GroundSkill
Determine which international account and entity reports are required and which accounts are covered
Foreign assets create reporting duties at home. A single taxpayer can owe an FBAR to one agency, an asset statement on the tax return to another, and entity information returns on top. This lesson covers the three reports in order: the FBAR for accounts, Form 8938 for specified assets, and the entity and transfer returns that cover corporations, partnerships, trusts, and large foreign gifts.
The FBAR (FinCEN Form 114) reports accounts to Treasury whether or not they produce tax. A United States person with a financial interest in or signature authority over foreign financial accounts files where the aggregate exceeds $10,000 at any time during the calendar year, absent an exception such as the officer and employee exceptions for authority without interest. Interest follows title and control: the owner of record holds a financial interest regardless of whose benefit the account serves, and signature authority means the power to control disposition by direct word to the institution. Covered accounts run from checking and brokerage accounts to commodity accounts, cash-value insurance and annuity policies, and mutual-fund-like pooled interests. The report is due April 15 following the year, with an automatic extension to October 15 and no special request needed. The report follows its own filing path to the Financial Crimes Enforcement Network: filers use the BSA E-Filing website to file the FBAR, and the form travels separately from the income tax return.
Luis, a United States person, owns a $7,000 Swiss checking account and holds signature authority over a $6,000 French account for his employer. Neither account exceeds $10,000 alone, yet the $13,000 aggregate does, so Luis, absent any exception, files the FBAR listing both. He files the report online through the BSA E-Filing System to the Financial Crimes Enforcement Network on a filing path of its own from his income tax return. Had the two accounts totaled $9,000 at every point in the year, no FBAR would be due.
FBAR Line Item Instructions Page 4
Who Must File an FBAR. A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.View on the source
FBAR Line Item Instructions Page 4
The FBAR must be received by the Department of the Treasury on or before April 15th of the year immediately following the calendar year being reported. FinCEN will grant filers failing to meet the FBAR annual due date of April 15th an automatic extension to October 15th each year.View on the source
FBAR Line Item Instructions Page 4
A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).View on the source
FBAR Line Item Instructions Page 5
the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another personView on the source
FBAR Line Item Instructions Page 5 — Signature Authority
Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.View on the source
Publication 54 Page 12
FinCEN Form 114 is filed electronically with the Financial Crimes Enforcement Network (FinCEN).View on the source
FBAR Line Item Instructions Page 12
Filers must use the BSA E-Filing website (http://bsaefiling.fincen.treas.gov/) to file an FBAR.View on the source
Form 1041 Instructions Page 39
Because FinCEN Form 114 isn’t a tax form, don’t file it with Form 1041.View on the source
FBAR Line Item Instructions Page 8
The FBAR must be filed electronically through FinCEN’s BSA E-Filing System.View on the source
A U.S. citizen holds two checking accounts at banks in France. In June the balances are $6,000 and $5,000. By December 31 the balances are $4,000 and $3,000. Is an FBAR required?
Form 8938 (Statement of Specified Foreign Financial Assets) is based on asset value and is filed with the tax return. A specified person, whether a specified individual such as a citizen or resident alien or a specified domestic entity formed to hold foreign assets, reports where the total exceeds the applicable threshold. The asset list has two parts: financial accounts at foreign institutions, and investment assets held outside accounts such as non-U.S. stock, interests in foreign entities, and contracts with non-U.S. counterparties. Thresholds move with the filer's situation: marriage, joint filing, and residence inside or outside the United States all matter. An unmarried filer living in the United States meets the line above $50,000 on the last day of the year or $75,000 at any point, while joint filers living in the United States meet it above $100,000 on the last day of the year or $150,000 at any point. Filers living outside the United States face higher thresholds. The form attaches to the annual return, from Form 1040 to Forms 1041, 1065, and 1120, and is filed by that return's due date with extensions. Accounts at U.S. payers, holdings under the dealers' mark-to-market rules, and the foreign equivalent of Social Security stay out. Filing Form 8938 does not relieve the FBAR duty where it otherwise applies; each filing stands on its own.
A married couple living in the United States and filing jointly holds a $90,000 French brokerage account and $40,000 of foreign corporate stock outside any account. Their $130,000 total on December 31 exceeds the $100,000 last-day line for joint filers, so they attach Form 8938 to their joint return. Had the same couple held only a $40,000 domestic mutual fund account, nothing would be reportable on the form.
Form 8938 Instructions Page 1
Unless an exception applies, you must file Form 8938 if you are a specified person (see Specified Person, later) that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold.View on the source
Form 8938 Instructions Page 1
Attach Form 8938 to your annual return and file by the due date (including extensions) for that return.View on the source
Form 8938 Instructions Page 7
Specified foreign financial assets include the following assets. 1. Financial accounts maintained by a foreign financial institution. 2. The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution. a. Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession). b. Any interest in a foreign entity. c. Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person (including a financial contract issued by, or with a counterparty that is, a person organized under the laws of a U.S. possession). For foreign financial assetsView on the source
Form 8938 Instructions Page 4
If you are a specified individual, your applicable reporting threshold depends upon whether you are married, file a joint federal income tax return, and live inside (or outside) the United States.View on the source
Form 8938 Instructions Page 4
If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at anyView on the source
Form 8938 Instructions Page 5
Example 2. I am not married and do not live abroad. The total value of my specified foreign financial assets does not exceed $49,000 during the tax year. You do not have to file Form 8938. You do not satisfy the reporting threshold of more than $50,000 on the last day of the tax year or more than $75,000 at any timeView on the source
Form 8938 Instructions Page 4
Taxpayers living outside the United States. If your tax home is in a foreign country, you meet one of the presence abroad tests described next, and no exception applies, file Form 8938 with your income tax return if you satisfy the reporting threshold discussed next that applies to you.View on the source
Form 8938 Instructions Page 1
An annual return includes the following returns. • Form 1040. • Form 1040-NR. • Form 1040-SR. • Form 1041. • Form 1041-N. • Form 1065. • Form 1120.View on the source
Form 8938 Instructions Page 10
maintained by a U.S. payer, such as a domestic financial institution. In general, a U.S. payer also includes a domestic branch of a foreign bank or foreign insurance company and a foreign branch or foreign subsidiary of a U.S. financial institution. Examples of financial accounts maintained by U.S. financial institutions include: • U.S. mutual funds accounts, • IRAs (traditional or Roth), • Section 401(k) retirementView on the source
Form 8938 Instructions Page 10
You do not have to report any asset that is not held in a financial account if the asset is subject to the mark-to-market accounting rules for dealers in securities or commodities or an election under section 475(e) or (f) is made for the asset.View on the source
Form 8938 Instructions Page 10
Payments or the rights to receive the foreign social security equivalent to U.S. social security, social insurance benefits, or another similar program of a foreign government are not specified foreign financial assets and are not reportable.View on the source
Form 8938 Instructions Page 1
Filing Form 8938 does not relieve you of the CAUTION requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to file the FBAR.View on the source
A married couple filing jointly lives in Ohio and holds specified foreign financial assets worth $120,000 on the last day of the year, never higher during the year. Is Form 8938 required?
Entities and transfers get their own returns.
| Fact | Return | Mechanics |
|---|---|---|
| Officer, director, or shareholder in certain foreign corporations | Form 5471 | Attached to the income, partnership, or exempt return by its due date with extensions |
| Interest in a foreign partnership within a filer category | Form 8865 | Separate form per partnership, attached to the return by its due date with extensions, or filed separately at the same time and place where no return is due |
| Transfers with, ownership of, or distributions from foreign trusts; large foreign gifts | Form 3520 | Separate reporting per trust; gifts over $100,000 from a nonresident alien individual or foreign estate; due the 15th day of the 4th month after year-end, moving to the 15th day of the 10th month with an extension |
The filer categories decide which form applies: a qualifying U.S. shareholder, officer, or director in a covered foreign corporation reports on Form 5471, a qualifying partner on Form 8865, and a trust transferor, owner, or distributee on Form 3520. The trust itself reports on Form 3520-A, due the 15th day of the 3rd month after the trust's year, but a substitute 3520-A attached to the U.S. owner's Form 3520 keeps the Form 3520 date. One taxpayer can owe all three in one year. Where an asset already appears on a timely filed Form 5471, 8865, 3520, 3520-A, or 8621, Form 8938 asks only for that other filing to be identified in Part IV instead of reporting the asset detail again; the asset's value still counts toward the Form 8938 threshold.
Rita, a U.S. shareholder described in the Categories of Filers, owns 12% of the vote and value of a foreign manufacturing corporation that is a controlled foreign corporation (CFC), holds a profits interest in a London partnership that places her in a filer category, and receives a $120,000 gift from her nonresident alien mother. She attaches Form 5471 for the corporate interest, files a separate Form 8865 for the partnership, and reports the gift receipt on Form 3520. None of the three filings absorbs another.
Form 5471 Instructions Page 1
Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations.View on the source
Form 5471 Instructions Page 2
Attach Form 5471 to your income tax return (or, if applicable, partnership or exempt organization return) and file both by the due date (including extensions) for that return.View on the source
Form 8865 Instructions Page 1
A U.S. person qualifying under one or more of the Categories of Filers (see below) must complete and file Form 8865. These instructions and the Filing Requirements for Categories of Filers chart, later, explain the information, statements, and schedules required for each category of filer. If you qualify under more than one category for a particular foreign partnership, you must submit all the items required for each category under which you qualify. Example. If you qualify as a Category 2 and a Category 3 filer, you must submit all the schedules required of Category 2 filers (page 1 of Form 8865, and Schedules A, A-2, N, K-1, and K-3) plus any additional schedules that Category 3 filers are required to submit (Schedules A-1 and O). Complete a separate Form 8865 and the applicable schedules for each foreign partnership.View on the source
Form 3520 Instructions Page 2
More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequestsView on the source
Form 3520 Instructions Page 1
File Form 3520 if any one or more of the following apply. 1. You are the responsible party for reporting a reportable event that occurred during the current tax year, or you are a U.S. person who transferred property (including cash) to a related foreign trust (or a person related to the trust) in exchange for an obligation or you hold a qualified obligation from that trust that is currently outstanding. For definitions, see Responsible Party, Reportable Event, Qualified Obligation, and Person related to a foreign trust, later. form and the relevant portions of Part I. See the instructions for Part I. 2. You are a U.S. person who, during the current tax year, is treated as the owner of any part of the assets of a foreign trust under the rules of sections 671 through 679.View on the source
Form 3520 Instructions Page 1
3. You are a U.S. person (including a U.S. owner) or an executor of the estate of a U.S. person who received, directly or indirectly, a distribution from a foreign trust during the current tax yearView on the source
Form 3520 Instructions Page 1
Form 3520-A is due by the 15th day of the 3rd month after the end of the foreign trust’s tax year. However, a substitute Form 3520-A attached to a U.S. owner’s Form 3520 is due the same day as Form 3520.View on the source
Form 3520 Instructions Page 3
In general, a U.S person’s Form 3520 is due on the 15th day of the 4th month following the end of such person’s tax year for income tax purposes. For a calendar-year individual, this is generally the same day as the filer’s income tax return due date. If a U.S. person is granted an extension of time to file an income tax return, Form 3520 is due no later than the 15th day of the 10th month following the end of the U.S. person’s tax year.View on the source
Form 8865 Instructions Page 5
file both by the due date (including extensions) for that return. If you don’t have to file an income tax return, you must file Form 8865 separately with the IRS at the time and place you would be required to file an income tax return (or, if applicable, a partnership or exempt organization return).View on the source
Form 8938 Instructions Page 12
If you are a specified individual and report all of your specified foreign financial assets on a timely filed Form 3520, 3520-A, 5471, 8621, or 8865, you do not have to report them on Form 8938. Instead, enter your name(s) and taxpayer identification number (TIN) at the top of the form and complete Part IV only.View on the source
Form 8938 Instructions Page 5
If you are a specified individual, include the value of all specified foreign financial assets, even if they are reported on another form listed in Part IV to determine if you satisfy the reporting threshold that applies to you.View on the source
A U.S. citizen owns 12% of the vote and 12% of the value of the stock of a foreign corporation that is a controlled foreign corporation. Which information return fits these facts?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
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