Foreign Investment Accounts and Trusts

If you had a financial interest in, or signature authority over, a financial account in a foreign country or you received a distribution from, or were a grantor of, or transferor to, a foreign trust, you must complete Part III of Schedule B.

Part III asks you to answer "yes" or "no" to foreign account related questions.

Line 7 asks "At any time during the (tax year), did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?"

• Bank accounts include savings deposit, demand deposit, checking, and other accounts maintained with persons engaged in a banking business. This includes time deposits such as certificate of deposit accounts (CDs) that allow individuals to deposit funds with a banking institution and redeem the initial amount (along with interest earned) after a prescribed period of time.
• Securities accounts are accounts with persons engaged in the business of buying, selling, holding or trading stock or other securities.
• Other financial accounts include:
• accounts with persons in the business of accepting deposits as a financial agency;
• insurance or annuity policies with cash value;
• accounts with persons who act as brokers or dealers for futures or options transactions in commodities that are on or subject to the rules of a commodity exchange or association;
• accounts with mutual funds or similar pooled funds that issue shares that are available to the general public and have a regular net asset value determination and regular redemptions; and other investment funds.

If you checked the "yes" box, you must then answer if you are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1). You must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

If you are required to file FinCEN Form 114, enter the name of the foreign country where the financial account is located on line 7b of Schedule B.

The FBAR is not a tax form and is not filed with your tax return. If the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the calendar year, you must file FinCen Form 114 electronically with the Financial Crimes Enforcement Network by June 30 of the following year.

Line 8 asks "During the (tax year), did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If the answer is "yes," you may have to file IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

Regardless of whether you are required to file FinCEN Form 114, you may be required to file IRS Form 8938, Statement of Specified Foreign Financial Assets, with your income tax return. Form 8938 is used to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the reporting threshold.

Failure to file Form 8938 may result in penalties and extension of the statute of limitations. Consult your tax professional for clarification on what is defined as a specified foreign financial account, and on the amount of the reporting thresholds that apply to you. Also, see www.irs.gov/form8938 for more information.

Warning If you have foreign investments accounts and trusts, we strongly urge you to consult a tax professional who is experienced in these compliance requirements. The penalties for failure to comply with the various filing and disclosure requirements are among the stiffest in the tax code. If you are required to file FinCEN 114 but do not properly do so, you may have to pay a civil penalty up to $10,000. A person who willfully fails to report an account or provide account identifying information may be subject to a civil penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. Willful violations may also be subject to criminal penalties. This is not an area for the do-it-yourselfer.

If you had a foreign investment account, it's likely that you paid some foreign tax on it, and you may be entitled to a foreign tax credit.

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