- 1 Beneficial Interest in a Trust & FBAR
- 2 FBAR & Financial Interest in Foreign Accounts
- 3 What is a Financial Interest in a Foreign Account?
- 4 Limited Exception for Trust Beneficiaries
- 5 Ownership or Beneficial Trust Interest and Financial Reporting
- 6 Golding & Golding: About Our International Tax Law Firm
Beneficial Interest in a Trust & FBAR
Beneficial Interest in Trust & Filing FBARt: When a U.S. person has a beneficial interest in a Trust, it may cause the taxpayer to have to file an FBAR regarding foreign accounts. Specifically, when a U.S. person has a beneficial interest in a trust, and that beneficial ownership exceeds 50%, the FBAR reporting may kick-in as well. While it doesn’t sound fair (and it definitely isn’t fair), neither is offshore tax compliance in general. Therefore, U.S. persons with +50% in a trust should be aware of potential FBAR reporting traps.
FBAR & Financial Interest in Foreign Accounts
When a person has a financial interest in a foreign account, the reporting kicks-in. And, when a U.S. person has beneficial interest in a foreign this may cause the taxpayer to have an FBAR filing requirement as well.
What is a Financial Interest in a Foreign Account?
As provided by FinCEN, a Financial Interest:
- “The owner of record or holder of legal title is one of the following:
- An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;
- A corporation in which the United States person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock;
- A partnership in which the United States person owns directly or indirectly: an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or an interest in more than 50 percent of the partnership capital;
- A trust of which the United States person: (i) is the trust grantor and (ii) has an ownership interest in the trust for United States federal tax purpose See 26 U.S.C. sections 671-679 to determine if a grantor has an ownership interest in a trust;
- A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or
- Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.”
Limited Exception for Trust Beneficiaries
Realizing just how unfair it can be to make a beneficiary file FBAR reporting, FinCEN carved out an limited (exception):
- “Trust Beneficiaries. A trust beneficiary with a financial interest described in section (2)(e) of the financial interest definition is not required to report the trust’s foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust: (1) is a United States person and (2) files an FBAR disclosing the trust’s foreign financial accounts.
What does this Mean?
When a trust beneficiary is part of a trust in which a trustee and/or agent is a U.S. Person and files an FBAR to disclosure the trust’s foreign accounts.
Ownership or Beneficial Trust Interest and Financial Reporting
In conclusion, when a U.S. Person has an Ownership or Beneficial Interest in a trust, then they are considered to have a financial interest. By having a financial interest, the person may have an FBAR reporting requirement for foreign financial accounts.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically FBAR penalties and IRS offshore disclosure & compliance, including understanding how the FBAR requirements for a beneficial interest in trusts work.
Contact our firm today for assistance.