If your retirement account has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) by June 30, 2013.” The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
In general,unless an exception applies, all United States persons are required to file an FBAR if: (i) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and (ii) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported. According to the Internal revenue Service, a financial interest arises when the owner of record or holder of legal title; the owner of record or holder of legal title is the agent or representative; or the U.S. person would have a sufficient interest in the entity that is the owner of record or holder of legal title.
According to the IRS, an IRA and 401(k) Plan would generally exempt from filing the FBAR form. However, it is unclear whether a Self-Directed IRA LLC would be exempt from the FBAR requirement since the exception only states “IRA owners and beneficiaries” and there is no guidance as to whether the IRS would view the LLC as separate and distinct from the IRS. As a result, self-directed IRA LLC clients with foreign bank accounts should contact their tax accountant for additional information on the FBAR filing requirements.
In addition, taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. The Form 8938 is due when the taxpayer’s income tax return is filed, including extensions.
If one buys foreign real estate and holds it via a foreign corporation that itself is owned by a retirement account, IRS Form 5471 will likely have to be filed since the retirement account will own an interest in a foreign corporation.
For more information on the foreign reporting rules in connection with using a self-directed IRA, please contact a retirement tax specialist at 800-472-0646.