FBAR and AIA Whole Life Insurance

[Berkey70]

Hi,

I lived in Singapore before I moved to US on 2006. At that point I still have my whole life insurance with AIA. I maintain my Singapore bank account to minimum value for paying the insurance. It isnever above 10K. Recently I just realized that I have to report this account (bank and AIA) through FBAR. How many years I have to file back ? Will I get a trouble ? Will I have to pay income tax especially from my life insurance cash value ? If yes, how should I calculate it ? I never withdraw any cash value from the insurance

Regards,
Berkey

[malcontent]

There are several ways to handle this, but you should know there is a 6 year statute of limitations on prosecuting FBAR non-filings, provided you are up to date on filing US taxes.

If you search the web for something called “quiet disclosure” almost all the advice is against it, but none of that advice is based on their own experience. It’s really not a sinister technique, many have done it without incident. In fact, it’s a common practice in the corporate world when an area of noncompliance is uncovered.

The other thing to be aware of is that if AIA has not been reporting the account until now, the chances of the US side being aware of it prior to that is probably zero. I presume AIA has now requested your SSN so they can report the account? Once they do this, it is VERY important that you also report the account as well so that records will match.

In the end, it is really your decision to make after weighing the risks and pitfalls of each option - noisy disclosure, backdated disclosure, quiet disclosure. You can seek advice from the experts, but it may not be the best advice.

[Berkey70]

Hi,

Thanks for your response. My tax filing is always up to date. So either I amend my previous tax return or filing FBAR lately, I have to do it all for the past 6 years ?

Will you or anyone also be able do I assess my AIA insurance whether I need to pay tax on premium and cash value ? Is there any website that has a good explanation ? Or it is better if someone here has real life experience.

Thanks,
Berkey

[malcontent]

I would suggest that you fully educate yourself on the options available and make your own informed decision. If you seek expert opinion, they will give advice that is in their best interests or at least one that protects their interests, so you can’t come back to them if something unfortunate happens as a result of advice they have given you.

You have to understand FBAR and FATCA laws were written with the intent of netting big fish, those who have a motive for concealing because the tax savings they stand to gain is substantial. Unfortunately, no consideration was given to the vast majority who are just tiny minnows w/zero premeditated criminal intent.

If you seek out a professional, the first question you will probably be asked is whether you have any unpaid taxes from those undisclosed accounts over the past 3 tax years (or if the undisclosed income is 25% or more than the income you reported, 6 years). If the answer is yes - even if it’s only $1 - then “by the rules” you are supposed to do a noisy disclosure and pay the back taxes, interest and penalties. You then have to decide whether to go down that path or roll the dice with quiet disclosure and cross your fingers until 6 years lapse.

If the answer is no, then even “by the rules” the damage “should” be limited to reporting hassle, provided you take care of it before they discover your impropriety.

Do keep in mind that I am not an expert or a professional, just someone who has done a fair amount of study on the topic over the years, since it also impacts me. Take it for what it is worth.

[malcontent]

Here is a good article on the subject -

https://www.forbes.com/sites/stephendun ... ent-fbars/

[Berkey70]

Hi,

I have done some research and wow...it's not easy to understand all this language. It seems filing FBAR for the last 6 years is a good choice. What puzzle me now is more to determine my whole life insurance with AIA. Are they pass the test to be considered "life insurance contract" and not "investment contract". The other stuff is also about the tax on premium that I paid for the policy. Is it applicable to me ? If yes what is the mechanism to file late and pay the penalty ? I guess I need a sincere tax advisor and lawyer

[malcontent]

I wouldn’t jump to any conclusions. You can’t always take things at face value. A good example is when I discovered I had made illegal IRA contributions while excluding all my foreign income in Singapore - the standard advice is to pay a penalty of 20% of the account value for each year... that would have wiped out my IRA. After 2 weeks of sleepless nights, I found a little known method to change the exclusion to include enough income to cover my contributions. I had to file years and years of amended returns to fix that, but paid no penalty and sacrificed none of my IRA.

You could buy an hour of time with a tax consultant if that would make you feel better. If you google “jamesdance” this is a guy who I credit with saving my IRA when no other experts could. I didn’t even contact him, he was kind enough to put that technique on his website.

[Berkey70]

That is a great real life example. I really appreciate your sharing and also information on the "tax advisor". I will consider to approach him. Maybe getting 2nd opinion with other "taxman" could be worthy as well