Foreign Investment Fund & FBAR Reporting Rules
Hard Assets Placed into a Fund is FBAR Reportable: One of the safest ways to leverage money is to diversify — investment 101. If you place all of your investments into one source or asset and it goes belly-up — so will all of your investments associated with that asset. Therefore, oftentimes Taxpayers will diversify their portfolio for the long-run, to ensure that they spread their investment over different asset types and categories. When it comes to the FBAR, generally foreign hard assets are not included on the FBAR. For example, if a taxpayer owns an overseas commercial real estate property or individual stock — these hard assets are not reported on the FBAR. But, once these assets are placed into a foreign fund, the IRS and FinCEN rules change and the fund is typically reportable. Here are some common examples:
Crypto Foreign Investment Fund & FBAR
Technically, there is no specific rule that unequivocally provides that cryptocurrency in a non-bank account is reportable on the FBAR. FinCEN Notice 2020-2 all but says that the goal of FinCEN is to require the disclosure of crypto in the same way that account with currency is required to be disclosed. But, even if a Taxpayer wants to take the position that Crypto is not currently reportable — especially if is held on a personal wallet — the rules change once the crypto placed into an investment fund.
Currently, there are various proposed virtual currency investment funds being developed for cryptocurrency — and even if the taxpayer would make the argument that cryptocurrency in and of itself is not reportable on the FBAR (at least for the time being) — a fund that holds different cryptos would presumably be reportable.
Foreign Real Estate Investment Fund & FBAR
Real Estate is another common example of a hard asset for investment. If a person invests into a commercial property and receives rental income — that is not reportable. At some point, the investor has had enough with tenants, and instead decides to invest into a real estate fund.
Now that the real estate is in a fund at a financial institution — the fund with the real estate would presumably be reportable just as any mutual fund would be reportable.
Foreign Stock Accounts Investment Fund & FBAR
When a person owns shares of stock direct with a company, the shares of stock are not reportable on the FBAR. That is because owning direct shares of stock is not the equivalent of having an account at a Foreign Financial Institution. But, if instead of direct stock ownership a person decides to place all of their shares and securities into a stock account — now the person has an account at Foreign Financial Institution — and while the individual shares would not be disclosed on the FBAR, the total value of the account would be.
Because now the taxpayer has an account at a Foreign Financial Institution, even if the assets within the account would not otherwise be individually reportable.
It’s all How You Hold It
In conclusion, while certain assets in and of themselves are not reportable on the FBAR — they may still become reportable in the future if those assets are moved into a fund or account at a Foreign Financial Institution. Foreign funds and accounts are required to be reported on the FBAR.
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