Jerni

Hi Guys,

I have a questions relating to FBAR due dates. To give an overview:

My good friend had an insurance payout deposited into his UK bank account this week. This is the first time his UK account has had a balance greater than $10,000 since immigrating to the US. So he knows he needs to file an FBAR.

The question is when the FBAR has to be filed. Since the account balance was above $10,000 in March 2014 does that mean that the FBAR has to be filed in 2015? Or does it have to be filed now since the balance was above $10,000 before the June cutoff of this year?

Hope that makes sense and thanks in advance.

MidAtlantic

The filing is for the calendar year, so your friend does not have to file this until 2015.

MMcD

+1
That's absolutely correct, Jerni

Jerni

Thanks very much. What happens after the FBAR is submitted? Will my friend need to do anything else? He called me quite worried and so I'm trying to put his mind at rest.

He plans to transfer the money to his and his wife's joint account here in the US. Will that have any impact on their US taxes for next year? (The money is from an insurance compensation payout from an accident that occurred 4 or so years ago (took that long to resolve!)). This is the first time they've transferred a large sum of money like this so they are worried about that as well.

I've transferred funds before but not over $10,000 (I think with the exchange rate he'll be sending around $15,000), so I'm not sure what to advise him there either.

MidAtlantic

The mere act of transferring the funds does not affect whether or not they are taxable.

I suggest that he uses a money exchange service (xe.com, torfx and others have been recommended here - you will find several threads on it). They will provide much better value than main banks.

Whether it is taxable I will leave others to advise.

JAJ

Nothing, usually. He may get an acknowledgement after filing electronically, that's it.
It's always possible that they could follow up if they have questions, but that's highly unusual.


He doesn't need to do anything other than a. put any bank interest (which is unlikely to be much) on his tax return and b. declare the compensation payment itself IF it's taxable.


As someone else has said, the mere transfer of money does not make it taxable. Most compensation payments are not taxable, however there are exceptions. From publication 525 (extract):
http://www.irs.gov/publications/p525/ar02.html

Court awards and damages.
To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.

Interest on any award.

Compensation for lost wages or lost profits in most cases.

Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.

Amounts received in settlement of pension rights (if you did not contribute to the plan).

Damages for:
Patent or copyright infringement,
Breach of contract, or
Interference with business operations.

Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.

Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).


It might be worth going through the detail with a competent CPA to ensure the taxable/non-taxable status is understood correctly. Also it would be necessary to check if your state (if it has an income tax) follows the federal definition of income in this area or has an exception.

Jerni

Thank you so much! I'll pass the information along.

MidAtlantic

He WILL get an acknowledgement after filing electronically. That is one of the benefits of the new system.

I once received a letter asking me to call them about an FBAR filing, but when I called they did not know why they had sent the letter!

durham_lad

+1

I'd been sending in the TDF-90 forms for 20 years by mail and never even knew that they had received them. I like that I got a confirmation this year when I filed online.

Cook_County

Your friend will need to think whether the insurance payout is taxable. An 8938 may also be required for 20014, filed in 2015.

Jerseygirl

Good point...unlike the UK the US will tax profit from an insurance policy. It should also be declared on next year's US tax return.

Cook_County

And it may subject to PFIC tax.

Jerni

Thanks again everyone.

Why? From reading http://en.wikipedia.org/wiki/Passive...stment_company I'm not sure how it would apply. I don't believe my friend will be investing the money.

JAJ

Except that this isn't profit from an insurance policy. It's a compensation payment from an insurance company and the possible taxability (or otherwise) is discussed above.


Why do so many tax related discussions wander off into unnecessary complexity?