Does the date June 30, 2011 mean anything to you? If you’re a "U.S. person" and hold foreign assets with an aggregate value of $10,000 or more, it should.
That's the deadline for filing a form with the U.S. Treasury with the cryptic name "Form TD F 90-22.1." This "foreign bank account report" (FBAR) gives the Treasury a birds-eye look at any foreign "bank, brokerage, or 'other' financial accounts" you held during 2010.
If you have a financial interest in, or signature or other authority over foreign bank, securities, or "other" financial accounts with an aggregate value exceeding $10,000, you must file the FBAR. That's true even if the account contains only precious metals or other non-cash assets, or generates no income.
Moreover, the FBAR isn't the only reporting obligation for your offshore investments. You must also acknowledge foreign accounts each year on Schedule B of your federal income tax return. And, if you hold more than $50,000 in non-U.S. assets, a special reporting regime I'll discuss in a moment may apply. Lucky you!
FBAR…or FUBAR?
The offshore reporting regime truly is FUBAR, or "fouled up beyond all recognition." However, as a U.S. person, you must deal with it.
Penalties for non-compliance are draconian. You can be fined $10,000 per unreported account for each year you neglect to file the FBAR. If you "willfully" fail to file the form, you face a fine up to $500,000, imprisonment up to five years, or both.
In addition, if you own more than 50% of the shares of a US corporation with a foreign account, the corporation must file a FBAR. You must also file a separate FBAR in your own name acknowledging the same account.
Similar rules apply to US partnerships. Even a single-member LLC, taxed as a "disregarded entity," is a "U.S. person" for FBAR purposes. Reporting rules apply to foreign accounts held by US trusts as well.
Expanded Disclosure for Offshore Interests Exceeding $50,000
Last March, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847). The HIRE Act significantly expands the scope of offshore reporting requirements if you hold more than $50,000 of "foreign financial assets." In that event, you must disclose on a yet-to-be-created IRS form:
• Any ownership of non-U.S. securities. This appears to represent a crackdown on the use of "bearer shares."
• Any financial instrument or contract held for investment from a foreign issuer or counter-party. This appears to require the reporting of offshore life insurance or annuity contracts.
• Any interest in any foreign entity. Reporting provisions in current law impose an obligation for U.S. persons who acquire or dispose of a 10% or greater interest in a foreign corporation or partnership to disclose that transaction. However, no disclosure for smaller interests was required—until now.
Thus, in our FUBAR world, you may be required to make four or more separate disclosures of the same investment or account. For instance, if you own a foreign account through a foreign entity such as a Nevis LLC, you'll need to file the FBAR for yourself, file the FBAR for the LLC, check "yes" on Schedule B, and possibly disclose your interest in the LLC on pursuant to the new HIRE Act requirements. Plus, you must file a separate annual disclosure form for the LLC—the specific form depends on how you've elected for it to be taxed.
Confused? We can help. Contact us for a consultation!
Copyright (c) 2011 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society, https://banyanhill.com/)
