Page 2 - Understanding FBAR Disclosure Responsibilities: When Must an Entity or Connected Individual File?

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be deemed to have a financial interest in if the trust or the trustee is a United States of the New York LLC is 100% of the stock
a foreign account owned by a different per- person and reports the account. of a Cayman Islands corporation. The
son. Specifically, a United States person Third, the phrase “directly or indirectly” Cayman Islands corporation holds an
has a financial interest in a foreign account does not appear in the trust-related rules account at a Swiss bank. Who must report
for which the owner of record or holder of described above. Therefore, if a trust does the Swiss account on an FBAR?
legal title is— not directly own a foreign account, it seems The Cayman Islands corporation is not
n a corporation in which the United States that the grantor or beneficiary of the trust a United States person, so it has no FBAR
person owns, directly or indirectly, more than would not have to report the account. reporting obligation.
50% of the voting power or value of the shares; Fourth, there is no express mention of The New York LLC is a United States
n a partnership in which the United States estates among the entities through which a person because it is organized in the United
person owns, directly or indirectly, more than financial interest in a foreign account is States. It has a financial interest in the Swiss
50% of the interest in profits or capital; attributed. An estate would fall into the account because it owns more than 50% of
n a grantor trust of which the United States catchall “any other entity,” but a beneficiary the stock of the Cayman Islands corporation
person is the grantor and has an ownership of an estate would not generally be deemed that owns the account, so it must report the
interest in the trust; to hold voting power over, equity interest or account on its FBAR, even though it is a
n a trust 1) in which the United States per- assets of, or interest in profits of, an estate. disregarded entity for income tax purposes.
son has a present beneficial interest in more Jane is a United States person because she
than 50% of the assets or 2) from which The FBAR regulations is a U.S. citizen. She has a financial interest
the U.S. person receives more than 50% in the Swiss account because she owns 100%
of the current income; or specify the circumstances of the New York LLC and, therefore, indi-
n any other entity in which the United rectly owns the Cayman Islands corporation
States person owns, directly or indirectly, under which a United that owns the account. Thus, she must also
more than 50% of the 1) voting power, report the account on her FBAR.
2) total value of the equity interests or States person will be Example 2. Marlon, a U.S. citizen, is
assets, or 3) interest in profits. the settlor and sole current beneficiary of
A few things are worth noting about deemed to have a finan- a California revocable trust. The trust is
these rules. First, a United States person treated as a grantor trust with respect to
does not report the actual interest in the enti- cial interest in a foreign him, and all of the trust’s income is report-
ty on the FBAR. Rather, the United States account owned by a ed directly on his personal income tax
person reports the foreign account owned return because the trust has no separate
by the entity. These are, in some sense, attri- different person. Employer Identification Number (EIN). (It
bution rules, pursuant to which the account supplies the grantor’s Social Security num-
of an entity is attributed to the United States ber as its Taxpayer Identification Number
person. This is a critical difference between So, is the sole beneficiary of an estate that instead.) The trust holds an account at a
the FBAR and IRS Form 8938, Statement owns a foreign account required to report Swiss bank. Who must report the Swiss
of Specified Foreign Financial Assets, the account on the beneficiary’s FBAR? A account on an FBAR?
where the taxpayer is required to report good argument can be made that the ben- The trust is a United States person
interests in foreign entities, but not any eficiary is not required to report the foreign because it is organized under California
accounts owned by the entities. account. That said, there is no penalty for law. It has a financial interest in the Swiss
Second, a foreign account may need to overreporting, and since the cost of not account because it owns the account. The
be reported by more than one United States reporting a foreign account that has to be trust must therefore report the account on
person. For example, if a domestic corpo- reported will generally far outweigh the cost its FBAR, even though it does not have its
ration with a sole U.S. citizen shareholder of reporting a foreign account that does not, own EIN and does not have any obligation
owns a foreign account, the domestic cor- the safest choice is to report such an account. to file its own income tax return.
poration would need to report the foreign Marlon is a United States person because
account because it owns the account, and Examples he is a U.S. citizen. He has a financial inter-
the shareholder would need to report the The examples below illustrate the rules est in the Swiss account because he is the
account because she owns more than 50% described above. grantor of the grantor trust that owns the
of the shares of the corporation. There is an Example 1. Jane, a U.S. citizen, owns account. Thus, he must also report the
exception to the multiple-reporting require- 100% of the membership interest in a New account on his FBAR.
ment, however; a trust beneficiary need not York LLC that is a disregarded entity for Example 3. Maria and Elena, both U.S.
report a foreign account owned by a trust U.S. income tax purposes. The sole asset citizens, each own 50% of the stock of a

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