What Is a Foreign Bank Account? - FBAR, Form 8938, and Schedule B

Foreign bank account reporting is not limited to bank accounts, and instead extends to a large variety of financial holdings with a variety of financial institutions. 

All foreign bank accounts need to be disclosed on FBARs and Form 8938s. This includes accounts with $0 balances, dormant accounts, and accounts that don’t generate any income; you have these disclosure obligations whether or not you are aware of the existence of your accounts. The reporting on FBARs and 8938s does differ in several nuanced ways, a topic covered in more detail here, but the goal of this article is to tackle the variety of accounts that require informational reporting on Form 8938, FBARs, and the bottom of schedule B.

Basic Bank Accounts - Like checking, savings, and current accounts all need to be reported. Fixed deposit and certificate of deposit accounts also need to be reported, and it is important to note that each fixed deposit and certificate of deposit needs to be separately disclosed using its own balance information and its own account number. There are a number of less conventional bank accounts that also need to be disclosed, such as mortgage accounts that you fund for repayment of the mortgage on your home. 

Investment Accounts - Whether your investments are in foreign corporations, foreign mutual funds, or even U.S. corporations, if these investments are held within a foreign portfolio, these holdings need to be disclosed. This extends to funds that aren’t available on the open market, that may be the underlying value of policies held abroad. In some cases these disclosure obligations can extend to interests in foreign entities (corporations, partnerships, disregarded entities, LLCs, and trusts) held outside of investment accounts i.e. if you physically hold stock certificates in a foreign corporation. If you have a foreign account investing in gold and silver - this also needs to be disclosed.

Life Insurance Accounts - Don’t let the word ‘account’ deceive you here, if you own a foreign life insurance policy there is a reasonably good chance that it will need to be disclosed as an account, regardless of the fact that it is a policy and does not comport with any rational definition of the word account. The key component of life insurance accounts necessitating their disclosure as ‘accounts’ is the presence of a surrender value. U.S. taxation of foreign life insurance gets quite complicated and if you need further detail on the informational and tax obligations relating to life insurance or just definitions on the terminology frequently used in respect to life insurance policies - see this article - (future article coming soon)

Retirement Accounts - This is the point at which disclosure obligations reach peak levels of absurdity. There are effectively two types of retirement accounts, the first type, called defined contribution plans, are accounts with determinable values that have been funded by you or by an employer and the second type, called defined benefit plans, are plans that will pay a set amount of money to you upon retirement at set intervals, without regard to a specific account value. Generally people don’t consider these types of accounts pre-retirement when thinking of their accounts or their assets, but, unfortunately, these are both accounts that need to be disclosed. Even more outrageous is the fact that retirement accounts that are mandated by foreign countries often need to be disclosed to the IRS as well. Even though you were legally required to make contributions to the account and you have no access to these funds until retirement, sometimes decades away, these accounts still trigger informational reporting obligations. We have seen numerous clients who have attempted to close or even abandon these foreign accounts only to learn that it is literally impossible to close or forfeit these accounts. The sheer absurdity of an account that you didn’t open, you had no choice but to fund, and you are unable to close giving you a filing obligation for the remainder of your life and potentially exposing you to significant penalties is overwhelming.

What is Signatory Authority and How Do I Disclose It?

The Differences Between the FBAR and Form 8938