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The Foreign Account Tax Compliance Act
(FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts. It certainly fills the pockets of the US government.
Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. You can call us directly to find out if the qualifications fit your case.
Reporting takes place on a Form 8938
This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season.
FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Almost all countries at this time are caving in to US demands.
A financial accounts includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit or any other account maintained with a financial institution or other person engaged in the business of a financial institution.
Financial accounts also generally includes any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution. This is not a all inclusive list.
What about commingled funds.
The reference to “commingled fund” appears in the definition of the term “financial account” in the FBAR instructions.
The instructions state that the term “financial account” generally encompasses accounts in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund.
Persons or individuals with a financial interest in, or signature authority over, a foreign commingled fund that is a mutual fund are required to file an FBAR unless another filing exception, as provided in the FBAR instructions or other relevant guidance, applies.
The IRS will not interpret the term “commingled fund” as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years.
Thus, the Internal Revenue Service will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund with respect to that account for calendar year 2009 and earlier calendar years, including hedge funds and private equity funds.
FBAR is required for accounts maintained with financial institutions located in a foreign country if the accounts hold non-cash assets. Gold , silver are examples.
An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.
Maximum value of account
The maximum value of account is the largest amount and not the average amount of currency and non-monetary assets that appear on any quarterly or more frequent account statements issued for the applicable year.
If a periodic account statements are not issued, the maximum account value is the largest amount of currency or non-monetary assets in the account at any time during the year.
Though the FBAR instructions direct filers to use the official exchange rate, the Internal Revenue Service has no official exchange rate and generally accepts any posted exchange rate that is used consistently.
FBAR is required if the account generates neither interest nor dividend income.
Other authority over a financial account means that a person, who has the power to direct how an account is invested but who cannot make disbursements to the accounts, has to file an FBAR.
FBAR is not required because the person has no power of disposition of money or other property in the account.
Exceptions to the FBAR filing requirement.
Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. government installations abroad, are not considered as accounts in a foreign country.
For this reason, these financial accounts do not have to be reported on an FBAR.
An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation need not report that he has signature or other authority over a foreign bank, securities or other financial account maintained by the bank and only if the officer or employee has NO personal financial interest in the account.
An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, need not file a report concerning signature authority over a foreign financial account of the corporation.
If the person has NO personal financial interest in the account and he has been advised, in writing, by the chief financial officer of the corporation that the corporation has filed a current report, which includes that account.
Taxes on Foreign Accounts – Foreign & International Tax Reporting – Tax Help ConsultantsView all posts by Michael Sullivan → ← FBAR Instructions – FBAR Filing & Reporting – FBAR Help IRS Final Notice Intent to Levy or Seize – STOP THE IRS NOW – IRS Letter, Notice 1058 →