the other bank and savings accounts to 8 years of forms and is a lot of work.

    2. I am unclear what to do moving forward, 2011 and on, should I just continue to report more than 25 accounts which is consistent with OVDI package, or follow the form instructions and leave them out. Is there any harm in leaving it as >25 or will it look like I am trying to confuse things?

    I don't want to go to my attorney right now as am very unhappy with him over charging me (15k to submit the package!!!) and not following FAQ's exactly, so am thinking I might do them myself. Any advice would be huge help as don't know how to move forward.

    Thanks
    Long Term Resident with financial affairs in home county.

    ReplyDelete
    Replies
    1. To Nemo,

      I think you should visit with your OVDI attorney about the issue because he should have all of the information about the account and the equities. You might point him to your research and see if that would change his conclusion.

      Sometimes attorneys do make mistake, but active discussion of concerns between the client and attorney can help minimize mistakes and make the relationship better.

      Best,

      Jack Townsend

      Delete
    2. 'I don't want to go to my attorney right now as am very unhappy with him over charging me (15k to submit the package!!!) and not following FAQ's exactly, so am thinking I might do them myself."

      Is it 15k only for the attorney or is it for the CPA+ attorney. Also may i know the FBAR penalty you have to pay.

      Delete
  2. I think separate securities should have counted as only one account. But if you've reported dividends and income on all accounts etc. I don't see why it should be an issue. You're also required to report all foreign assets in separate letters.


    The main reason to file FBARs reporting would be if you intend to opt out -- in that case, the fewer accounts, the better.

    ReplyDelete
  3. I find this comparison chart to be helpful. It addresses previously unclear issues, e.g., foreign real estate (which was ambiguous enough that in addition to Jack's 8938 post, there was a need for a separate 8938 post specific to real estate) and foreign bullion.

    However helpful, there is still gray area regarding the new form. I would hope that, given that the form is brand new, and IRS guidance is limited, the IRS would take a lenient attitude toward any errors made by taxpayers filing this new form.

    I can't help but express frustration at the existence of two separate forms, the FBAR and the 8938, each borne by a distinct statute, each unrelated to the other, whereby a foreign asset could be reportable under one, both or neither of the two. The time and effort involved in learning and applying two distinct bodies of rules, and the redundancy, demonstrates wasteful government and the difficulty of our tax code.

    ReplyDelete
    Replies
    1. This comparison does not help with foreign real estate that is leased. If there is income to be reported on 1040, then is it reportable on 8938? Lower down it clearly says real estate is not included.

      Delete
    2. if foreign real estate is leased and if the funds from lease are deposited in a bank account then that bank accounts needs to be reported on 8938

      Delete
    3. What if the bank account to which the funds are deposited belongs to a non-US person, who jointly owns the real estate with a US-Person, and the non-US person keeps the all the proceeds? Should the income be reported on 1040, and 8938, even if US person does not receive any income?

      Delete
    4. If the real estate is jointly owned, the income is also jointly owned and the US person's share will have to be reported on the US person's 1040. And, logically, you will have to report your share of the non-US person's foreign account on Form 8938, unless you have no beneficial interest in the account (which, in turn, would mean that you have made a gift to the foreign person by the time the rental proceeds are deposited). In this case, you better be prepared to explain what happened to your share of the income that you report on the 1040. If you can't explain it, the IRS could take the position that the account was reportable on the Form 8938 and assess the penalty accordingly.

      Jack Townsend

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    5. Jack, I will really appreciate if you could get some answers from the attorney community regarding DEMAT account and its reporting on FBAR and Form 8938. Also any information regarding penalty base calculation will help.

      We inherited paper share certificates (no mutual funds) and dematerialized them into a India DEMAT account for safekeeping recently. Looks like this move has triggered FBAR reporting. A Savings account was required to be opened and linked to this DEMAT account so that dividends paid by the shares were directly deposited into the Savings account. So status of reporting of DEMAT account or its content may have a big financial impact on us.

      Securities Exchange Board of India (SEBI) says that electronic shares certificates can be converted back to paper certificates.

      FAQ from SEBI regarding demat accounts:

      http://www.sebi.gov.in/faq/faqdemat.html

      Delete
  4. Jack, Have lost all trust in current attorney, other mistakes made were shockingly careless ones on IRS forms that had real $ impacts, not just due to lack of understanding of FAQ. (he seems to think the FAQ's don't apply to him). He also told me to report Pfic sales on Schedule D which I think is incorrect. Can you advise on when is best time to switch attorneys? I have not had IRS agent contact me yet so it seemed like a good break point to do it now.
    I need someone I can trust,
    Thanks for your help.

    ReplyDelete
    Replies
    1. The time to switch to a new attorney is when you have lost all trust in the current attorney and the trust cannot be repaired by candid discussion directly with the current attorney. It is pretty much that simple.

      The key fuzz concept there is that the trust cannot be repaired. I think your issue -- at least one issue -- had to do with the reporting of an account's underlying assets on the FBAR rather than the account itself. That seems like a simple issue, but again I am not as close to it as your attorney and he may know something I do not know. And, I suspect that, even if the delinquent FBARs misreported but otherwise identified the bank and the account and the underlying income is reported on the amended returns somewhere, the IRS is not going to footfault for confusion. Any errors of that nature can be called to the attention of the agent when the agent makes contact.

      If you cannot restore trust and do move to a new attorney, you will undoubtedly have duplicate costs. That should be factored into the equation of whether you should move to another attorney.

      Best,

      Jack Townsend

      Delete
  5. Hi Nemo

    When you say "I own a number of inherited direct equities that are held in a foreign brokerage type of account that only allows me to view or sell them."

    are you referring to a Demat (dematerialized) securities account? If not I apologize and my subsequent post may not be useful to you.

    From what I understand a "Demat" account is to be reported on FBAR. Directly held paper stock certificates are not to be reported on FBAR (but to be reported on 8938 and the comparison chart is referring to this difference).

    However I believe for FBAR purposes, the Demat account is to be considered as one account because quarterly statement shows total asset value of all stocks. So your attorney probably made a mistake there.

    I was confused earlier whether Demat account is to be reported on FBAR or not. This particularly because they are just stock certificates in electronic form and "Demat" account is a Depository account and not a brokerage account. There is no indication from IRS that such an account is not to be reported so I believe it would be safe to report the account. It is strange that paper certificates are explicitly excluded from FBAR reporting. So simply the process of converting paper share certificates to electronic form brings up the FBAR issue.


    Directly held paper stock certificates are not to be reported on FBAR but required to be reported on the new form 9838. Moreover, I believe, the new form requires other details such as address of company to be reported. It is going to be really painful for immigrant especially for people who inherited/had old paper stock certificates from their home country. Valuation is also going to be tedious.

    ReplyDelete
  6. Hi Anonymous Apr 3, 2012 02:10 PM/Others,

    I have a DEMAT account which has some units of a single company stock, units of a few mutual funds and some cash. All of them combined totals to a few thousand $. Should I be reporting all of them as one account with my DEMAT account number on my FBAR. or should I be separately specify each of my mutual fund, my stock and cash. I was not sure as well what I should specify as account number and address if I disclose my mutual funds and stocks separately. I am about to file my FBAR in a day or two and have contacted a few CPAs and no-one seems to have a clear answer. The CPA with whom I do my taxes asked me to file it as a single DEMAT account, select "Other" for type of account and describe it as Mutual Funds/Cash. It would be very helpful if anyone who has done some research in this can advice.

    Thanks

    ReplyDelete
    Replies
    1. I don't have personal experience with DEMAT accounts, but found this description in Wikipedia: http://en.wikipedia.org/wiki/Demat_account

      Based solely on the Wikipedia explanation, the DEMAT account is simply an electronic format for what formerly was paper ownership certificates. If that is the case, I speculate -- this is meant to convey uncertainty -- that the FBAR would require analysis of each DEMAT investment -- i.e., stock held in paper is not reportable, so stock is not reportable held in DEMAT format; mutual fund could be reportable if it is a financial account for U.S. purposes, etc. And, I speculate each reportable underlying investment would be separately reported on the FBAR just based on the Wikipedia description. As I understand the description, the DP is the agent of the issuer, not of the investor.

      Phil Hodgen makes this point:

      Demat account. Super-secret bonus points for the truly aware — you may end up with an account at a stock brokerage and a demat account as well. Even though the demat account is really just the electronic equivalent of a stock certificate (and thus should not be a reportable item for Form TD F 90-22.1) in fact I believe the IRS will have a different perspective. The IRS thinks everything is reportable and wants to know the name of your poodle.

      http://hodgen.com/us-tax-and-the-indian-stock-market/

      I don't know what the IRS's position on this is.

      I hope that some knowledgeable readers can give a better answer than I have just given.

      Best,

      Jack Townsend

      Delete
    2. I had sent an email to IRS FBAR helpline more than two weeks back regarding whether demat account is to be reported on FBAR but have not gotten a response yet. I had explained in my email some background about demat account i.e. It is a depository service account etc.

      Delete
    3. If you get a response on the position IRS is planning to take, can you please post it here?
      I have given some of the reasons below on why the DEMAT accounts should not be treated as Financial Accounts and hence not reported on FBAR.

      Delete
    4. Yes I will post it if I get an answer from IRS FBAR helpline to my email query.

      Delete
    5. Another blog post on mutual funds and fbar reporting - Not specific to DEMAT accounts, but talks about the uncertainty of the definition of account - http://intltax.typepad.com/intltax_blog/2009/09/fbar-reporting-for-foreign-mutual-funds.html

      Delete
    6. I called up FBAR hotline and they advised me that each mutual fund holding even if it resides in a brokerage account must be reported as a separate account. This view given by the FBAR hotline was contrary to what I was told last year. This year I am going to take the position of the article i.e. count each mutual fund as a separate account and report it in addition to my brokerage account - unfortunately as a result of that my financial accounts exceed 25!

      Delete
  7. The IRS may want you to report and include the
    DEMAT accounts as part of the FBAR penalty calculation. I am planning on listing the following
    as reasons why DEMAT should not be treated as Financial accounts.




    Demat accounts are not technically brokerage accounts in the sense they are used in US as well as the defined by Foreign Bank and
    Financial Accounts.

    This is because

    a) dividends, interest, cash do not get deposited in the demat account.

    b) In India, NSDL (National Securities Depositories Limited) and CDSL (Central
    Depositories Services Limited) are the only two agencies that act as the
    central or main Depositories. NSDL and CDSL have appointed various banks,
    financial companies and brokers as intermediaries, known as Depository
    Participant (DP), to look after various activities such as opening and closure
    of DEMAT accounts and securities transactions.

    c) Banks in India should register with RBI (Reserve Bank of India similar to
    Federal Reserve), Brokerage houses with SEBI (Securities and
    exchange Board of India similar to US securities exchange commission).
    Depository participants (DEMAT stores) do not register with either. So even in India
    they are not considered as financial accounts.

    d) They are a electronic proxy for paper share certificates. Paper share certificates
    and bonds need not be reported in FBAR.

    e)You cannot effect a direct sale from DEMAT
    account. You need to move the stocks from DEMAT
    to a brokerage account and then effect a sale.

    f) Since there is no cash, interest or dividend associated/deposited in the DEMAT account there
    are no taxable events with respect to DEMAT accounts

    ReplyDelete
    Replies
    1. Anon - these points are excellent. I agree completely with the logic. I dont think Demat accounts are reportable on FBAR.

      Delete
    2. Although there might be reasons for not reporting a DEMAT account itself, I am not sure if a mutual fund purchased through a DEMAT account is not reportable as well - because they would still qualify as PFICs unless my understanding is wrong. And the original question that was asked about how to report such mutual funds (account number and address of the institution) still holds.

      Delete
    3. If the appropriate testing point for FBAR and 8938 reporting is the mutual fund rather than the DEMAT account, the issue is whether the mutual fund is a reportable financial account. I don't think that the PFIC characterization of the mutual fund answers that question. The PFIC characterization addresses the income tax reporting for the mutual fund, not its reporting on the Form 8938 or FBAR.

      Jack Townsend

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    4. 1) It is irrelevant whether India considers a particular account a financial account or not.

      2) Are you asking whether these DEMAT accounts should be included as part of the penalty base in the VD programs ? If any of the stocks in the account paid a dividend, then at the very least that stock would be part of the penalty base for the VD program. I speculate that the entire account might not be included in the penalty base. If there was any activity in the account (such as a transfer to or from a brokerage account), it would definitely be included in the penalty base.

      3) A depository account is definitely a financial asset, so it should be included in Form 8938.

      4) For FBAR purposes, its less clear. It seems to me it should be included since it is an account linked to securities and is offered by a financial institution.

      If someone is not in the VD programs, my simple question is -- what harm can there come from reporting it on the FBAR ? Why waste time and energy and come up with convoluted explanations of why it should not be included ? Just include it, it should be 3 lines, and be done. For people in the VD programs, see point 2 since the program penalizes people on assets that are not FBAR reportable (if they yielded income) and does not penalize people for mere reporting violations if they had no income. So it doesn't matter how its characterized.

      [ For someone in the VD programs and planning to opt out, its a different matter. But this still smells like a financial account to me]


      If you think that excluding the account from FBAR reporting may remove it from the penalty base in the VD prog

      Delete
    5. Jack,
      If there is one person who has been of immense help going through this painful process it is you.

      Delete
    6. This is a very good answer. However, something seems to have been left off at the end.

      I am not sure that I agree with 2) where you say that the stocks in the DEMAT would be part of the penalty base if they paid a dividend. The dividend proceeds would be part of the penalty base if it were deposited into a foreign financial account, but stock held by DEMAT should not be subject to a penalty based upon whether it paid a dividend or not.

      I am going to poll my attorney group on this.

      Best,

      Jack Townsend

      Delete
    7. Jack,
      Here is how it works.

      The electronic stock certificates are dematerialized and deposited in a DEMAT account.
      (If you remat a demat account, then they will provide you with the physical certificates and debit the DEMAT account).
      Usually a Bank account is linked to a DEMAT account. Any dividends on the stocks held in the
      demat account will be credited to the Bank account.

      It is no different than a process where you have a physical stock certificate in India. In such a case the company will send you a dividend cheque or if you have specified a bank it will do a direct deposit.

      Reporting DEMAT in FBAR/8931 *maybe* fine.
      It is more to do with including the same for the FBAR penalty.

      Till about early 2000, indian citizens usually had physical certificates. New allotments in companies were also in the form of physical certificates. However transferring, paying dividends etc by the company became difficult and DEMAT started to become popular. Many original allottees of companies like HDFC, Reliance, SIDBI (all top companies in India)
      held the stocks as physical certificates and when these were passed on as inheritance etc with DEMAT becoming popular, investors started
      converting the physical certificates to electronic format and holding them in DEMAT form.

      Please poll your attorneys and i would not be surprised if you now have more knowledge about DEMAT from this forum than any of those other attorneys or the IRS agents.

      It would help a whole lot for a huge number of indians in the OVDI if we can get the DEMAT accounts to be not included in the penalty calculation.

      As mentioned earlier, the depositary participants are not registered with RBI or SEBI.
      Banks as well as brokerage houses ie financial institutions need to register with either the RBI
      or the SEBI. The fact that depositary participants do not have to register with either means Indian Govt (where demat originates) does not consider it as a financial account.

      What kind of proof would IRS require for DEMAT
      to be not considered as a financial account?
      We can try to marshall the appropriate facts.

      Delete
    8. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1315461854747.pdf - FAQ on Depositary participants

      Delete
    9. "It is irrelevant whether India considers a particular account a financial account or not. "

      That may be true to an extent only. Most if not all the financial rules/regulations in India are borrowed from/similar to US or UK. So there should be close parallels in how accounts are treated in both countries.

      For eg if a regular Bank which accepts deposits/makes loan
      is NOT considered a financial institution in India, then US could still consider it as a BANK
      a financial institution. (But that is not the case since such a bank is a financial institution in India also)

      However in this case of DEMAT, i do not see a functional equivalent in the US. It is neither a bank nor a brokerage.

      To take this a little further let us take the following example. Person A and B are US persons.

      Person A has 10000 shares of Company A and he holds it in physical format. The company sends him yearly checks and he deposits them in Bank A.

      Person B has 10000 shares of company A and he has it in a DEMAT account. The DEMAT account has the bank account in BANK A linked to it. The company dividends in this case are directly deposited to Bank A linked to the DEMAT account.

      Both Person A and Person B should include the Bank Account (Bank A) for FBAR penalty calculation.

      Person A would not include the valuation of the stocks in his FBAR penalty calculation (stocks are held in physical format) and Person B should include the DEMAT account (not held in physical format) for his inlieu FBAR penalty calculation.

      Treating A and B differently does not add up.

      Irrespective of what i feel, i am trying to get
      enough facts to see how best to present this case so that the Service agrees to our point of view.

      Delete
    10. Jack (and also Anonymous @Apr 4, 2012 08:22 AM)

      Regarding my point 2, my understanding is that any asset that yields any income (even real estate) is subject to penalty in the VD programs. So it does not matter whether the stocks are held in paper certificate form or a depository account. If a stock issues a dividend, it is counted in the penalty base. To Anonymous, that means no distinction between your Person A and Person B. The only distinction might be if the account held both dividend and non dividend bearing stocks. The question is whether the whole account would be penalized or just the dividend bearing stocks therein. My guess is the whole account.

      Now, if someone chooses to opt out, then its a different ball game. In that case, if the account is not considered a financial account, then it might not be considered for a regular FBAR penalty. Anonymous, if you are planning to opt out, your efforts are likely worthwhile. Although I think any account held with a financial institution would be considered a financial account.

      Delete
    11. I hope what you are feeling is true because I too have a DEMAT account and also a few paper share certificates. It is not clear to me whether Person A from your example is to not include value of paper stock certificates into in-lieu penalty calculation. Does IRS FAQ mention this anywhere that paper certificate value is not to be included in penalty base? This because one can argue that situation is similar to case where if real estate produces rental income, value of real estate is included in in-lieu penalty. Real estate itself is not reportable on FBAR however rental income in a non-compliant bank account may trigger including real estate fair market value in in-lieu penalty. Similarly, should paper certificate share value be included if they produce dividend income?
      I hope not but it is only my hope. All this is very confusing to me. The penalty base value calculation is not clear to me.

      The other thing to note is that SEBI says that demat shares can be reconverted to paper certificates.

      Delete
    12. To Anonymous Apr 4, 2012 09:36 AM

      All noncompliant foreign assets are included in the OVDI penalty base. That is not because any law requires it, but because the IRS requires the taxpayer to agree to inclusion in order to avoid all of the penalties that might apply.

      The taxpayer needs to factor this into the consideration of whether to opt out. For example, if the taxpayer had a noncompliant foreign financial account of $50,000 and other noncompliant foreign assets of $1,000,000 and no other bad facts (no entities and no evidence of willfulness), the taxpayer might be a very good candidate for opting out. Upon opt out, the maximum nonwillful FBAR penalty would likely then be $10,000 per open year (open years would be a maximum of six and only one account), with the likelihood of being a significantly smaller amount.

      Of course, each situation will have different facts that must be factored into the decision of whether to opt out. Situations with less clear facts require seasoned judgment as to the risks of opting out.

      Jack Townsend

      Delete
  8. Anonymous Apr 3, 2012 02:10 PM

    I have never heard of the term DEMAT before, and I don't know if that is what I have. I still have the paper stock certificates for most of the stocks. The account is more of an online tool for me to view the balances and set up direct deposit instructions for payment of the dividends to my bank. I am planning to transfer the stocks over to an E-Trade Global Trading Account since they allow you trade on foreign stock exchanges. I think this will mean that I will no longer have to report them as FBAR or 8938 because E-Trade is US Financial Institution and will prepare the appropriate tax docs for me. I think this is a way to keep the foreign stocks but not have to deal with the reporting on them. Hope I'm right.

    ReplyDelete
  9. Jack, you said "no other bad facts (no entities and no evidence of willfulness)."

    Besides entities, what else could generally be other "evidence of wilfulness?" I can think of: untaxed principal, phony invoices to justify transfers of untaxed money to entities, use of nominees to hide ownership, meeting with foreign bankers in the US, cash given/received from foreign bankers in the US. Anything else?

    ReplyDelete
    Replies
    1. There are a lot of facts out there. And facts change in their "odor" depending upon context. For instance, although entities are generally bad, I can imagine circumstances where a good argument might be made and accepted that they are neutral in terms of culpability. So, rather than trying to catalog them, I just think someone with sensitivity to the issues needs to review the facts in detail and see if lipstick can be put on the pig.

      Jack Townsend

      Delete
  10. I think FBAR was easier to fill than 8938 especially with more than 1 bank account.

    I have about 10 bank accounts some with zero dollar. The instructions says to attach a continuation sheet if more than one account. If I am E-filing my taxes, how do i attach multiple sheets?

    I am thinking of the following:
    1) Fill the first sheet for all 10 bank accounts (with name, SSN, address and other details repeating in all 10 sheet. Each is a copy/paste of the other with different account numbers and amounts)
    2) Fill the final second sheet with summary of total interest for all foreign bank accounts combined.

    Print the sheets in the same sequence as they were filled and scan the sheets into another single PDF document. Sounds like a plan?

    Indian_2011

    ReplyDelete
    Replies
    1. do you have 10 CDs in one bank or 10 different banks? How can you summarize ALL interests into one amount on the 2nd sheet, that is to say, are you not going to fill sheet 2 for each of the 10 a/cs, i.e. 10 counts of sheet no. 2? Did the Indian banks give you max value and interest for calendar year 2011? Thanks.

      Delete
    2. I have 8 accounts in 1 bank and 2 in a different one. Some in Indian rupees and some in USD.

      Based on the 8938 instructions, I interpret that once the interest amounts have been reported on each sheet in USD, the sum total of all USD interest amounts need to be mentioned in the second sheet under the "interest" row.

      Indian banks gave me the interest paid on maturity....NOT on accrual with a 1099-INT like the US banks. So I am reporting the actual interest paid in 2011 on the CD without pro-rating it upto December 31st 2011. I termed all those CDs in 2012 so I can consolidate them to smaller number of CDs for easier reporting next year.

      Indian_2011

      Delete
  11. Hello Jack,

    I have a question, tried finding the answer in your blog and other places but could not get an accurate answer. Hoping someone here can answer this.
    Scenario 1:

    I have a CD account in a bank which got matured in 2011 and renewed to a new CD with different account number. Should I report these as separate account on FBAR and 8938?

    Scenarios 2
    I have CD A CD B and CD C. All three got matured in 2011 and I move all of those in to one CD D (no money was removed). Should I report these as separate account on FBAR and 8938?

    If we assume all the account are separate, we will be double counting the amount. Not sure what the right approach here.

    Thank you

    ReplyDelete
    Replies
    1. The answer is yes to both scenarios. It is true that reporting all accounts is double counting the same underlying funds, but keep in mind that both the FBAR and the Form 8938 are just information forms. There is no cost associated with double, triple, etc. counting.

      If you are concerned that the IRS might look for larger amounts of income during the year because of the higher amounts through the double (or triple) counting, you could attach an explanation of why the income reported is consistent with the amounts reported.

      On a related note, inside the OVDP and OVDI programs, such double counting is eliminated in determining the penalty base to which the percentage applies.

      Jack Townsend

      Delete
  12. One potential trap that's only been touched upon in discussion (at least that I've found so far) is the inclusion in 8938 of the question regarding when the account was opened. I happen to have an account that, for generally stupid reasons, I decided not to FBAR (it is basically a vehicle to pay my mortgage on foreign property, but still technically a bank account, so I know there is no excuse). The account never generated any income (less than $1 per year) as the balances always very low (less than 2,000 USD) for a couple of days a month. Because I since used that account to deposit proceeds from the sale of said foreign property, I decided to QD it for 2012 (my CPA advised the risk should be low). However, thanks to the question on 8938 about when the account was opened, I see a risk that if I do not check the "opened this year" box that the IRS may be inclined to check my old FBAR's and ensure that account has been included. Similarly, if I do check it, I've provided a fraudulent answer. Clearly it's better to leave it unchecked and hope for the best, but now it's one more thing to worry about for three years.

    ReplyDelete
  13. I would like to bring up the topic of India DEMAT accounts again as the last discussion on this forum was a few months back and we could not get fairly good information regarding their treatment in the OVDI program. Are these to be included in the FBAR? I did include them. If they are to be included, should they be part of the in-lieu penalty base of OVDI program. Any experiences that people might want to share with respect to DEMAT accounts in the OVDI? How are IRS agents treating them?



    -----------



    Just to recall, in India, a
    "Depository" is an organisation that holds securities in electronic
    form. It facilitates safekeeping of securities. To avail the services of a Depository an individual

    opens a DEMAT account
    via an intermediary or "Depository Participant" in order to
    "DEMATerialize" paper shares certificates into electronic form into the
    Depository. A DEMAT account is not a brokerage account and a person
    cannot buy or sell securities with only a DEMAT account.


    A DEMAT account is
    linked to a separate bank account and dividends associated with the
    securities are directly deposited into the bank account.

    ReplyDelete

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