Page 3 - Understanding FBAR Disclosure Responsibilities: When Must an Entity or Connected Individual File?

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COLUMNS I Tax Practice & Procedure

British Virgin Islands (BVI) corporation. because he is not the beneficiary of the trust The trust is a United States person
The BVI corporation holds an account at and the trust is a nongrantor trust. He there- because it is organized in the United States,
a Swiss bank. Who must report the Swiss fore has no FBAR filing obligation. even though it is a foreign grantor trust for
account on an FBAR? Example 5. Reshma, a U.S. citizen, is U.S. income tax purposes. It has a financial
The BVI corporation is not a United the sole trustee of a trust formed under the interest in the Swiss account because it owns
States person, so it has no FBAR reporting laws of Delaware. The trust is treated for 100% of the Florida LLC and therefore indi-
obligation. U.S. income tax purposes as a foreign rectly owns the Cayman Islands corporation
Maria and Elena are both United grantor trust owned by Alan, the nonresi- that owns the account. Thus, the trust must
States persons because each is a U.S. cit- dent, noncitizen settlor of the trust who cre- also report the account on its FBAR.
izen; however, neither has a financial ated it, funded it, and has the unilateral right David is a United States person because
interest in the Swiss account because nei- to revoke it. The sole beneficiary of the he is a U.S. citizen. He has no financial
ther owns more than 50% of the stock trust is David, the settlor’s U.S. citizen interest in the Swiss account, however,
of the BVI corporation. Thus, neither has brother. The trust’s sole asset is a 100% because even though he is the sole current
an FBAR reporting obligation. membership interest in a Florida LLC that beneficiary of the trust, the trust is not the
Example 4. Howard, a U.S. citizen, is has made an entity classification (i.e., owner of record or holder of legal title to
the settlor of a Wisconsin irrevocable trust the account. He therefore has no FBAR
that is treated as a nongrantor simple trust. reporting obligation. (Moreover, even if
The sole trustee and current beneficiary of Whenever foreign David had a financial interest in the
the trust is his U.S. citizen son, Richard, accounts are involved, a account, he would not have to report it on
who is entitled to all of the income from his FBAR because the trust must, and that
the trust during his life. The sole remainder return preparer must peel relieves the beneficiary of the reporting
beneficiary of the trust is a U.S. private obligation.)
foundation organized under the laws of back the layers of the Alan, the settlor of the trust, is not a
Texas. The trust holds an account at a United States person, so he has no FBAR
Swiss bank. Who must report the Swiss onion and analyze each reporting obligation.
account on an FBAR? one to determine whether Reshma, the trustee of the trust, is a
The trust is a United States person United States person because she is a U.S.
because it is organized under Wisconsin an entity or connected citizen. She has no financial interest in the
law. It has a financial interest in the Swiss Swiss account. Nonetheless, she must
account because it owns the account. The individual might have a report the account on her FBAR because,
trust must report the account on its FBAR. filing obligation. as the sole director/officer of the Cayman
The private foundation is a United States corporation that owns the account, she has
person because it is organized in the United signature authority over the account.
States; however, it has no financial interest check-the-box) election to be taxed as a
in the Swiss account because it has no pre- corporation. The sole asset of the Florida Peeling the Onion
sent beneficial interest in the trust and does LLC is 100% of the stock of a Cayman Entity ownership structures can be multi-
not receive any of the trust’s income. It Islands corporation, whose sole tiered and complicated; the above examples
therefore has no FBAR filing obligation. director/officer is Reshma. The Cayman barely scratch the surface of the variety of
Richard is a United States person Islands corporation holds an account at a arrangements one might encounter.
because he is a U.S. citizen. He has a Swiss bank. Who must report the Swiss Fortunately, the attribution rules described
financial interest in the Swiss account account on an FBAR? above involving foreign accounts and entities
because he receives more than 50% of The Cayman Islands corporation is not are actually reasonably clear, as long as one
the income from the trust that owns the a United States person, so it has no FBAR does not make assumptions based on income
account. Nevertheless, he has no FBAR reporting obligation. tax treatment. Whenever foreign accounts are
filing obligation because the trust reports The Florida LLC is a United States per- involved, a return preparer must peel back
the account on the trust’s FBAR, which son because it is organized in the United the layers of the onion and analyze each one
relieves him of the obligation to report States. It has a financial interest in the Swiss to determine whether an entity or connected
the account on his own FBAR. account because it owns more than 50% of individual might have a filing obligation. q
Howard is a United States person because the stock of the Cayman Islands corporation
he is a U.S. citizen; however, he has no that owns the account. Thus, the Florida Ian Weinstock, JD, is a partner at
financial interest in the Swiss account LLC must report the account on its FBAR. Kostelanetz & Fink, LLP, New York, N.Y.

60 MARCH 2019 / THE CPA JOURNAL