FATCA Form 8938 Foreign Life Insurance Reporting | FATCA Lawyers

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FATCA Form 8938 Foreign Life Insurance Policy reporting is one of the most obscure US tax requirements with which many US taxpayers fail to comply. In this article, I would like to explore FATCA Form 8938 foreign life insurance policy reporting.

FATCA Form 8938 Foreign Life Insurance Reporting: Types of Foreign Life Insurance Policies

In a previous article, I already described the three main types of foreign life insurance policies: traditional policies, cash-surrender non-investment policies and investment policies. The traditional policies refer to straightforward life insurance policies with no cash-surrender value; in essence, this is the traditional understanding of what a life insurance policy should be – a sum of money paid out at death to a policy beneficiary.

The cash-surrender non-investment policies are foreign life insurance policies that have cash-surrender value which, usually, can be obtained at any point prior to the maturity of the policy. There is usually no income associated with a policy, but this is not always the case. The cash-surrender value grows over time mostly through premiums, automatic increases in value and a system of bonuses.

Finally, the investment policies are foreign life insurance policies with a cash-surrender value which largely depends on the growth in investments which underlie the policy. While there might be a death benefit to the policy, the investment life insurance policies are usually simply investment accounts wrapped into a life insurance format. Assurance Vie policies in France are a typical example of such a foreign life insurance policy.

FATCA Form 8938 Foreign Life Insurance Reporting: What is Form 8938

FATCA Form 8938 is a relatively recent addition to the already large list of the U.S. international tax forms; yet, it is already the most comprehensive form in the IRS arsenal. FATCA Form 8938 was born out of the feared Foreign Account Tax Compliance Act (FATCA) and it was first due with the 2011 tax return.

FATCA Form 8938 basically requires the reporting of three types of assets. First, it almost duplicates FBAR with respect to reporting foreign bank and financial accounts (with important exceptions, such as signatory authority accounts); more information with respect to these accounts, however, must be supplied by the reporting taxpayer. Second, FATCA Form 8938 introduces the requirement to disclose the ownership of a whole new class of assets which normally would not be reported on any tax form (e.g. paper stock certificates). These are so-called “Other Specified Foreign Assets”. Finally, FATCA Form 8938 requires the taxpayer to report whether he disclosed any assets on Forms 5471, 8865, 8621, 3520 and 3520-A.

FATCA Form 8938 has its own set of independent penalties associated with Form 8938 noncompliance.

FATCA Form 8938 Foreign Life Insurance Policy Reporting Requirements

FATCA Form 8938 Foreign Life Insurance Policy reporting is very similar to the FBAR Foreign Life Insurance Policy reporting. In general, the traditional life insurance policies with no cash-surrender values are ordinarily not reportable (although, there are exceptions). On the other hand, cash-surrender non-investment policies and investment policies should be reported on FATCA Form 8938.

This is just the general guidance. The determination of whether your specific foreign life insurance policies should be reported on FATCA From 8938 must be left to an international tax attorney; I strongly discourage any attempt by US taxpayers to make this determination without professional legal assistance.

Contact Sherayzen Law Office for Help With FATCA Form 8938 Foreign Life Insurance Policy Reporting

Contact the experienced international tax law firm of Sherayzen Law Office for any legal help with your FATCA Form 8938 Foreign Life Insurance Policy reporting. Foreign life insurance policies can be extremely complex and the US reporting requirements associated with them vary from country to country. Sherayzen Law Office has accumulated tremendous experience in dealing with foreign life insurance policies from Australia, Canada, New Zealand, Europe and Asia.

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Remember to File Your 2015 FBARs | FBAR Tax Attorney

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On June 17, 2016, the IRS again reminded U.S. taxpayers with foreign accounts to file their 2015 FBARs by Thursday, June 30, 2016. U.S. taxpayers have to file 2015 FBARs if they had financial interest in or signatory authority (or other authority) over foreign accounts with values which, in the aggregate (i.e. all accounts added together), exceeded $10,000 at any time during the calendar year 2015. The taxpayers who satisfied the FBAR threshold, should e-file their 2015 FBARs through the BSA E-Filing System website.

It is important to note that the number of FBAR filings has grown exponentially. According to FinCEN data, on average, there has been a seventeen percent increase per year during the last five years. In fact, in 2015, FinCEN received a record high 1,163,229 of 2014 FBARs. We can reasonably expect that the number of 2015 FBARs will beat last year’s record.

The growth in the number of FBARs is mainly caused by two factors. First, the greater awareness of the FBAR requirement is due to a series of IRS legal victories against foreign banks and offshore jurisdictions, starting with 2008 UBS case through a complete destruction of the Swiss bank secrecy in the Swiss Bank Program and even more recent criminal conviction of two Caymanian banks.

Second and probably the most important reason is the implementation of the Foreign Account Tax Compliance Act (FATCA) which requires foreign financial institutions to report foreign accounts owned by U.S. persons. Additionally, FATCA created a new filing requirement, IRS Form 8938. Unlike the FBAR, Form 8938 has to be filed with U.S. individual tax returns (the implementation of Form 8938 for business returns still has not occurred). This new requirement created a much greater awareness of the FBAR among the accountants who generally do not file FBARs for their clients due to the fact that FBARs carry criminal penalties.

Both of these factors will continue to play a great role in 2016 when the 2015 FBARs have to filed. Additionally, by June 30, a much greater of foreign banks will have delivered FATCA letters, further promoting FBAR awareness among U.S. persons who have to file 2015 FBARs.

Contact Sherayzen Law Office for FBAR Help

If you have undisclosed foreign accounts for which delinquent FBARs have to be filed or you need help with determining what needs to be filed for 2015 FBAR, contact the experienced international tax law firm of Sherayzen Law Office. Our talented team of tax professionals, headed by a highly-experienced FBAR tax attorney, Mr. Eugene Sherayzen, has helped hundreds of U.S. taxpayers around the world and we can help you!

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Foreign Inheritance FBAR Reporting | FBAR Lawyer

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Foreign Inheritance FBAR Reporting is one of the most common issues among U.S. taxpayers with foreign parents, uncles, aunts, siblings and other relatives. The issue discussed in this article is not reporting foreign inheritance itself (although this is an important concern which I already addressed in other articles), but whether FBAR needs to be filed upon the receipt of a foreign inheritance. Let’s explore this subject in more detail.

Foreign Inheritance FBAR Reporting: What is FBAR?

The Report of Foreign Bank and Financial Accounts, officially now called FinCEN Form 114 and also known as “FBAR”, is one of the main U.S. international tax requirements for reporting bank and financial accounts overseas. FBAR should be filed by every U.S. tax resident who has foreign financial accounts the aggregate value of which exceeds $10,000 at any time during the calendar year. The aggregate value should be calculated on all foreign bank and financial accounts in which this U.S. tax resident has financial interest or over which he has signatory or other authority.

The 2015 FBAR must be received by the IRS by June 30, 2016 without any extension possible; however, starting the reporting for the calendar year 2016 (i.e. 2016 FBAR) the FBARs are due on April 15 (an extension is possible).

Foreign Inheritance FBAR Reporting: Foreign Bank and Financial Accounts

A foreign inheritance may be received by a U.S. heir in a great variety of forms: cash, bank accounts, investments, business ownership, real estate, a foreign trust beneficiary interest, jewelry, art, intellectual property, et cetera. For the FBAR reporting purposes, it is important to understand exactly what the U.S. heir in inheriting.

Foreign Inheritance FBAR reporting becomes relevant when a U.S. heir receives either financial interest in or signatory (or other) authority over any foreign bank and financial accounts. It is important to emphasize that, no matter how brief is this financial interest or signatory authority, the foreign inheritance FBAR reporting will come into play as long as the aggregate value of all accounts exceeds $10,000.

I often see that U.S. heirs would set up foreign accounts in which foreign inheritance is deposited and they would believe that such accounts would not be reportable because they are simply depositing foreign inheritance. This is incorrect – as soon as foreign accounts are involved, foreign inheritance FBAR reporting considerations immediately become relevant whether these are inherited foreign accounts or accounts which are set up to receive the inheritance.

Contact Foreign Inheritance FBAR Lawyer for Professional Help

If you received a foreign inheritance, you need to contact Sherayzen Law Office as soon as possible for professional help. Mr. Sherayzen has successfully advised hundreds of U.S. taxpayers with respect to U.S. tax compliance foreign inheritance issues. He can help You!

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Foreign Life Insurance Policies – FBAR Reporting

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Foreign Life Insurance Policies are very popular around the world, especially in India, Germany and France (Assurance Vie accounts). Yet, very few U.S. taxpayers (especially H-1B holders and U.S. permanent residents) are aware of the fact that these policies may be subject to numerous and complex IRS tax reporting requirements in the United States. In this article, I would like to generally discuss the FBAR requirements applicable to foreign life insurance policies.

I will not be discussing here the requirements for a qualified foreign life insurance policy, because it is mostly irrelevant since the great majority of foreign life insurance policies would not be qualified policies.

Types of Foreign Life Insurance Policies

Before we start exploring which foreign life insurance policies (also known as Life Assurance Policies) are subject to the FBAR requirement, it is important to distinguish three general categories of foreign life insurance policies.

In the order of rising complexity, the first category of foreign life insurance policies consists of simple, straightforward life insurance policies with no cash surrender value, no income payments and no income accumulations. The taxpayer simply makes the required premium payments and he expects a fixed-amount payout at death.

The second category of foreign life insurance policies has a cash-surrender value, but no income. The taxpayer pays a premium and expects a certain payout when the policy is surrendered or matures. The cash surrender value grows over time mostly through premiums and bonuses which would be paid out when the policy is surrendered. There is also a potential death benefit.

Finally, the third category of foreign life insurance policies has a cash-surrender value with investments and/or income. There is a large variety of investment life insurance policies. The most common arrangement, though, is where the taxpayer pays a relatively large initial premium which is invested in foreign mutual funds; the growth in mutual funds will usually determine the cash-surrender value. Oftentimes, the cash-surrender value in these policies is tax-free if certain requirements are met (for example, Assurance Vie policies in France or certain life insurance policies in India).

In some cases (for example, in Malaysia), an investment foreign health insurance policy may be tied into a life insurance policy.

FBAR – FinCEN Form 114

FinCEN Form 114 – Report of Foreign Bank and Financial Accounts (commonly known as FBAR) is the most important US tax information return. FBAR must be filed by a US tax resident if the aggregate value of foreign financial accounts (in which this US person has financial interest and/or over which this US person has signatory authority) exceeds $10,000 at any time during the calendar year. The 2015 FBAR must be received by the IRS by June 30, 2016 without any extension possible; however, starting the reporting for the calendar year 2016 (i.e. 2016 FBAR) the FBARs are due on April 15 with an extension possible.

The importance of FBAR stems from the draconian FBAR penalties. Unlike many other information returns, FBAR imposes penalty not only on the willful non-filing, but also on the non-willful failure to file the FBAR. The willful FBAR penalties range from criminal penalties with up to 5 years in prison to up to $100,000 penalty per account per year. The FBAR statute of limitations is six years, which means that up to six years maybe subject to a penalty (though, usually it would be 2-4 years).

Foreign Life Insurance Policies and FBAR Reporting

Foreign life insurance policies must be reported on the FBAR if they have a cash-surrender value. Therefore, foreign life insurance policies that fall into categories two and three described above are always reportable. Investment foreign life insurance policies promoted by national governments (such as Assurance Vie accounts in France) are reportable even if they are considered to be held by a foreign trust (such as Superannuation Accounts in Australia).

The first category of foreign life insurance policies I listed above (i.e. life insurance policies without any cash-surrender value) are not likely to be reportable, but there are exceptions.

The determination of whether your foreign life insurance policies are reportable on the FBAR should be made by an international tax attorney; I strongly discourage any attempt by US taxpayers to make this determination without legal assistance.

Foreign Life Insurance Policies and Other Reporting Requirements

It is important to note that other US reporting requirements may apply to foreign life insurance policies. Examples include FATCA Form 8938, PFIC compliance, foreign trust reporting, et cetera.

Contact Sherayzen Law Office for Help With Foreign Life Insurance Policies

If you have foreign life insurance policies, contact Sherayzen Law Office for assistance as soon as possible. Foreign life insurance policies can be extremely complex and the US reporting requirements associated with them vary from country to country. Sherayzen Law Office has accumulated tremendous experience in dealing with foreign life insurance policies from Australia, Canada, New Zealand, Europe and Asia. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

First Conviction of Non-Swiss Financial Institutions For Tax Evasion Conspiracy

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On March 9, 2016, the IRS announced the first conviction of Non-Swiss Financial Institutions for tax evasion conspiracy. At Sherayzen Law Office, we have been predicting now for years that the IRS would expand its prosecution of financial institutions far beyond the Swiss borders, specifically pointing to tax shelters such as Cayman Islands. Now that our strategic analysis has been confirmed, it is important to analyze this first conviction of Non-Swiss Financial Institutions and its impact on U.S. taxpayers with undisclosed foreign accounts.

Factual Background of the First Conviction of Non-Swiss Financial Institutions

The first conviction of Non-Swiss Financial Institutions concerned two Cayman Island Financial Institutions, Cayman National Securities Ltd. (CNS) and Cayman National Trust Co. Ltd. (CNT). CNS and CNT were Cayman Island affiliates of Cayman National Corporation, which provided investment brokerage and trust management services to individuals and entities within and outside the Cayman Islands, including citizens and residents of the United States (U.S. taxpayers).

According to the IRS and documents filed in Manhattan federal court, from at least 2001 through 2011, CNS and CNT assisted certain U.S. taxpayers in evading their U.S. tax obligations to the IRS and otherwise hiding accounts held at CNS and CNT from the IRS (hereinafter, undeclared accounts). CNS and CNT did so by knowingly opening and maintaining undeclared accounts for U.S. taxpayers at CNS and CNT. Specifically, and among other things, CNS and CNT opened and encouraged many U.S. taxpayer-clients to open accounts held in the name of sham Caymanian companies and trusts (collectively, structures), thereby helping U.S. taxpayers conceal their beneficial ownership of the accounts. Furthermore, CNS and CNT treated these sham Caymanian structures as the account holders and allowed the U.S. beneficial owners of the accounts to trade in U.S. securities without ever requiring these U.S. persons to submit Form W-9. CNS failed to disclose to the IRS the identities of the U.S. beneficial owners who were trading in U.S. securities, in contravention of CNS’s obligations under its Qualified Intermediary Agreement (QIA) with the IRS.

At their high-water mark in 2009, these two Non-Swiss Financial Institutions (CNS and CNT) had approximately $137 million in assets under management relating to undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, CNS and CNT earned more than $3.4 million in gross revenues from the undeclared U.S. taxpayer accounts that they maintained.

In 2008, after learning about the investigation of Swiss bank UBS AG (UBS) for assisting U.S. taxpayers to evade their U.S. tax obligations, these two Non-Swiss Financial Institutions (i.e. CNS and CNT) continued to knowingly maintain undeclared accounts for U.S. taxpayer-clients and did not begin to engage in any significant remedial efforts with respect to those accounts until 2011 and 2012.

In or about June 2011, CNT hired a new president, who spearheaded a review of CNT’s files. In the course of that review, not a single file was found to be complete and without tax or other issues. Moreover, with respect to the structures that had U.S. beneficial owners, CNT’s files contained little, if any, evidence of tax compliance.

Guilty Pleas of these Two Non-Swiss Financial Institutions

On March 9, 2016, both Non-Swiss Financial Institutions, CNS and CNT pleaded guilty to a criminal Information charging them with conspiring with many of their U.S. taxpayer-clients to hide more than $130 million in offshore accounts from the IRS and to evade U.S. taxes on the income earned in those accounts. CNS and CNT entered their guilty pleas pursuant to plea agreements.

As part of their plea agreements, CNS and CNT have agreed to cooperate fully with the IRS investigation of the companies’ criminal conduct. The IRS states that, to date, CNS and CNT have already made substantial efforts to cooperate with that investigation, including by: (1) facilitating interviews of CNS and CNT employees, including top level executives; (2) voluntarily producing documents in response to the IRS requests; (3) providing, in response to a treaty request, unredacted client files for approximately 20 percent of the U.S. taxpayer-clients who maintained accounts at CNS and CNT; and (4) committing to assist in responding to a treaty request that is expected to result in the production of unredacted client files for approximately 90 to 95 percent of the U.S. taxpayer-clients who maintained accounts at CNS and CNT.

In connection with their guilty pleas, CNS and CNT have also agreed to pay the United States a total of $6 million, which consists of the forfeiture of gross proceeds of their illegal conduct, restitution of the outstanding unpaid taxes from U.S. taxpayers who held undeclared accounts at CNS and CNT, and a fine.

Impact of the Guilty Pleas of Non-Swiss Financial Institutions on U.S. Taxpayers with Undeclared Foreign Accounts

The impact of the guilty pleas of these two Cayman Island Non-Swiss Financial Institutions is difficult to overstate. First, it becomes clear that the IRS feels confident that it can replicate its success in Switzerland in every offshore jurisdiction and there is no limit to their ability to uncover undeclared foreign accounts of U.S. taxpayers.

“Today’s convictions make clear that our focus is not on any one bank, insurance company or asset management firm, or even any one country,” said Acting Deputy Assistant Attorney General Goldberg of the Justice Department’s Tax Division. “The Department and IRS are following the money across the globe – there are no safe havens for U.S. citizens engaged in tax evasion or those actively assisting them.”

Second, it is evident that the IRS strategy is to first force Non-Swiss Financial Institutions to reveal information about their U.S. clients and, then, using the information provided by these institutions, pursue noncompliant U.S. taxpayers. As part of their guilty pleas, CNS and CNT are required to turn over extensive materials about their U.S. clients and these noncompliant U.S. taxpayers should be preparing to face the full wrath of the IRS.

“The guilty pleas of these two Cayman Island companies today represent the first convictions of financial institutions outside Switzerland for conspiring with U.S. taxpayers to evade their lawful and legitimate taxes,” said U.S. Attorney Bharara. “The plea agreements require these Cayman entities to provide this office with the client files, because we are committed to finding and prosecuting not only banks that help U.S. taxpayers evade taxes, but also individual taxpayers who find criminal ways not to pay their fair share. We will follow them no matter how far they go to hide their accounts, whether it is Switzerland, the Cayman Islands, or some other tax haven.”

In essence, between FATCA and the constant IRS pressure on Non-Swiss Financial Institutions, the noncompliant U.S. taxpayers are in the constant danger of discovery, which now becomes more of a question of “when”, rather than “if”.

What Should U.S. Taxpayers With Undeclared Foreign Accounts Do?

In light of this development, U.S. taxpayers with undeclared foreign accounts in Non-Swiss Financial Institutions should explore their voluntary disclosure options as soon as possible. For this purpose, they should contact an experienced international tax law firm that specializes in this field.

Contact the Experienced International Tax Law Firm of Sherayzen Law Office, Ltd. for Professional Help With Your Undeclared Accounts

If you have undeclared foreign accounts, foreign income or foreign business entities, you are encouraged to contact the international tax law firm of Sherayzen Law Office as soon as possible. Our team of experienced tax professionals specializes in this area of law, including the preparation of all necessary legal documents and tax forms. We have helped hundreds of U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!