# FBAR question for Superannuation



## Tracy.B

Hi I’m at a loss and I’m hoping that someone can help or direct me to the right place to start? I’ve been living in the US since 2008, I’m a permanent resident since 2011 and my husband files his tax return every year as joint. I was unaware that every year I was supposed to file a FBAR. I only have my Superannuation which is $48k USD, there have been no employer or personal contributions going into it since July 2008. They have my overseas address on file. As far as the FBAR goes does superannuation just sitting there that I can’t withdrawal from until retirement age class as something I have to report yearly to the IRS, or does my husband answer yes on his joint taxes that I have this overseas investment? I did come across someone who didn’t file FBAR for the past 7 years as she was also unaware who also lives in the US, her investments were under $100k and the IRS just asked her for the past 7 years statements and she was not fined, I’m scared out of my mind that I’ll be fined 12 years worth due to the fact I just had no idea. Also last question does an Australian Credit Card also be declared when filing a FBAR even though it’s not classed as a asset or investment?


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## 255

Tracey.B -- First relax! Secondly, you and your husband are filing a joint return -- it is not just your husband's filing. Below are the submission procedures for filing delinquent FBARs:

Delinquent FBAR Submission Procedures | Internal Revenue Service (irs.gov)

Yes -- you do have a filing requirement. You'll have to file your FBARs online, so you will need to set-up an account to do so: Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR) (treas.gov) Filing 7 years back, plus the current year, should put you in good stead with the IRS for FBAR reporting. You will also need to complete Part III of IRS Schedule B to form 1040 annually, indicating that you have overseas investments. If you haven't done this in the past, I would recommend you also amend your past submissions (at least for the last three years,) utilizing an amended return: Form 1040-X (Rev. January 2020) (irs.gov) 

Your account is also near the $50,000.00 threshold for filing IRS form 8938 -- if you go over this threshold, this form should be included with your individual (joint) tax return. 2020 Form 8938 (irs.gov) 

Next -- fortunately, the annual earnings from your "Super" are exempt from U.S. tax by treaty, specifically Article 18 of the "Double Taxation Taxes on Income Convention Between the United States of America and Australia:" AUSTRALIAWEB.PDF (irs.gov) The U.S. taxes world-wide income and if you want to exclude your pension gains, or future distributions, you should also file IRS form 8833 (with your annual tax return,) to take advantage of your treaty rights. Form 8833 (Rev. November 2020) (irs.gov) 

Lastly, your Australian credit card is a debt instrument, not an asset -- so no reporting requirement. Cheers, 255


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## Tracy.B

255 said:


> Tracey.B -- First relax! Secondly, you and your husband are filing a joint return -- it is not just your husband's filing. Below are the submission procedures for filing delinquent FBARs:
> 
> Delinquent FBAR Submission Procedures | Internal Revenue Service (irs.gov)
> 
> Yes -- you do have a filing requirement. You'll have to file your FBARs online, so you will need to set-up an account to do so: Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR) (treas.gov) Filing 7 years back, plus the current year, should put you in good stead with the IRS for FBAR reporting. You will also need to complete Part III of IRS Schedule B to form 1040 annually, indicating that you have overseas investments. If you haven't done this in the past, I would recommend you also amend your past submissions (at least for the last three years,) utilizing an amended return: Form 1040-X (Rev. January 2020) (irs.gov)
> 
> Your account is also near the $50,000.00 threshold for filing IRS form 8938 -- if you go over this threshold, this form should be included with your individual (joint) tax return. 2020 Form 8938 (irs.gov)
> 
> Next -- fortunately, the annual earnings from your "Super" are exempt from U.S. tax by treaty, specifically Article 18 of the "Double Taxation Taxes on Income Convention Between the United States of America and Australia:" AUSTRALIAWEB.PDF (irs.gov) The U.S. taxes world-wide income and if you want to exclude your pension gains, or future distributions, you should also file IRS form 8833 (with your annual tax return,) to take advantage of your treaty rights. Form 8833 (Rev. November 2020) (irs.gov)
> 
> Lastly, your Australian credit card is a debt instrument, not an asset -- so no reporting requirement. Cheers, 255


Thank you for all of the information you’ve given me! I have direction now, I just wanted some more clarification is the $50k threshold USD or AUD? If it’s AUD I’m over the threshold if it’s USD I’m just under that threshold. Thanks so much


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## 255

Tracy.B -- Everything on a U.S. return is in USD. With that being said, you'll need to convert your AUD account to USD for any U.S. reporting purposes. In your original post, you stated you had $48K USD; I assumed you already did the conversion (from about $63K AUD.) So you are good for now. Cheers, 255


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## Moulard

255 said:


> Next -- fortunately, the annual earnings from your "Super" are exempt from U.S. tax by treaty, specifically Article 18 of the "Double Taxation Taxes on Income Convention Between the United States of America and Australia:"


Unfortunately this is NOT correct, or at best not correct for the reason given..

First the treaty allows the US to tax its residents and citizens as if the treaty was not in force, with a few exceptions that are defined in the savings clause (Article 1 paragraph 3). Super is not protected by the savings clause, and thus it can be taxed by the US as if the treaty was not in effect. Super would fall under Article 18(1) or potentially Article 19 if you were a government employee. It would NOT fall under Article 18(2). Article 19 is partly covered by the saving clause but is not applicable here because you have immigrant status in the US.

Second, I am going to assume that the fund is an industry fund, employer fund or a master trust that is the employer's default fund. I assume this because a self managed fund where the trustees in the US would have to be wound up as it would not be compliant with Australian tax law on SMSFs. I will also assume that employer contributions exceed employee contributions for reasons I explain below.

Finally, there is a caveat on what I say below as there is no formal advice from the IRS by way of Regulations, Private Letter Rulings or Tax Court opinions. All we know from PLRs is that a Super Fund is in fact a Trust, and along with that an FOIA release that includes what is basically internal musings of IRS Senior Counsel and others within the International Division on how to deal with contributions and distributions.

Basically it appears that something other than a SMSF can be treated as an Employees' Trust under s.402(b). By way of a precis ...

Paragraph 1 states that contributions would be taxable in the year that the contribution was made
Paragraph 2 states that distributions would be taxed when made available by the trust ... which in the case of Super would be after one reached their preservation age, or was granted an early release.
Paragraph 3 states that basically if the employee contributes more than the employer then the employee contribution component would be taxed as a grantor trust.









26 U.S. Code § 402 - Taxability of beneficiary of employees’ trust







www.law.cornell.edu





Then long and the short, if you are still a US Permanent Resident or a US Citizen at the time you hit your preservation age, then the portion of the distribution that is growth WILL be proportionally taxable by the US. As you no doubt know, Super distributions are tax free in Australia, so you would only be able to use any foreign tax credits carried over from the 10 years before you retire.

Super would be reportable on the FBAR and potentially Form 8938 as 255 states.

The process for delinquent filing of FBARS is to simply file them late adding a comment about why they are late. You can do that so long as the IRS is not knocking at the door... (ie. you are under audit or they have asked you about FBARS) and you will never hear a peep. Remember that the FBAR is basically an anti-money laundering form not a tax form... but it is administered now by the IRS because FinCen don't actually care about ordinary accounts used in ordinary ways.

As for Form 8938, given you file jointly then the threshold is $100,000 USD on the last day of the tax year or $150,000 at any point in the year (across all of both your foreign financial accounts). The $50k threshold mentioned above is if you were filing separately.


As to the credit card.. so long as it is being used as a line of credit then it is not a foreign financial account. Somewhere in my files I have an IRS memorandum that looks at edge cases where things like credit cards might be considered a financial account... consider a situation where the credit card is always kept with a positive balance and us used to draw down on.. but not actually use the line of credit that it provides.



> The U.S. taxes world-wide income and if you want to exclude your pension gains, or future distributions, you should also file IRS form 8833 (with your annual tax return,) to take advantage of your treaty rights.


Except, that as I explain above the treaty provides no protections to a super distribution. Additionally, even it if did one would not actually be required to file Form 8833.. You can, but it is not required. Treasury Regulations 26 CFR § 301.6114-1 specifically waives the Form 8833 reporting requirement where a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, or income derived by artistes, athletes, students, trainees or teachers. (Paragraph c(iv) if you are interested)









26 CFR § 301.6114-1 - Treaty-based return positions.







www.law.cornell.edu


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## Tracy.B

255 said:


> Tracy.B -- Everything on a U.S. return is in USD. With that being said, you'll need to convert your AUD account to USD for any U.S. reporting purposes. In your original post, you stated you had $48K USD; I assumed you already did the conversion (from about $63K AUD.) So you are good for now. Cheers, 255


Thanks so much, I have a appointment with our tax guy on Monday, I’ve converted all of my 7 years of statements to USD based on the average exchange rate for that year so they’ll have each years balance in USD.


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## Moulard

For the FBAR you must use the Treasury Rate on 31 Dec for that reporting year, not the IRS average rate.






Treasury Reporting Rates of Exchange







www.fiscal.treasury.gov


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## Tracy.B

Thanks I’ll make adjustments If needed


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## Tracy.B

Moulard said:


> Unfortunately this is NOT correct, or at best not correct for the reason given..
> 
> First the treaty allows the US to tax its residents and citizens as if the treaty was not in force, with a few exceptions that are defined in the savings clause (Article 1 paragraph 3). Super is not protected by the savings clause, and thus it can be taxed by the US as if the treaty was not in effect. Super would fall under Article 18(1) or potentially Article 19 if you were a government employee. It would NOT fall under Article 18(2). Article 19 is partly covered by the saving clause but is not applicable here because you have immigrant status in the US.
> 
> Second, I am going to assume that the fund is an industry fund, employer fund or a master trust that is the employer's default fund. I assume this because a self managed fund where the trustees in the US would have to be wound up as it would not be compliant with Australian tax law on SMSFs. I will also assume that employer contributions exceed employee contributions for reasons I explain below.
> 
> Finally, there is a caveat on what I say below as there is no formal advice from the IRS by way of Regulations, Private Letter Rulings or Tax Court opinions. All we know from PLRs is that a Super Fund is in fact a Trust, and along with that an FOIA release that includes what is basically internal musings of IRS Senior Counsel and others within the International Division on how to deal with contributions and distributions.
> 
> Basically it appears that something other than a SMSF can be treated as an Employees' Trust under s.402(b). By way of a precis ...
> 
> Paragraph 1 states that contributions would be taxable in the year that the contribution was made
> Paragraph 2 states that distributions would be taxed when made available by the trust ... which in the case of Super would be after one reached their preservation age, or was granted an early release.
> Paragraph 3 states that basically if the employee contributes more than the employer then the employee contribution component would be taxed as a grantor trust.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> 26 U.S. Code § 402 - Taxability of beneficiary of employees’ trust
> 
> 
> 
> 
> 
> 
> 
> www.law.cornell.edu
> 
> 
> 
> 
> 
> Then long and the short, if you are still a US Permanent Resident or a US Citizen at the time you hit your preservation age, then the portion of the distribution that is growth WILL be proportionally taxable by the US. As you no doubt know, Super distributions are tax free in Australia, so you would only be able to use any foreign tax credits carried over from the 10 years before you retire.
> 
> Super would be reportable on the FBAR and potentially Form 8938 as 255 states.
> 
> The process for delinquent filing of FBARS is to simply file them late adding a comment about why they are late. You can do that so long as the IRS is not knocking at the door... (ie. you are under audit or they have asked you about FBARS) and you will never hear a peep. Remember that the FBAR is basically an anti-money laundering form not a tax form... but it is administered now by the IRS because FinCen don't actually care about ordinary accounts used in ordinary ways.
> 
> As for Form 8938, given you file jointly then the threshold is $100,000 USD on the last day of the tax year or $150,000 at any point in the year (across all of both your foreign financial accounts). The $50k threshold mentioned above is if you were filing separately.
> 
> 
> As to the credit card.. so long as it is being used as a line of credit then it is not a foreign financial account. Somewhere in my files I have an IRS memorandum that looks at edge cases where things like credit cards might be considered a financial account... consider a situation where the credit card is always kept with a positive balance and us used to draw down on.. but not actually use the line of credit that it provides.
> 
> 
> 
> Except, that as I explain above the treaty provides no protections to a super distribution. Additionally, even it if did one would not actually be required to file Form 8833.. You can, but it is not required. Treasury Regulations 26 CFR § 301.6114-1 specifically waives the Form 8833 reporting requirement where a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, or income derived by artistes, athletes, students, trainees or teachers. (Paragraph c(iv) if you are interested)
> 
> 
> 
> 
> 
> 
> 
> 
> 
> 26 CFR § 301.6114-1 - Treaty-based return positions.
> 
> 
> 
> 
> 
> 
> 
> www.law.cornell.edu


Wow that was a lot to absorb! My super is a employer based fund, I’ve never made salary sacrifice payments into this fund, I’ve not received any contributions since the end of the financial year June 2008 and lived in the US since August 2008. My husband and I file joint taxes so I’m guessing I’d fall under the $100k threshold which I’m way under that amount. I’m filing my FBAR today with my tax agent and filing with the reason of “I didn’t know I had to file” and hope they don’t fine me for doing so or charge me back taxes since the treaty agreement as you said does not exempt Super. There’s nothing more I can do but to submit a late file. I spoke with another Australian here in the US she was in the same position I’m in, she filed late FBAR for the prior 7 years this was 2 years ago, she wasn’t fined or taxed and every year since she just files her FBAR yearly going forward, her balance was much higher than mine, she’s not had any issues as a outcome, I’m hoping the IRS have bigger fish to fry than my measly under $50k superannuation fund! Thank you for the feedback you gave.


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## Moulard

Assuming you have access to your Australian statements you should be able to file the FBAR yourself - you are paying someone to cut and paste the same way you could.

If you are hesitant, make sure your tax agent gives you the completed form.. you can reuse it next year and simply change the tax year, and max balance.

Need convincing.. download the PDF form here and take a look at what is required. 






Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR)







bsaefiling.fincen.treas.gov





The hardest part will be converting AUD into USD, and a calculator can do that for you.

Personally I would report super as max balance unknown 1) because it really isn't any business of the US, and 2) most super statements have a little asterisk on them that says that reported balances are indicative only and is what might have been paid had you withdrawn it on the statement date. Enough wiggle room to suggest that the statement balance is indicative only.


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## Tracy.B

Moulard said:


> Assuming you have access to your Australian statements you should be able to file the FBAR yourself - you are paying someone to cut and paste the same way you could.
> 
> If you are hesitant, make sure your tax agent gives you the completed form.. you can reuse it next year and simply change the tax year, and max balance.
> 
> Need convincing.. download the PDF form here and take a look at what is required.
> 
> 
> 
> 
> 
> 
> Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR)
> 
> 
> 
> 
> 
> 
> 
> bsaefiling.fincen.treas.gov
> 
> 
> 
> 
> 
> The hardest part will be converting AUD into USD, and a calculator can do that for you.
> 
> Personally I would report super as max balance unknown 1) because it really isn't any business of the US, and 2) most super statements have a little asterisk on them that says that reported balances are indicative only and is what might have been paid had you withdrawn it on the statement date. Enough wiggle room to suggest that the statement balance is indicative only.


I actually did go to the treas website and start to file delinquent fbars and it made my head spin, I had no clue how to complete it, so I have a CPA appointment to just do the first one since you have to file one year at a time, once I have the copy of it I’ll be more confident to go forward and do it yearly myself. Also I did the conversion, I took the historical interest rates from the treas website Dec 31 of each year. All in all at the end of this I just hope I get fined for clearly not knowing this was a thing I needed to do! I appreciate your help and advice!


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## UsOz

Tracy.B said:


> I actually did go to the treas website and start to file delinquent fbars and it made my head spin, I had no clue how to complete it, so I have a CPA appointment to just do the first one since you have to file one year at a time, once I have the copy of it I’ll be more confident to go forward and do it yearly myself. Also I did the conversion, I took the historical interest rates from the treas website Dec 31 of each year. All in all at the end of this I just hope I get fined for clearly not knowing this was a thing I needed to do! I appreciate your help and advice!


Hi Tracy, as someone going through exactly the same situation and about to start talking to a CPA I would love an update on what they told you if possible?


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