What Type of Foreign Account, Asset, or Investment do I Report?

What Type of Foreign Account, Asset, or Investment do I Report?

Which Foreign Accounts & Assets Are Reportable? 

For US Persons who have an ownership or an interest in foreign accounts, assets, and investments, there are various types of international information reporting forms that they may have to file in order to disclose the ownership of these accounts and assets. While not all types of foreign accounts and assets need to be reported, there are numerous specific reporting requirements — and unfortunately, many taxpayers are unaware of them because they (understandably) do not consider “non-bank account assets” as something that is reportable, such as a foreign life insurance policy. While it would be impossible to cover every single one of the various types of overseas accounts and assets that are reportable in one article, let’s take a brief look at seven common types of foreign accounts and assets that need to be disclosed to the US government each year.

Bank Accounts

In general, all types of foreign bank accounts are reportable. Whether or not it is a savings account, a checking account, a currency account, or another type of bank account, there are not many exceptions, if any, to reporting a foreign bank account from a foreign financial institution. The one exception to keep in mind is that if you have a foreign bank account or investment account inside an IRA — or another similar retirement plan — that type of account is not reportable.

Stock Ownership

Stock ownership is usually reported on Form 8938 which is in order to comply with FATCA (Foreign Account Tax Compliance Act). When a person owns stock directly, it is not reported on the FBAR because it is not considered an account. But, depending on how much stock ownership the person has in conjunction with whether or not it is a Controlled Foreign Corporation — may result in much more detailed reporting on Form 5471 instead of Form 8938.

Foreign Life Insurance/Assurance Policies

Foreign life insurance policies can be very complicated. That is because even though the investment is referred to as a foreign life insurance policy, oftentimes it is not primarily a life insurance policy, but rather an investment vehicle. Stated another way, while life insurance may be a component of the investment itself and it may be referred to as life insurance, it may not be just a traditional life insurance policy. Thus, taxpayers may be subject to a tax on the increase in value each year, along with any other income generated from the investment.

Foreign Pension Plans

Foreign pension plans are reportable. Generally, these plans are reported on the FBAR along with Form 8938, if the threshold requirements for filing are met. Depending on whether or not the pension plan is with the treaty country (and whether or not it would be considered a grantor trust or not) will determine whether Forms 3520/3520-A and Form 8621 are required.

Pooled Funds and Accounts

Pooled funds such as foreign mutual funds and ETFs are reportable as well. Depending on whether or not the individual fund is being reported — as opposed to whether the funds are in an account — will determine the extent of the reporting.

Foreign Entity Ownership

When a person has ownership in a foreign entity, that ownership interest must be reported as well. There are many different types of foreign entities and depending on the percentage of ownership and type of entity will impact the specific reporting requirements and options. For example, while some foreign Single Member LLCs may be “disregarded” for US tax purposes (which still requires a proper tax reporting form), other foreign entities are considered per se corporations and require detailed reporting.

Foreign Real Estate

Foreign real estate income is usually reportable on Schedule E. When a person owns foreign real estate, that foreign real estate in and of itself is generally not reportable if it is owned by an individual, but if the real estate is owned by a foreign entity such as a Sociedad Anónima, then the entity is reportable — which may significantly impact the value of any penalty if the person is reporting in accordance with one of the amnesty procedures.

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Golding & Golding specializes exclusively in international tax and specifically IRS offshore disclosure.

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