Estate & Beneficiary Foreign Account Reporting & Penalties

Estate & Beneficiary Foreign Account Reporting & Penalties

Estate & Beneficiary Foreign Account Reporting & Penalties

Estate & Beneficiary Foreign Account Reporting & Penalties: The rules for Estates with Foreign Assets or Accounts can be complicated. There are several IRS requirements, and penalties can be tough. When a U.S. person inherits foreign accounts from a deceased individual. There are many components to FBAR Reporting. First, the Estate may be responsible for filing an FBAR for the deceased individuals when the final tax returns is filed. Moreover, if the executor learns the deceased individual did not file one more FBARs in prior years, they may have to submit to FBAR Amnesty to reduce avoid offshore penalties.

This is especially true with the increased aggressive enforcement the IRS takes on matters involving Foreign Accounts Compliance. Further, for the beneficiary who inherited foreign accounts, they will now have an ongoing FBAR filing requirement. But, the first issue to tackle is the Estate FBAR Filing rules work.

Let’s explore.

The Basics of Estate FBAR, Form 8938 and Offshore Account Reporting

The IRS reporting rules for Estate with Foreign Assets or Accounts are still being developed. But, there are some general rules to be aware of. Once the U.S. person foreign account holder passes away, the decedent still must file what is referred to as a “final or last  tax return.” The estate files the tax return. And, if the person had foreign accounts, an estate FBAR may be required.

Stated another way, the Estate FBAR requirement is for the Estate to file the FBAR for the deceased person. If the Estate is now named on the account, then the estate has now inherited foreign accounts, and will have an ongoing FBAR filing requirement.

The FBAR is due at the same time the Tax Return is due.

Unreported Prior Year FBAR for Estates with Foreign Assets or Accounts

If the Estate was named as an account holder, then the Estate’s FBAR reporting requirement begins in the year the Estate became the owner of the account. If it turns out the Deceased Individual has unreported accounts for prior years, then the Estate may submit to one of the FBAR Amnesty programs. Two of the most populate programs for estates are the Streamlined Filing Procedures and Delinquency Procedures.

If the deceased individual was willful, then the estate’s only option would be post-OVDP voluntary disclosure.

Schedule B for Estates with Foreign Assets or Accounts

The Schedule B is used to report dividends and interest. BUT, the bottom section, part 7 and 8 are also used to report whether a person has an ownership in or signatory authority over a foreign account. If so, the individual must complete that section of Schedule B. The Schedule B does not have any offshore penalties associated with it, but it may lead to FBAR and/or Form 8938 Penalties.

Estate & FBAR Penalties

In recent years, several courts across the country have ruled on issues involving Estates and FBAR penalties.  Depending on the facts and circumstances, and timing of the lawsuit, the decedent’s personal representatives can be held liable for penalties.

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