Offshore Reporting Made Easy
At BFI, we go out of our way to help our clients make the reporting of their international structures and investments as convenient as possible. However, one structure in particular stands out in this regard: Private Placement Life Insurance (PPLI). Benefits such as tax efficiency, asset protection or inheritance separate of probate are often discussed. However, one of the key advantages of PPLI is the simple and straight-forward element of annual tax filing.
It is filing season again in the U.S.: the time to calculate, report and file. However, if you compare the reporting requirements of PPLI to those of other offshore strategies, the owner of a PPLI could be described as having a luxuriously comfortable filing task.
Depending on how they have their offshore investments set up, U.S. investors may be required to file a myriad of reporting documents. That list, without the support of a knowledgeable advisor, might be daunting and can include not only the FinCEN Form 114 and Form 8938, but also Form 3520, Form 3520A, Form 5471, Form 8858, Form 8865, or all the above!
However, owners of PPLI policies and related structural variants generally benefit from significantly simplified reporting requirements that are easily manageable and won’t require countless hours of your accountant’s time…or the bill that comes with those hours.
Financial interest (e.g., ownership or signatory rights) over a PPLI policy, being a variable annuity or a life policy, which has a cash value should be reported only on the FinCEN Form 114, commonly referred to as the “FBAR”, and on the Form 8938.
Both forms are quite straight-forward and even single-pagers if all your offshore exposure is limited to PPLI. For our clients, the information needed to complete both forms is made available through us.
The information required on both forms is reduced to the basic information on the contract, as well as the total highest value of the policy for the year. And so, once you have completed your first FBAR and form 8938, the following years become even easier as you would just need to obtain the updated value for the previous year.
Key facts to remember
Here are a few things to remember for those already owning a private placement life insurance policy:
The FBAR must be filed each year by April 15th, online, and with respect to all “foreign financial accounts” that were maintained at any point during the previous calendar year. For example, you would fill out and submit an FBAR in 2021 with information on the PPLI for the calendar year 2020. FinCEN provides for an automatic filing extension of the FBAR filing to October 15th. For details, please click here.
The Form 8938 is due with your annual tax return, and is due on the date of that return, generally by April 15th of each year.
For the FBAR, the reporting threshold is $10,000 (aggregate value of all “foreign financial account) at any time during the calendar year
For the Form 8938, it is $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
Further relevant resources
Below, you will find some useful links to information related to these two forms, as well as a sample of a completed FBAR for your convenience.
We do need to be very clear on the point that we are not US tax attorneys or accountants. We’ve built quite some knowledge about the tax rules of a number of countries, including the US, over the years based on our endeavors of providing our clients with wealth management solutions and strategies that are in compliance with the tax rules of their respective countries. Therefore, it may in fact be that we know more about international tax laws, planning strategies, and cross-border solutions than many of your local tax attorneys and accountants.
Nevertheless, when dealing with a tax code like the one in the US, that includes well over 60,000 pages, it is certainly difficult to be a 100% sure. Thus, the information we provide in this article should not be taken as legal or tax advice and we strongly recommend that you consult with a U.S. lawyer or a tax expert.
How to complete the FBAR:
You can find guidelines on how to complete the form by clicking here.
FinCEN 114 and Form 8938, comparison table Click here
FinCEN Form 114 – Link to the form, instructions, and online portal Click here
Form 8938 – Link to the form and instructions Click here
FAQs Regarding FBAR electronic filing Click here