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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!

2015 FBAR (FinCEN Form 114) Due on June 30, 2016

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2015 FBAR is one of the most important tax information returns required by the IRS this year. While the 2015 FBAR is not the most complicated form, it is definitely the one that is associated with the most severe penalties.

2015 FBAR History

The FBAR is an abbreviation for the Report of Foreign Bank and Financial Accounts (the “FBAR”). The current official name of the FBAR is FinCEN Form 114 (prior to mandatory e-filing, Form TD F 90-22.1 was the name of the FBAR).

Many of my clients are surprised to learn that FBAR is a tax information return with a long history, dating back to the late 1970s. Its origin lies in the Bank Secrecy Act (31 U.S.C. §5311 et seq.) and it was originally meant to combat money laundering. However, after September 11, 2001, the FBAR enforcement was turned over to the IRS and it became a tax-enforcement tool of heretofore unimaginable power due to its heavy penalties.

Who is Required to File 2015 FBAR

The Department of Treasury (the “Treasury”) requires that an FBAR is filed whenever a US person has a financial interest in or signatory authority over foreign financial accounts and the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. If you had such a situation in 2015, then you must seek an advice from an FBAR lawyer on whether you need to file the 2015 FBAR.

2015 FBAR Deadline

2015 FBAR must be e-filed with the IRS by June 30, 2016; there are no extensions available – the 2015 FBAR must be received by the IRS no later than June 30, 2016. Note: FBAR due date now coincides with due dates for tax returns. 

Consequences of Failure to File Your 2015 FBAR Timely

If your 2015 FBAR is not timely filed, then it will be considered delinquent and might be subject to severe FBAR civil and criminal penalties, depending on your circumstances. It is also important to point out that an incorrect or incomplete 2015 FBAR will also be considered delinquent with the higher possibility of imposition of the FBAR’s draconian penalties.

Multiple Years of FBAR Delinquency

If you did not file the FBARs in the prior years and you were required to do so, this situation is extremely dangerous (especially in our FATCA-dominated world) and may result in imposition of multiple FBAR penalties. This is why you should seek advice of an experienced FBAR lawyer as soon as possible

Contact Sherayzen Law Office for Assistance with Your FBAR Compliance

If you have not filed your FBARs previously and you were required to do so, contact Sherayzen Law Office for help as soon as possible. Our team of experienced tax professionals, headed by attorney Eugene Sherayzen, has helped hundreds of US taxpayers around the world to lower and even eliminate their FBAR penalties. We can help You!

Contact Us NOW to Schedule Your Confidential Consultation

Minneapolis FBAR Attorney | FATCA OVDP Tax Lawyer

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If you are looking for a Minneapolis FBAR Attorney, a recommended suggestion would be to retain the services of Mr. Eugene Sherayzen of Sherayzen Law Office, Ltd. (“Sherayzen Law Office”). Mr. Sherayzen is a Minneapolis FBAR Attorney and founder of Sherayzen Law Office.

Minneapolis FBAR Attorney: Sherayzen Law Office FBAR Specialization

Sherayzen Law Office specializes in international tax compliance, including voluntary disclosure of delinquent (i.e. late) FBARs. As a Minneapolis FBAR Attorney, Mr. Sherayzen has helped hundreds of US taxpayers worldwide to bring their tax affairs into full compliance with US tax laws.

The work of a Minneapolis FBAR Attorney is not limited only to FBARs. Rather, a Minneapolis FBAR Attorney needs to be able to deliver a variety of services and freely operate with experience and knowledge in all relevant areas of international tax law. For example, oftentimes, the calculation of FBAR penalties may depend upon certain legal and accounting interpretations which would allow one to determine whether one has an income-compliant account. These interpretations themselves may be highly technical in nature and may come from different determinations from other areas of the case.

Moreover, as part of an offshore voluntary disclosure, a Minneapolis FBAR Attorney often needs to amend US tax returns, properly prepare foreign financial statements according to US GAAP, correctly calculate PFICs, and innumerable number of other tasks.

Sherayzen Law Office Legal Team Provides Efficient and Cost-Effective Services

In order to make sure that his work as a Minneapolis FBAR Attorney is expeditious and cost-effective, Mr. Sherayzen built a team of tax professionals that he employs within his firm. Each member of the team is trained personally by Mr. Sherayzen and is assigned specific tasks. For example, an international tax accountant helps Mr. Sherayzen prepare the clients’ tax returns while his staff is trained in creating FBARs based on the information already verified by Mr. Sherayzen.

This team of motivated, intelligent and experienced tax professionals allows Sherayzen Law Office to provide an exceptional array of customized offshore voluntary disclosure and international tax compliance services which fully integrate the legal and accounting aspects of international tax compliance and offshore voluntary disclosures in an efficient and cost-effective manner.

Therefore, if you are looking for a Minneapolis FBAR Attorney, please contact Mr. Sherayzen as soon as possible to secure Your Confidential Consultation!

Individual IRS Tax Deadlines in the Calendar Year 2016

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As the New Year festivities are drawing to an end, the attention of hundreds of millions of US taxpayers focuses more and more on its annual US tax compliance in the calendar year 2016. In this brief article, I would like to summarize some of the most important deadlines of the calendar year 2016. Obviously, other calendar year 2016 deadlines may also apply to you depending on your situation; please, consult your tax attorney for a detailed review of your US tax requirements.

January 15, 2016: Form 1040-ES for the final installment of estimated tax payments for the tax year 2015.

February 1, 2016: If you did not make your final estimated tax payment by January 15, 2016, you can still avoid the penalty by filing your 2015 US tax return by February 1, 2016.

April 18, 2016: Three important deadlines fall on this date.

First, due to the fact that April 15 falls on Saturday and the following Monday (April 17) is a federal holiday, the US taxpayers will receive a few extra days to file their 2015 individual tax returns by April 18, 2016.

Second, April 18 is also the deadline for the first installment of 2016 estimated tax payments that should be filed with Form 1040-ES.

Third, April 18 is the deadline for filing the automatic 6-month extension to file 2015 income tax return. The extension is done by filing Form 4868 with the IRS. Remember, the estimated tax liability must still be paid by April 18 (i.e. the extension applies to the return filing deadline, not to the actual income tax payment).

June 15, 2016: this is a dual deadline for US individual taxpayers who reside outside of the United States. First, June 15 is the 2015 income tax return filing deadline for such individuals. Second, if these US individual taxpayers do not yet desire to file their 2015 individual income tax returns, then they can file an automatic four-month extension by June 15, 2016. Similar to April 18 extensions, however, the estimated 2015 income tax liability must still be paid by June 15, 2016.

Furthermore, June 15, 2016, is the deadline for the second installment for 2016 estimated tax payments.

June 30, 2016: FinCEN Form 114, commonly known as FBAR (Report of Foreign Bank and Financial Accounts), is due for the calendar year 2016. This is one of the most important international tax deadlines and no extensions are allowed.

September 15, 2016: this is the deadline for the third installment for 2016 estimated tax payments.

October 17, 2016: if the filing extensions to file 2015 individual income tax returns were properly filed, these returns will be due on October 17, 2016 (normally, the deadline would be on October 15, but it falls on a Saturday in the 2016 and the deadline shifts to the following Monday).

FBAR Penalties vs Offshore Voluntary Disclosure Program Penalties

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There is a great confusion among international tax attorneys and Offshore Voluntary Disclosure Program (OVDP) applicants with respect to the OVDP Offshore Penalty and how it differs from the FBAR penalties. I already described in another article the OVDP penalties. In this article, I would like to compare and contrast some of the major features of the OVDP Offshore Penalty with the FBAR penalties.

FBAR Penalties

FBAR is one of the most unforgiving forms on the planet. The penalties associated with delinquent FBARs can be terrifying.

At the apex of the penalty structure are the criminal penalties that are imposed in association with a willful violation of the FBAR filing requirements under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. Section 1001. The criminal penalties may be up to 10 years in jail and $500,000 in fines.

Willful (i.e. where a person willfully fails to report an account or account identifying information) civil penalties equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5). Note, that a penalty in this case applies to each violation which is defined as each undisclosed account per year.

Even where the violation is non-willful, a person may be subject to a civil penalty of $10,000 per violation. Again, note that this is a penalty per violation – i.e. per each unreported account per each year.

For the purposes of this article, it is also important to note that the penalties apply only to “foreign financial accounts”. This term is defined broadly to include various types of accounts which are not normally associated with the word “account” (for example: a precious metals storage or a life insurance policy with a cash-surrender value). Nevertheless, the FBAR penalty would not apply to real estate or a business interest; it would apply only to foreign financial accounts – i.e. the balances on the foreign financial accounts and the number of these accounts constitute the primary penalty base for the calculation of the FBAR penalties.

OVDP Offshore Penalties

In contrast to traditional FBAR penalties, OVDP Offshore Penalty may mean a completely different penalty range and penalty base.

Offshore Penalty Range

Unlike the FBAR penalties, OVDP Offshore Penalty is a limited penalty – i.e. there is a certain penalty that you have to pay by virtue of participating into the program. It is very important to understand that most individual circumstances, willfulness, non-willfulness and reasonable case have virtually no impact on the calculation of the Offshore Penalty.

There are three tiers of the OVDP Offshore Penalty. First, there is a 5% penalty tier. There are various possibilities how one would be entitled to such a favorable treatment; a detailed discussion of the 5% penalty possibilities is described elsewhere on sherayzenlaw.com.

Second, there is a 12.5% penalty tier. An OVDP applicant would be entitled to this penalty tier only if, during each of the years covered by the OVDP, the taxpayer’s penalty base (see below for detailed explanation of what “penalty base” means) is less than $75,000.

Finally, if neither 5% nor 12.5% penalty tiers apply, the default penalty of 27.5% of the penalty base will apply.

Penalty Base

As important as the penalty range, it pales in comparison to the determination of the OVDP Offshore Penalty base, because these calculations can be vastly different from the FBAR penalties.

First, the Offshore Penalty is imposed only once on the highest amount of the penalty base during the Voluntary Disclosure period (i.e. years covered by the OVDP which sometimes can be quite tricky to figure out).

Second, the base for the Offshore Penalty includes a wide variety of assets including foreign bank accounts, the fair market value of assets in undisclosed offshore entities, and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income. The general rule is that the offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset.

This means that the Offshore Penalty may include such assets as business ownership interests, stocks, artwork, automobiles, patents, trademarks, and (very important) real estate. Even ownership of U.S. businesses acquired with tainted funds may be open to the Offshore Penalty.

In other words, the penalty base of the OVDP Offshore Penalty may include a much greater variety of assets in addition to the assets already covered by the FBAR.

Penalty Differences Between FBARs and OVDP Should Influence Your Voluntary Disclosure Options

Given the tremendous differences in the range of penalties and the calculation of the penalty base, it is highly important (and I cannot stress this point enough) to properly analyze the potential tax liabilities under both methods before making the decision on whether to enter the OVDP or pursue a reasonable cause (so-called “noisy” or “modified”) voluntary disclosure. It is highly important that the client understands the differences in the calculations and the potential risks of pursuing either option.

Contact Sherayzen Law Office for Professional Help With the Disclosure of Your Foreign Financial Accounts

If you have undisclosed foreign financial accounts or other offshore assets, contact Sherayzen Law Office for legal help. Our experienced international tax law firm will thoroughly analyze your case, calculate your potential tax liabilities, present you with a range of options, and implement your voluntary disclosure plan (including preparation of all tax forms and legal documents).