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FATCA Form 8938 Foreign Life Insurance Reporting | FATCA Lawyers

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 is 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

You should 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.

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Life Insurance Policies – FBAR Reporting

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, you should 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!