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socrateaser
socrateaser, Lawyer
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Experience:  Retired (mostly)
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In the past I talked to Robin about filing FBAR. I own Swiss

Resolved Question:

In the past I talked to Robin about filing FBAR. I own Swiss annuities since late 90's but no FBAR are needed to report them. However, now they are also part of the FBAR. Should I report for all past years or just 2010 now? I think I need to talk to tax lawyer.
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.
The effective date of the new FBAR regulations, appearing in the Federal Register at 76 FR 10234, is March 28, 2011. This rule applies to reports required to be filed by June 30, 2011 with respect to foreign financial accounts maintained in calendar year 2010 and for reports required to be filed with respect to all subsequent calendar years.

For further info, contact: FinCEN, Regulatory Policy and Programs Division at (800) 949–2732 and select Option 1.

Hope this helps.

NOTICE: My goal here is to educate others about the law. I am always available to answer your follow-up questions after you click Accept – however, if you do not click Accept, the website gets paid, and I receive nothing. This is true, even if you are on a subscription plan. So please click Accept, so that I will be able to continue to provide this service for others in the future.

Customer: replied 3 years ago.
I know that, but foreign annuties were never included before under foreign bank account reporting requirements. I want to know when foreign insurance annuities were included in FBAR. The final regulations were issued on February 24, 2011 and under them life insurance or annuity is treated as reportable account only if it has a cash value. My question is do I have to fill all forms for last 7 or 8 years or just report 2010 year according to this new regulation?
Expert:  socrateaser replied 3 years ago.
The new Rule at 31 CFR 1010.350(c)(3)(ii) defines "[a]n account that is an insurance or annuity policy with a cash value" as a "reportable account." There were not revisions to the law in 2010, and 2009 version of the Code of Federal Regulations at 31 CFR Part 103 (which is now renumbered and transfered to Part 1010, does not have a "reportable account" definition. The prior version does mention annuities, but only in reference to an insurance company's obligation to report suspicious activity.

Since the new version contains the relevant definition of annuity under "reportable accounts," and since the last revision in 2009 does not, therefore there cannot possibly be any express reporting requirement for an individual taxpayer to report foreign annuity accounts for any calendar year prior to 2010, because the 2011 revision expressly states that reporting requirements under the new revision are retroactive only to the 2010 calendar year.

Hope this helps.

Customer: replied 3 years ago.
So if I understand is correctly, I need to report only for the year 2010 and no prior years?? Is that correct?
Expert:  socrateaser replied 3 years ago.
That's how I read the law. There is no dispositive case law, statute or regulation of any kind that I can find which states otherwise. The term "foreign financial accounts," found in the previous regulation (31 CFR § 103.24), which is the basis for the reporting requirement, was never defined until this recent revision of the regulations, which now specifically defines an annuity within the scope of the reporting requirement, as previously described.

Hope this helps.

Customer: replied 3 years ago.
I think I understand it. However, the problem is that last month I send an e-mail to FBAR-IRS and got their response two weks later. The lady sent me an e-mail telling me that I can file from 2004 to 2009 and 2010. I was in doubt about it because foreign annuities were never part of the reporting requirements since I bought them in late 90's. I only consulted you to make sure if she is correct. But the regulations about foreign annuities reporting have changed only recently. How can she write me about filing for past years when there was no such regulations. Can you give me the reference about "new revision are retroactive only to the 2010 calendar year".
Can we toss this whole question to other experts to make sure we get the same answer as you gave me?

Thanks.
Expert:  socrateaser replied 3 years ago.
The retroactivity of the new rule is provided in my first answer to you, at 76 FR 10234, which provides under the heading Applicablility Date:
  • This rule applies to reports required to be filed by June 30, 2011 with respect to foreign financial accounts maintained in calendar year 2010 and for reports required to be filed with respect to all subsequent calendar years.

As far as what the IRS states, they are highly motiviated to get taxpayers to report anything and everything to do with a "foreign financial account." However, until this new regulation was enacted, there was no express definition of the term, nor any case law expressly interpreting the term, which left the matter up in the air. That is probably the main reason for the revised rule: to remove the ambiguity.

Criminal law statutes must be interpreted in favor of a defendant, wherever ambiguity exists. This means that a court would have to dismiss an action against you under FBAR related to the annuity accounts, because the law did not clearly identify annuities as within the scope of the definition of a "foreign financial account." The REPORT TO CONGRESS §361(b) OF THE USA PATRIOT ACT (2002) explains the problem as follows:

  • [C]harging an FBAR count is considered unnecessarily complicated by some prosecutors because of the interplay between 31 U.S.C. 5314, the implementing regulations at 31 CFR 103.24, and the penalty provision at 31 U.S.C. 5322(d). Prosecutions for violation of 31 U.S.C. 5314 raise concerns about the burden of proof (i.e., whether specific intent must be shown) after Ratzlaff v. United States, 510 U.S. 135 (1994).12.

The 2008 version of TD f 90-22.1 provides the following definition of a financial account:

  • This term includes any bank, securities, securities derivatives or other financial instruments accounts. Such accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). The term also means any savings, demand, checking, deposit, time deposit, or any other account (including debit card and prepaid credit card accounts) maintained with a financial institution or other person engaged in the business of a financial institution. Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

You will note that neither the term annuity nor life insurance policy appears in the above-quoted definition.

Contrast this with the definition of the 2011 revision of TD f 90-22.1:

  • A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).

Suddenly, annuities and life insurance contracts are part of the definition. This is thanks to the newly-revised regulation.

That said, I've spent about as much time as I can on this very interesting and complex topic. If you wish to have others consider the matter, you can click Accept and then click the Second Opinion button.

Best of luck.

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 34665
Experience: Retired (mostly)
socrateaser and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
I agree with your whole analysis about this issue. And I accept your response to make me more educated.

Thanks
Expert:  socrateaser replied 3 years ago.
You're welcome and good luck.

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