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The past few years have seen a steady growth of a client base that have foreign accounts, no complaints there! Most clients have very routine FBAR filing requirements but then some times things are a little out of the ordinary and that gets me all excited...yes I know..it does! That either tells you about my lack of a life during tax season or we should just notch it up to tax nerd-iness!
So you see this year, one family that came to see us had a letter from a foreign bank under FATCA regulations. The name on the account was their minor son's. The account for all these years had been forgotten because the parents never thought it figured into any calculations.
A parent might open an account for their child in their home country for many reasons: to cover higher education, gifts from grandma, grandpa and other relatives, holiday funds and so on. And at some point, if the parents and the children move to the US & become "US persons" for tax purposes. This can happen if they have substantive presence in the US/ get a Green Card/ become US citizens. Now the parent has triggered a information-reporting requirement if the financial account balance crosses reporting thresholds.
There are U.S. Income Tax rules if a parent/ a caregiver elects to include the investment income of a child/ dependent on their own tax return. This is done by filing Form 8814 with the parent's tax return. One may think that this may reduce the burden of having to file separate FBARs and Form 8938 for the child. Form 8814 can be filed with a parent's return only if ALL of the following are true:
- The child was under 19 years of age or under 24 AND a full time student.
- The child only had investment/ passive income and no earned income.
- The child's gross income was < $10,500.
- The child would have been required to file a Form 1040 if the parent had not elected to include his income on their tax return.
- The child does not file jointly.
- The child did not make estimated payments for the year.
- No tax over-payment has been applied from a previous year to the child.
- No federal income tax has been withheld under the child's name.
Hence if the foreign financial account balances cross reporting thresholds, the parent filing a Form 8814 of such a child needs to or in the second case where the child is reporting filing the Form 1040 with a Form 8615 enclosed:
- Report the income from such accounts on Form 1040.
- Check the box "Yes" on Schedule B to form 1040 to the presence of foreign financial accounts and disclose the existence & location of the foreign account.
- Enclose Form 8938 if need be.
Now, all of the above would apply to form 1040 and the accompanying schedules & forms such as the Schedule B and Form 8938.
But what about the FBAR?
The online instructions for the FBAR rules for children were updated in June 2014. Irrespective of how the the child's investment income is reported on the Form 1040 either by the child or the parent, the FBAR needs to be filed in the child's name.
Quoting from the online instructions from the FinCEN,
" Responsibility for Child's FBAR:
Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child.
Signing the child's FBAR. If the child cannot sign his or her FBAR, a parent or guardian must electronically sign the child's FBAR. In item 45 Filer Title enter “Parent/Guardian filing for child."
Please see an Enrolled Agent or a tax professional specializing in foreign bank accounts if you have questions regarding the above or if any of that applies to you.
Bibliography: Form 8615; Form 8814; BSA Filing Instructions; Form 8938; Journal of Taxation
As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxbiz.com.