FBAR: How to report Fixed Deposit matured and creating new Fixed Deposits during the year

[shubham-123]

I wanted to understand how should I file in FBAR for the following scenario. 

I am an Indian living in USA and have a bank account and some Fixed Deposits in India. 

In 2021, 

Say, I have a bank account with value 100$ on Jan 1 and a Fixed Deposit 1 with value 200$

On June 1, Fixed Deposit got matured with amount 250$ and money from Fixed Deposit deposited back to Savings Account. Now, Balance of Savings Account is 350$

On June 30, I used 200$ to create another Deposit with new account number 2, so balance of my bank account is 150$.

At the end of the year, I had 150$ in bank account and 200$ in Fixed Deposit 2. 

Now, in FBAR, how should I report? Should I report bank account with max value of 350$ and FD 1 with value 250$ and FD 2 with value 200$? If yes, that looks like I am counting the same money thrice which is unnecessary increasing the total money in accounts by lot. 

Is that right to do so? If not, what should I do in this case?

[pk]

@shubham-123  are these just hypo. amounts or real?  If real there is no need to consider  FBAR -- threshold is US$10,000 and ONLY for US persons ( citizen/Green Card / Resident for Tax Purposes ).    So please can you respond ?

Namaste

pk

[shubham-123]

These are just hypo. amounts. 

[PraNiMa]

Hi Team - I am also in the same situation so what is the guidance when you have multiple FDs maturing and initiated in the same year.

@shubham-123 - Did you ever get a response on your scenario. Just asking as i am also in the same scenario.

Also how should we declare if the FD is for 3 years lets say from 2021 (Started) and 2024 (Matured)... How should we declare the Interest Earned and Taxed Paid - 

Option 1 - Divide the Interest Paid at maturity in 2024 by 3 and provide that was every year. Also How to calculate Tax

vs.

Option 2 - Just declare the FD Interest and Taxed paid only in 2024 when it matured.

Please Guide @TurboTax Team

[pk]

@PraNiMa  , Namaste ji

Assuming that you are  US person (  citizen/GreenCard/Resident for Tax purposes ), and 

(a) have  FD/CD  in a financial institution in India  ( Foreign Bank )  earning

(b)  under the "saving clause " of US-India Tax treaty  US can/will  tax a US person  as if the tax treaty is not in force  for the tax year under consideration

(c)  under the  US-Tax Treaty   double taxation mitigation clause  is in effect for Taxes paid  on the same income to  India.

Considering your  options   of whether to recognize the  interest earnings   ( on a  3-year FD/CD)  year by year or at distribution-->  ( I have  marked  in BOLD the  applicable  words

"    § 1.61-7 Interest.

(a) In general. As a general rule, interest received by or credited to the taxpayer constitutes gross income and is fully taxable. Interest income includes interest on savings or other bank deposits; interest on coupon bonds; interest on an open account, a promissory note, a mortgage, or a corporate bond or debenture; the interest portion of a condemnation award; usurious interest (unless by State law it is automatically converted to a payment on the principal); interest on legacies; interest on life insurance proceeds held under an agreement to pay interest thereon; and interest on refunds of Federal taxes. For rules determining the taxable year in which interest, including interest accrued or constructively received, is included in gross income, see section 451 and the regulations thereunder. For the inclusion of interest in income for the purpose of the retirement income credit, see section 37 and the regulations thereunder. For credit of tax withheld at source on interest on tax-free covenant bonds, see section 32 and the regulations thereunder. For rules relating to interest on certain deferred payments, see section 483 and the regulations thereunder.  "

Based on above  "Received or Credited" , you have to recognize the  FD earnings  in the year it is  actuated.  Thus  in the  example  you  provided , you were credited  ( not actually received )  an interest amount   for each of the years  --   2022, 2023 and 2024  ( assuming that the financial institution  credited the yearly interest at the end of each 12 months  from the date of opening the account ).  So for US purposes , you need to recognize these amounts  each year on your US return.

I recognize that this  creates  a possible issue ,  if  on your  ITR  ( Indian Tax return ) you did not  )/ were not required to )  recognize   the  credited interest and so were not taxed.  This is in addition to  the  income & tax allocation  issues caused by the different  tax year ( between US and India ). 

Thus in general  your  "option 1" is what you need to achieve whether you do it through amending your past returns or otherwise.

Does this make sense  or am I muddying the water more ?  Note that depending on the quantum of the  "earned/credited interest " and  FT thereon,  you may be able to use  the safe harbor  FTC  rather than use of form 1116 ( with its limitations ).

Is there more I can do for you ?

Namaste ji

pk

[Knjkumar]

HI @shubham-123 @pk  I am in the same predicament, I am not sure if there was a different thread that was used to answer @shubham-123 were you able to submit the FBAR in this situation ? @pk do you have further inputs on this situation? thank you. 

[DaveF1006]

It depends. I don't know what your specific information is, but here is how I would respond to shubham. This may answer your question based on his scenario.

When filing your FBAR (Foreign Bank and Financial Accounts Report), the key is to report the maximum value of each account during the year, not the cumulative total of all transactions. Here's how you can approach your scenario:

1. Savings Account: Report the maximum value of $350,000 which occurred after the Fixed Deposit 1 matured and the funds were deposited into the account. 
2. Fixed Deposit 1: Report the maximum value of $250,000 which was the maturity amount before it was transferred to the savings account. 
3. Fixed Deposit 2: Report the maximum value of $200,000 which was the amount used to create this new deposit.

You are correct that the same money is being moved between accounts, but for FBAR purposes, each account's maximum value must be reported separately. This doesn't mean you are "double-counting" your total wealth; it's simply a reporting requirement to ensure transparency about the movement of funds. 

@Knjkumar 

[pk]

@Knjkumar , 

While in my earlier post I was clarifying  that 

(a) in case of an FD / CD, since the bank is "crediting" the interest amount to the account of the owner,   for US tax purposes , you have to recognize the "credited " amount  and pay taxes on that income.

(b) This also implies that  for FBAR  ( form 114 at FinCen.gov ) and for FATCA  ( form 8938 along with your yearly return ), the total account values  ( i.e. including the credited interest ) must be taken into account.

(c)  This does open an issue  with respect to your ITR ( Indian Tax return), -- if you do not recognize  this credited amount and pay Indian Tax  ( there probably is NO TDS  at this stage ), you cannot claim Foreign Tax Credit.  If you wait  to recognize the  earned interest  at the maturity  point, then  while there is Foreign Tax, there is/ may be  NO  Foreign  source income.  Thus there is a need to harmonize the US and ITR filings / recognition of the earnings  AND follow suit for FBAR and FATCA filings.   

I would very strongly recommend  a critical review of  the  contractual document  for the CD/FD to clarify whether  the financial institution will credit  earnings yearly/ periodically or ONLY at the end of the  contract.  The whole  issue centers/ revolves on "credited" and when  and restrictions thereon.

Does this help  or am I clouding the  issue more? 

Is there more I can do for you ?

pk

[Knjkumar]

@pk @DaveF1006  Thank you for your replies. 

@DaveF1006 on form 8938 line 6, captures the cumulative value of all the deposit, listing of each one per your suggestions throws the number out of sync, meaning the same monies gets counted multiple times !! Is that ok and does it cause any issues ?  Here is a thought, every bank has a Customer Identifier number as part of customer profile, all of the accounts, CD/saving etc with different account numbers will be under this Identifier. If I were to use that and give the Max value before CDs were opened would that suffice ?  Since customer ID gives a list of all the accounts and its balances that would add up to the max value at any give time in the calendar year. That said would it not be analogous to a brokerage account and its max balance ? we don't have to list the multiple stocks and bonds, with each of it max values, we just do the one brokerage account. 

Thanks

[Knjkumar]

Additional note to my previous post. 

Also wanted to give another hypothetical scenario with respect to @DaveF1006  reply. 

Turbo Tax questions if all of your cumulative deposits is greater than $10000, the threshold value to do FBAR/8938. If I have $8000 in savings and open 2 CD's of $2000, based on your method of declaration I will be going over the $10000 threshold triggering other requirements. So I am really confused what is the right way to do this and be compliant. 

Regards

[Knjkumar]

Sorry @pk  and @DaveF1006 while chasing for answers I came across another posting and response by @pk , that seem to meet my scenario. @pk if that still holds I will follow the same method, it is similar to what i mentioned about Common customer Identifier having different BIN/deposits. Please check it out and let me know, I have attached the threadlink. Thanks 

https://ttlc.intuit.com/community/taxes/discussion/fbar-reporting-for-saving-certificate/00/3094119

[pk]

@Knjkumar , still stand by the older reply.

If you look at the FBAR form -- it only asks for the highest value of each account at any point in the year.  This is for each account and each category of ownership.

Is there more I can do for you?

[Knjkumar]

@pk  and @DaveF1006  thank you for the follow up replies.

@pk  based on the last post, I am ok with the FBAR reporting.

What about 8938? Should it reflect or be inline with FBAR allowing Turboxtax to auto fill cumulative value of all accounts (with no options to change)  bumped up with double counting same money between savings and CD’s (certificate of Deposit).

regards

[pk]

@Knjkumar , yes both the FBAR and form 8938 suffer from possible double counting.  However , these are  only for  information purposes -- there is no tax event in either case.

Is there more one of us can do for you ?

[Knjkumar]

@pk  I am good for now. Thank you for all your inputs.

Regards