1040 form 8398

[casmac]

What is the name of your state (only U.S. law)? CA

I am a Canadian filing a 1040 (first time) as a resident alien for
the 2013 tax year.

I have a question about whether two of my foreign assets must be
declared on Form 8398; I don't think they meet the definition of financial interest
as per the instructions for this form, but seek advice as I don't wish to be
penalized for failure to file 8398 in the event I am clearly in the wrong (without these accounts I
do not meet the reporting threshold).

In the instructions for Form 8398 with regards to defining financial interest it
states "You have an interest in a specified foreign financial asset if any income,
gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax
return."

My situation is this; I am joint owner (with my mother) of two deposit accounts in Canada. From what I have read in IRS publication 17 "If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by
local law"

In Canada, we report our share of interest generated from a joint account/investment based
on how much we contributed to the principal. I have never
contributed to either of these accounts. My mother has added me as an owner for estate planning purposes. She receives the Statement of Investment Income (Canadian version of 1099-INT) slips from the bank and accepts full responsibility for reporting/paying tax on all interest income generated from these accounts. I never reported/paid tax on income from these accounts while resident in Canada.

My understanding is that since I do not share in the tax liability for income generated from these joint accounts under local law in Canada where they are located, I also do not have to report any interest income accumulated in these accounts while I am resident in the US. This lack of potential tax liability (until the death of my mother makes me sole owner) is why I am under the impression they do not meet the criteria of "financial interest" for form 8398 and do not need to be included. Can you please offer an opinion whether this is correct?

I should note that I am fully aware that the definition of financial interest is much broader for
FinCEN 114, and I should include both accounts on that form.

Thank you very much

 

[LdiJ]

What is the name of your state (only U.S. law)? CA

I am a Canadian filing a 1040 (first time) as a resident alien for
the 2013 tax year.

I have a question about whether two of my foreign assets must be
declared on Form 8398; I don't think they meet the definition of financial interest
as per the instructions for this form, but seek advice as I don't wish to be
penalized for failure to file 8398 in the event I am clearly in the wrong (without these accounts I
do not meet the reporting threshold).

In the instructions for Form 8398 with regards to defining financial interest it
states "You have an interest in a specified foreign financial asset if any income,
gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the asset are or would be required to be reported, included, or otherwise reflected on your income tax
return."

My situation is this; I am joint owner (with my mother) of two deposit accounts in Canada. From what I have read in IRS publication 17 "If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by
local law"

In Canada, we report our share of interest generated from a joint account/investment based
on how much we contributed to the principal. I have never
contributed to either of these accounts. My mother has added me as an owner for estate planning purposes. She receives the Statement of Investment Income (Canadian version of 1099-INT) slips from the bank and accepts full responsibility for reporting/paying tax on all interest income generated from these accounts. I never reported/paid tax on income from these accounts while resident in Canada.

My understanding is that since I do not share in the tax liability for income generated from these joint accounts under local law in Canada where they are located, I also do not have to report any interest income accumulated in these accounts while I am resident in the US. This lack of potential tax liability (until the death of my mother makes me sole owner) is why I am under the impression they do not meet the criteria of "financial interest" for form 8398 and do not need to be included. Can you please offer an opinion whether this is correct?

I should note that I am fully aware that the definition of financial interest is much broader for
FinCEN 114, and I should include both accounts on that form.

Thank you very much

No, you don't have to report Canadian interest on the accounts if Canadian law does not make that interest your income. However, you are also correct, you do need to report those accounts on the FBAR form (FinCen 114).

 

[davew128]

No, you don't have to report Canadian interest on the accounts if Canadian law does not make that interest your income. However, you are also correct, you do need to report those accounts on the FBAR form (FinCen 114).

While your answer is correct, the OP was asking about FATCA. The answer is the same and IMO the account should be reported.

 

[LdiJ]

While your answer is correct, the OP was asking about FATCA. The answer is the same and IMO the account should be reported.

FATCA is the actual law. Forms 8938 and the FBAR (FinCen 114) are two forms that relate to foreign assets/accounts under that law...there are also other forms that do not apply here. The account absolutely (as both the OP and I said) needs to be reported on the FBAR.

The point of disagreement is form 8938.

Perhaps it would be best if the OP reviews the following:

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

However, my understanding (and I just went through an amnesty scenario with a client who had to refile 7 years of tax returns with the required forms and was approved for amnesty) is that form 8938 is not needed for a bank account...particularly a bank account that produces no income to the OP. The FBAR takes care of the reporting requirement.

 

[davew128]

FATCA is the actual law. Forms 8938 and the FBAR (FinCen 114) are two forms that relate to foreign assets/accounts under that law.

Well, no. FATCA and FBAR are not the same law, do not get reported to the same place, and are found in two totally separate titles of the US Code.

The point of disagreement is form 8938.

Perhaps it would be best if the OP reviews the following:

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

However, my understanding (and I just went through an amnesty scenario with a client who had to refile 7 years of tax returns with the required forms and was approved for amnesty) is that form 8938 is not needed for a bank account...particularly a bank account that produces no income to the OP. The FBAR takes care of the reporting requirement.

You're confusing issues. There is overlap between FBAR and FATCA. The need to file FBAR has no bearing whatsoever with FATCA. In fact, if you scroll down on the link you provided, you will find that the answer to the question becomes yes. Specifically:

Financial (deposit and custodial) accounts held at foreign financial institutions - Answer is YES for FATCA and FBAR. A bank account doesn't have to generate interest for it to be reportable under FATCA. If you have an interest in the account (not merely signing authority) its reportable. Being a joint owner of the account is most definitely an interest.