FATCA Insurance Policy Reporting on Form 8938
FATCA Insurance Policy Reporting on Form 8938: The FATCA Insurance Policy Reporting on Form 8938 requirements by the IRS for individuals can range from relatively straightforward, to the complex. FATCA is the Foreign Account Tax Compliance Act. Starting in 2012 when individuals file their 2011 tax return, the form 8938 was introduced.
When filers have certain specified foreign financial assets, and they meet the threshold requirements for filing under FATCA – the form 8938 becomes another international reporting form the U.S. person may have to include with their tax return.
And, with the Internal Revenue Service taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income – compliance is important to avoid offshore fines and penalties.
FATCA Insurance Policy Reporting on Form 8938
The FATCA Insurance Policy Reporting on Form 8938 reporting requirements “require” individuals and other filers who are considered in U.S. persons, and are required file form 1040 may have to file form 8938 to report there foreign life insurance policies – along with other foreign assets.
When a person has a foreign life insurance policy, chances are it will also have to file the FBAR. We authored a separate article on FBAR Reporting for foreign life insurance policies.
What Insurance Policy Value Do I Report on FATCA Form 8938?
Here is where it gets a bit complicated: The filer does not report the face value. That is because the current value of the policy is not the face value. The face value of the policy is the payout at the time of the resulting event.
Rather, for Form 8938 (and FBAR) purposes, the filers includes the Surrender value or Cash Value. The cash or surrender value is the value the owner of the policy can get now, if they were to surrender the value now, for cash.
Surrender Value Example: David purchased a foreign life insurance policy with a face value of $1M. He pays $2,000 a year in premiums. After 10 years of payments, David can “surrender” the policy for $25,000. The $25,00 is not the “face value,” it is the “surrender value.”
The surrender value is reported on the FATCA Form 8938.
What Insurance Policy Information do I Report on FATCA Form 8938?
The main key pieces of information that need to be reported are:
- Company name
- Address
- Value
- Income generated and type of income (royalties, interest, dividends, bonus, capital gains, etc.)
PFIC and Foreign Life Insurance Policy Form 8621 Reporting Issues
A PFIC is a Passive Foreign Investment Company. Some life insurance policies have a ULIP component “unit-linked” that turn the policy into more of an investment into accompanying assets. This may (not always) transmute the policy into a PFIC.
The PFIC reporting and tax computation is very complicated.
What if You do not Report FATCA Form 8938?
If you do not report FATCA Form 8938, the IRS may issue significant fines and penalties. These penalties may be abated, reduced or avoided with reasonable cause and/or tax amnesty using one of the approved voluntary disclosure programs.
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