Estate Beneficiary Reporting of FBAR, 8938 & 8621

Estate Beneficiary Reporting of FBAR, 8938 & 8621

Estate Beneficiary FBAR Reporting, 8938 & 8621

Estate Beneficiary FBAR Reporting, 8938 & 8621: When a US person inherits foreign accounts, they may have to begin filing an annual FBAR statement depending on the value of the accounts.Wwhile it may seem somewhat overwhelming — especially because of the confusion and sadness that accompanies someone passing away — try not to be too overwhelmed because most of the time it will workout just fine. Even if you miss the reporting initially — the IRS has several programs to assist you with safely getting into compliance.

Let’s review the basics of a common situation:

Decedent Passes Away

Brett is a US person. He is  a Legal Permanent Resident/Green Card Holder residing in the US, but his grandfather still resides in Taiwan.

Brett’s Grandfather has already (recently) set aside an inheritance for Brett but has not told anyone yet. As a result, Brett is unable to prepare beforehand.

Brett Gets Notice of Foreign Inheritance

Brett’s grandfather passes away, and Brett receives notice from an attorney in Taiwan that he has been identified as the new owner of an investment account in Taiwan.

The account is worth $800,000 USD and is a mix of stock , cash account  and funds.

What is the FBAR?

The FBAR Is the foreign bank and financial account form known as FinCEN Form 114.

It is required by US persons who have an annual aggregate total of foreign accounts that exceeds the threshold requirement for filing. The form is required to be filed at the same time the tax return is to be filed, although it is filed separately — and electronically — directly on the FinCEN website.

Since non-filing of the FBAR can lead to some pretty stiff penalties, it is important for Brett to stay in compliance from the get-go. But, even if Brett is running a few years behind on reporting — he can probably still safely get into compliance based on these facts and circumstances.

How to Report on the FBAR?

Since all of the investments are in a single account, Brad may be able to report the account number on the FBAR and gross-up the value of all of the assets in the account.

If instead, there are separate sub-accounts to the main account (such as currency accounts or if the underlying investments have their own separate account number), then the accounts may have to be reported separately in order to make sure all the account numbers are included on the FBAR*.

*There are pros and cons to each approach, and something to discuss with your tax professional.

Other Reporting Forms

Here are three (3)other common reporting forms based on these facts:

Form 8938

Similar to the FBAR, is the Form 8938. The 8938 form was developed in accordance with FATCA (Foreign Account Tax Compliance Act). Unlike the FBAR, Form 8938 is filed in conjunction with the tax return — and as part of the actual tax return and not a separate standalone document. 

The Form 8938 has some additional reporting requirements and the threshold for filing is significantly higher — although in this example Brett would clearly have to file the Form 8938.

Form 8621

Form 8621 is used to report PFICs — and the analysis is highly complicated.

The acronym PFIC refers to Passive Foreign Investment Companies.

While Brett did not inherit a company as part of his investment fund, the account contains mutual funds. Unfortunately, foreign mutual funds are considered a type of PFIC.

How Brett will report the PFIC will be determined by the value of the funds, combined along with whether or not any income has been distributed or not.

If it is the first year of the investment, then Brett may be able to circumvent any access distribution rules and make a possible QEF or MTM election.

Schedule B

Brett will also have to identify on schedule B questions 7/8 that he is now the owner or signatory over a foreign account.

Multiple Years of FBAR Noncompliance

If Brett should have reported these accounts in prior years but did not (possibly if his Grandfather placed him on the account a few years before he passed away or it just too Brett some time to realize he had a reporting requirement) he may be able to qualify for one of the amnesty programs.

FBAR Amnesty Program Summary

The FBAR Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.

Some of the more common programs, include:

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Contact our firm today for assistance.

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