1. Foreign Account Reporting
Martin Karges
BDO USA LLP

2. Report of Foreign Bank and Financial Accounts (FBAR)- Form TD F 90-22

3. Who must file an FBAR?
United States citizens- No matter where they reside
United States residents- Green Card holders and Substantial Presence Tests
Corporations, partnerships, limited liability companies and trusts, created, organized or formed in the U.S. or under the laws of the U.S.
For FBAR purposes, United States includes U.S. territories and possessions.

4. Who must file an FBAR?.. and when?
US person maintaining a foreign account(s) if the value exceeds $10,000 USD at any time during the calendar year
Form TD F must be received, and not merely postmarked, by the annual June 30th deadline
Financial interest or signature authority
Foreign bank accounts and security accounts (financial accounts)

5. What is a Financial Account?
Bank accounts
Savings deposits,
Time deposits (such as certificate of deposit),
Demand deposits,
Checking, or
Any other accounts maintained with a person in the business of banking

6. What is a Financial Account? (continued)
Security accounts
Accounts maintained with a person in the business of buying, selling, holding, or trading stock or other securities
Other financial accounts
Accounts maintained with a person in the business of accepting deposits as a financial agency,
Insurance policies with a cash value,
Annuity policies

7. What is a Financial Account? (continued)
Accounts maintained with a person acting as a broker or dealer for futures or options, transactions in any commodity listed on, or subject to the rules of, a commodity exchange or association; and
Mutual, or similarly pooled, funds that issue shares to the general public and feature regular net asset value determinations and redemptions (would not include hedge and private equity funds).

8. What is a “Foreign” Account?
Any account that is not a U.S. account;
An account will be considered a U.S. account if it is maintained with a financial institution located in the United States
e.g., U.S. based brokerage accounts or U.S. based banks acting as global custodians

9. What is a Financial Interest?
U.S. persons will be deemed to have a financial interest in each bank, securities, or other financial account in a foreign country for which the persons are the owner of record, or holder of legal title, regardless whether the account in maintained for them or another person’s benefit. If foreign financial accounts are maintained in the name of more than one U.S. person, each named U.S. person will be considered to have a financial interest in the account.

10. What is a Financial Interest? (continued)
An account titled in any of the following persons:
An individual acting on behalf of a U.S. person in his or her capacity as attorney, agent, or nominee with respect to the account;
A corporation in which the U.S. person owns more than 50 percent of the corporation’s stock by vote or value, either directly or indirectly;
A partnership in which the U.S. person directly or indirectly owns a greater than 50 percent share of the interest in profits or capital;

11. What is a Financial Interest? (continued)
Any other entity in which the U.S. person owns more than 50 percent of the voting power, equity or asset value, or interest in profits;
Trusts in which the U.S. person is the grantor and has an ownership interest for purposes of U.S. tax; and
Trusts in which the U.S. person has either a greater than 50 percent present beneficial interest in the asset value, or receives more than 50 percent of trust income.

12. What is Signature Authority?
In essence, an individual possesses the requisite authority whenever a foreign financial institution will act upon the receipt of a direct communication from that individual with respect to the disposition of assets.

13. What is Signature Authority? (continued)
Exceptions
Officers or employees of banks examined by the federal banking agencies;
Financial institutions examined by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commissions; and
Officers and employees of Authorized Service Providers, to the extent that such individuals have authority over accounts owned or maintained by an SEC registered and examined investment company and has no financial interest in the account.

14. Exemption for 25 or More Accounts
U.S. persons having a financial interest in 25 or more foreign financial accounts must report only basic information. Similarly, the filing of consolidated reports will be permitted in some cases.
The exemption does not apply to retirement plans, or participants and beneficiaries that exceed the 50 percent ownership threshold.

15. Penalties Civil Criminal
Willful failure to file: up to greater of $100,000 or the amount in the account at the time of the violation,
Non-willful failure to file: can lead to civil penalties of $10,000 per year;
Criminal
Willful failure to file: up to 5 years in prison, plus fine,
Willful failure to file (fraud): up to 10 years in prison, plus fine,
False information penalty: fine or up to 5 years in prison.

16. Sample Form TD F

17. Sample Form TD F cont.

18. Statement of Specified Foreign Financial Assets - Form 8938

19. Form 8938: Statement of Specified Foreign Financial Assets
Foreign Account Tax Compliance Act (“FATCA”) enacted on March 2010.
I.R.C. Section 6038D.
Imposes new reporting requirements for individuals with tax years beginning after March 18, 2010.
IRS has issued Form 8938, along with instructions, for the 2011 tax year.

20. Form 8938: Statement of Specified Foreign Financial Assets
Who Must file:
A Specified Person that owns Specified Foreign Financial assets must file if the value of those assets is more than the Applicable Reporting Threshold.
Specified Person;
Specified Foreign Financial Assets; and
Applicable Reporting Threshold.

21. Form 8938: Statement of Specified Foreign Financial Assets
Specified Person is one of the following:
A U.S. citizen
A resident alien of the United States for any part of the tax year
Green card holder;
One that satisfies the Substantial Presence test.
A non-resident alien that makes an election to be treated as a resident alien for purposes of filing a joint return.
A non-resident alien who is a bona fide resident of American Samoa or Puerto Rico.
A Specified Domestic Entity must also file if it is formed or availed to hold Specified Foreign Financial Assets.
Regulations to be issued.

22. Form 8938: Statement of Specified Foreign Financial Assets
Specified Foreign Financial Assets include the following:
1. Any financial account maintained by a foreign financial institution.
A Financial account is any depository or custodial account maintained by a foreign financial institution as well as any equity or debt interest in the foreign financial institution.
A foreign financial institution includes investment vehicles such as foreign mutual funds, foreign hedge funds, and foreign private equity funds.
2. Other foreign financial assets which include any of the following assets held for investment and not held in an account maintained by a foreign financial institution:
Stock or securities issued by someone other than a U.S. person;
Any interest in a foreign entity; and
Any financial instrument or contract that has an issuer or counterparty that is other than a U.S. person.

23. Form 8938: Statement of Specified Foreign Financial Assets
Applicable Reporting Threshold
Unmarried Taxpayers living in the United States:
More than $50,000 on the last day of the tax year or more than $100,000 at any time during the tax year.
Married Taxpayers filing Jointly and living in the United States
More than $100,000 on the last day of the tax year or more than $200,000 at any time during the tax year.
Unmarried Taxpayers living abroad
If a bona fide residents of a foreign country (or one present for 330 days out of the tax year), the threshold is more than $200,000 on the last day of the tax year, or more than $400,000 at any time during the tax year.
Married Taxpayers living abroad
More than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

24. Form 8938: Statement of Specified Foreign Financial Assets
Exceptions to Filing/Reporting
Financial Accounts maintained by a U.S. payor
Accounts maintained by dealers or traders in securities if holdings are subject to Mark-to Market accounting rules.
No reporting if taxpayer is treated as the owner of a domestic bankruptcy liquidating trust or widely held fixed investment trust.
Specified Foreign Financial Asset is already reported on another form:
Forms 3520, 3520A, 5471, 8621, 8865.
Special rules for Bona fide residents of a U.S. possession

25. Form 8938: Statement of Specified Foreign Financial Assets
Penalties
$10,000 for failing to file. Failure to file 90 days after IRS notice will subject taxpayer to additional penalties of up to $50,000.
Reasonable Cause exception.
Accuracy Related Penalty of 40 percent if there is an underpayment of tax as a result of a transaction involving an undisclosed Specified Foreign Financial Asset.
Fraud and Criminal Penalties
Extended Statute of Limitations
Remains open for 3 years after the date on which Form 8938 is filed.

26. Sample Form 8938

27. Sample Form 8938 cont.