Expat Tax Info from Barron HarperReport of Foreign Bank and Financial Accounts

By Barron Harper
www.taxbarron.com

What Financial Assets Do You Control?

Several years ago at a conference of American expatriates in Seville, a representative of the Internal Revenue Service informed the audience that Form TD F 90-22.1 - Report of Foreign Bank and Financial Accounts - must be filed annually with the U.S. Department of the Treasury in Detroit, Michigan. Failure to file this form could result in the Service minimally assessing a $10,000 penalty. Naturally there were those in the audience who wanted further clarification.

The brief instructions that accompany Form TD F 90-22.1 (FBAR) at www.irs.gov provide such clarification: Any "United States person who has financial interest in or signature authority or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year . . . on or before June 30 of the succeeding year." According to these instructions, a "United States person means 1) a citizen or resident of the United States, 2) a domestic partnership, 3) a domestic corporation, 4) a domestic estate or trust."

Financial interest is applied to any United States person who ". . . is the owner of record or has legal title, whether the account is maintained for his or her own benefit or for the benefit of others including non-United States persons. If an account is maintained in the name of two persons jointly, or if several persons each own a partial interest in an account, each of those United States persons has a financial interest in that account." A U.S. person has a financial interest if the owner or holder of legal title is "a) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person; b) a corporation in which the United States person owns directly or indirectly more than 50% of the total value of shares of stock; c) `a partnership in which the U.S. person owns an interest in more than 50% of the profits; or d) a trust in which the U.S. person either has a present beneficial interest in more than 50% of the assets or from which such person receives more than 50% of the current income."

Most U.S. income tax returns briefly ask whether the taxpayer has such a foreign account or interest. For instance consider Schedule B, which is for reporting dividend and interest income. Part III, Line 7 asks: "At any time during 2009 did you have an interest in or signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?" Line 8 of this Schedule asks: "Were you the grantor of, or transferor to, a foreign trust . . . whether or not you have any beneficial interest in it?" In regard to this second question, if the taxpayer is a grantor of a foreign trust, he must file FBAR regardless of whether he or she has any signature authority over the financial accounts of the trust.

Although not normally filed if the account of interest or dividend income is less than $1,500, Schedule B must be filed if the answer to either question 7 or 8 in Part III is affirmative. In 2003 the "Tenth Circuit gave foreign account reporting more teeth by holding that improperly checking "no" on Schedule B, Part III, amounted to a continuing affirmative act of tax evasion that prevented the statute of limitations period from running on criminal prosecution for hiding the income originally transferred to the foreign account." - L.F. Anderson cited at www.offshorepress.com

If you are thinking that reporting your financial interests on FBAR is an invasion of privacy, you are probably correct. Can you avoid disclosure? Not without obvious risks. But gone are the days when a Louis L'Amour western character was respected for keeping to his own affairs.

Related Links:
Report of Foreign Bank and Financial Accounts - IRS page and IRS Press Release
Expat Tax Services

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