THE SOVEREIGN INVESTOR >> October 29, 2010

What You Need to Know about Offshore
Reporting Requirements in 2011 – and the
Offshore Investments You DON'T Have to Report

By Mark Nestmann

Dear Sovereign Investor,

Does the date June 30, 2011, mean anything to you?

It should – especially if you’re a "U.S. person" and hold foreign assets with an aggregate value of $10,000 or more.

That's the deadline for filing a form with the U.S. Treasury. Cryptically named "Form TD F 90-22.1," this "foreign bank account report" (FBAR) gives the If you have a financial interest in, or signature or other authority over foreign bank, securities or "other" financial accounts with an aggregate value exceeding $10,000, you must file the FBAR. That's true even if the account contains only precious metals or other non-cash assets, or generates no income.

Alas, the FBAR isn't the only reporting obligation for your offshore investments. That would be too easy.

You must also report your foreign accounts each year on Schedule B of your federal income tax return. On top of that, the IRS has created a special reporting regime for Americans with more than $50,000 in non-U.S. assets. Lucky you!

In 2011, your financial privacy will be on the chopping block. But a few offshore investments that you can still hold privately remain.

FUBAR – 'Fouled Up Beyond All Recognition'
The FBAR offshore reporting regime truly is FUBAR. However, as a U.S. person, you must deal with it.

The tax penalties for failing to file FBAR forms are draconian. You could end up paying a $10,000 fine per unreported account for each year you neglect to file the FBAR. Far worse, if you "willfully" fail to file the form, you face a fine up to $500,000, five years imprisonment…or both.

In addition, if you own more than 50% of the shares of a corporation (by value, U.S. or foreign) with a foreign account, the corporation must file a FBAR. You must also file a separate FBAR in your own name acknowledging the same account.

Similar rules apply to partnerships. Even a single-member LLC, taxed as a "disregarded entity," is a "U.S. person" for FBAR purposes. Reporting rules apply to foreign accounts held by trusts as well.

Expanded Disclosure for Offshore Interests
Exceeding $50,000
Last March, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847). The HIRE Act significantly expands the scope of offshore reporting requirements if you hold more than $50,000 of "foreign financial assets." In that event, you must disclose on a yet-to-be-created IRS form:

Any ownership of non-U.S. securities. This appears to represent a crackdown on the use of "bearer shares."


Any financial instrument or contract held for investment from a foreign issuer or counter-party. This appears to require the reporting of offshore life insurance or annuity contracts.


Any interest in any foreign entity. Reporting provisions in current law impose an obligation for U.S. persons who acquire or dispose of a 10% or greater interest in a foreign corporation or partnership to disclose that transaction. However, no disclosure for smaller interests was required—until now.
Thus, in our FUBAR world, you may be required to make four or more separate disclosures of the same investment or account.

For instance, if you own a foreign account through a foreign entity such as a Nevis LLC, you'll need to:

1. File the FBAR for yourself.
2. File the FBAR for the LLC.
3. Check "yes" on Schedule B.