For years I have been unsure how to report a foreign bank account on an individual’s FBAR (FinCEN Form 114) when the account is owned by a foreign entity and the individual owns more than 50% of the foreign entity.
For example, if a US citizen individual owns 100% of a controlled foreign corporation (“CFC”), and the CFC has a foreign bank account, the US citizen individual is treated as having a financial interest in the CFC's foreign bank account.
Years ago, when I first came across this circumstance, I reported the foreign bank account in Part II of the FBAR, regarding separately owned accounts. Because the individual was not the direct account owner, I started to feel that Part II of the FBAR may not be the appropriate location for this type of an account.
At some point I decided to change how I report these accounts. I started listing them in Part III, regarding jointly owned accounts. In Part III, I would list the CFC as the joint owner of the account. To me, it just seemed appropriate to include some information about the direct owner of the account. Part III seemed to fit this bill.
Today, I had some questions about how to report certain other situations on the FBAR, so I called the FBAR helpline. I described the situation where a US citizen individual owns 100% of a foreign corporation and the foreign corporation has a foreign bank account. The IRS representative confirmed that the individual was treated as having a financial interest in the foreign corporation’s foreign bank account and that the individual was required to file an FBAR. Without hesitation, the IRS representative indicated that the account should be reported by the individual on Part II (separately owned accounts).
Thus, when a US individual has an indirect financial interest in a foreign account (such as through a greater-than-50%-owned foreign or domestic entity), information regarding the direct owner of the account is not reported anywhere on the FBAR.