The IRS issued new guidance requiring individuals with an interest in a “specified foreign financial asset” to attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets exceeds $50,000. Use new form Form 8938 (Statement of Specified Foreign Financial Assets) starting in 2011.
Q. What is a financial account?
A. A “financial account” includes:
• Bank, securities, securities derivatives or other financial instruments accounts.
• Savings, demand, checking, deposit or any other account maintained with a financial institution.
• Accounts in which the assets are held in a commingled fund including mutual funds
Q. Is an FBAR required for accounts maintained with financial institutions located in a foreign country if the accounts hold noncash assets, such as gold or silver?
A. Yes. An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.
Q. If you own three foreign financial accounts with maximum account balances of $100, $12,000 and $3,000. Do you have to file an FBAR? Do you have to report all three accounts?
A. Yes, because the aggregate value of foreign financial accounts X, Y and Z is $15,100. You must report all three X, Y and Z even though two accounts have values below $10,000.
Q. If you own two foreign financial accounts with account balances of $3,000 and $8,000, do you have to file an FBAR? Which accounts must be reported?
A. All three accounts, even though no single account is over $10,000, because the aggregate value of accounts A, B and C is over $10,000.
Q. Is an FBAR required if the account does not generate interest or dividend income?
A. Yes, you must file FBAR whether or not the foreign account generates any income.
Q. Does the term “other authority over a financial account” mean that a person, who has the power to direct how an account is invested but who cannot make disbursements to the accounts, has to file an FBAR?
A. No, an FBAR is not required because the person has no power of disposition of money in the account.
Q. What are the exceptions to the FBAR filing requirement?
A. Accounts in U.S. military banking facilities and an officer or employee of a bank if the officer or employee has no personal financial interest in the account.
Q. Does more than one FBAR form need to be filed for a husband and wife owning a joint account?
A. No, one is enough provided that the names and Social Security numbers of the joint owners are fully disclosed.
Q. How long should account holders retain records of the foreign accounts?
A. Retain your records for a period of five years.
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Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.