Steerpike

I recall an informative thread somewhere on BE not too long ago regarding the US government's amnesty on 'foreign accounts'. I can't find it for the life of me now.

Can anyone tell me - at what dollar value does an account have to be declared, and does a life insurance policy (which has a surrender value, but is not a liquid account) count as an 'account' in this context?

Thanks!

theOAP

Your question is slightly confusing since you've used the terms 'amnesty' and 'foreign accounts' together. There is no amnesty on declaring foreign accounts for FBAR (Treasury form 90-22.1, although it may now have a different title). There is a threshold, which if you're under, you do not have to file.

If the aggregate amount of all foreign accounts (non-US) is over $10,000, calculated by using the highest amount in each account at any time during the year, then you do have to file an FBAR. You use the exchange rate for 31 December as listed on the Treasury site. There are instructions for Life Insurance policies. If they are of a certain type (and those with a surrender value may be included, I'm not sure) then they also must be included in both the calculations and on the form if over the aggregate threshold. Check the instructions for FBAR as insurance policies are mentioned. The question would be, if the policy must be included, what is the value you place on it.

Steerpike

Thanks for the info. The keyword I was missing was FBAR ...

I just read this page ... and it does mention life insurance policies. I believe I have one that is in the $10k region. I have spoken to someone in the UK and they suggested that I could 'assign' the policy (without cashing it) to my mother, who would then become the owner of the policy. She could then cash it at some future date and benefit from the surrender value at that time. Since I have no use for the money, and was going to give the proceeds to my mother anyway, this may be a clean way to deal with it and avoid a lot of paperwork.

I am puzzled by the reference in the above referenced article to the couple having foreign assets of over $100,000, and the separate reference to $10,000. Is it that a foreign asset must be 'reported' if $10k or above, but doesn't actually result in any taxable events unless it is $100k? That is - are they simply saying, they want to "know about it" if it is over $10k, but won't tax you unless it is over $100k?

Edit to add ... I've never received any 'income' from this policy; it has just sat there for many years and has slowly risen in value due to increases in value of the underlying investments. But the surrender value has increased, so that may be 'income' from an IRS perspective.

This is the long thread that I found a while back and am now re-reading ...

JAJ

There are differing opinions as to whether it's income as it accrues, or whether income is earned at the end. Generally speaking, these policies are not good investments so there's usually not much true income either way.

Your tax is self-assessment, there is normally a 3 year statute of limitations, so normally only 2010-12 are open at this stage. On the open tax years you would only have an issue if you were audited (unlikely) and if the IRS auditor understood this area to be able to understand what income really exists (also unlikely, unless you have surrendered it), and if there was any significant income (also unlikely in any given year). If you believed in good faith that your tax return was correct when you filed it, then you are not under the same obligation to amend returns as opposed to filing one in the first place.

The "amnesty" is really only for those who are at risk of criminal prosecution for filing a fraudulent tax return. Think Swiss bank accounts, offshore trusts or corporations with intent to hide income, etc.

Going forward:

- if you cash in the policy, then you need to consider if there is a gain (there may or may not be) and declare the difference for tax;
- if you do need to file FBAR (you may or may not, depending on the nature of the policy) then you may choose simply to do so going forward. Many people do that.
- There is also form 8938, which has different rules and a wider scope than FBAR but the reporting thresholds are higher. A $10k policy on its own is under those thresholds.