New IRS Form 8938 created by FATCA in 2010. Can filing this form be avoided?

IRS Form 8938 requires American taxpayers to report their specified foreign financial assets. But, in some cases you may not have to file this form at all. For example, if your specified foreign financial assets are under $50,000 you don’t have to file Form 8938.

Let’s look at an example.

US person JR owns 1% of the shares in FC1. FC1 has 50,000 authorized shares outstanding, and JR owns 500 shares of these. FC2 (or a FT) owns the remaining 49,500 shares of FC1. FC1 is itself owned by FC2 (or optionally in this example by a foreign trust / FT with no US beneficiaries). FC1 and FC2 are both organized in the Bahamas – a no tax haven.

FC1 holds an account with a broker on Wall Street worth $1M. This is the only asset of FC1. FC1 and FC2 have no foreign bank accounts or specified foreign financial assets.

For purposes of filing IRS Form 8938, JR is considered to own 500 shares of FC1, but since there are no attribution rules for Form 8938, US shareholder JR is considered to own $10,000 of the FMV (Fair Market Value) of FC1. Since this is below the $50,000 threshold for filing Form 8938, JR does not have to file form 8938 with his tax return.

Advantages of using a FC to hold $1,000,000 within the USA:

1 – No US Income tax return (Form 1120/1120f) needs to be filed for FC1 or FC2 as long as they “do not carry on business within the US”. Trading in a securities account is not considered “doing business within the US” under the US Tax Code.

2 – No Capital Gains Tax (CGT) is owed the IRS should FC1 $1M account double to $2M. The US broker will withhold 30% of any dividends paid to the company’s account.

3 – Good asset protection from frivolous lawsuits, etc.

4 – No FBAR has to be filed by US person JR.

5 – JR can be a director of FC1 and FC2 (but see filing Form 8621 below).

6 – JR can have signature authority over FC1 WS brokerage account.

7 – The Controlled Foreign Corporation provisions of Section 951 thru 960 are not an issue for JR, and he does not need to file Form 5471.

8 – Plan as outlined has excellent Federal Estate Tax (FET) avoidance possibilities.

9 – Safety. Funds are in the US. US brokers carry plenty of insurance – especially the big ones.

Form 8621 for Passive Foreign Investment Companies is another IRS Form JR needs to consider. WHAT’s NEXT?

For purposes of this example for our JR, let’s lower the number of shares JR owns in FC1 to 100 shares.

FC1 and FC1 are considered Passive Foreign Investment Companies under the US tax code, and JR is considered to own 1% of FC2 under the PFIC ownership attribution rules by way of his ownership interest in FC1 (as in the example for Form 8938 above).

For purposes of filing Form 8621, JR in this slightly different example is considered to own 100 shares of FC1 directly and 100 shares of FC2 (indirectly) for total of 200 shares in two PFICs. See the instructions for Form 8621 at the link below. The IRS tells you JR needs to file “2” Form 8621s – one for FC1 and one for FC2.

Let’s look at JR’s tax liability if he decides to file Form 8621. Could there be any advantages in actually filing this form?

FC1 opens a US$1M brokerage account with the US broker in 2016. In 2016, FC1 has a 50% CG of $500,000.

If JR files a Form 8621 in 2017 with his tax return 1040 the IRS would call his offshore company a Pedigreed Qualified Electing Fund (QEF). Here’s the approximate tax JR would have to pay in 2017.

Tax FC1 = $100 for people in the 10% tax bracket (JR’s pro rata share of FC1 = $500,000 CG)                                                                                                                                                                                Tax on FC2 = Zero (FC2 had no income)

JR would need to add $1,000 as income on his 2016 tax return and attach a form 8621 to be “straight” with the IRS on the $500,000 CGs of FC1. Actually, by filing the Form 8621 in the first year, JR might even receive long term capital gains (15% in 2016) treatment on the $1000 (ordinary income) in FC1’s (which has a $500,000 CG) broker’s account.

Sounds incredibly wrong doesn’t it? Only $100 tax on a $500,000 profit when treated as “ordinary income”.

But, Form 8621 will let JR have long term capital gains treatment (LTCG), and if JR is in the 10% to 15% tax bracket, the capital gains tax rate is 0%.

So JR might not have to pay any taxes on the $500,000 gain of FC1 or FC2 in 2017.

Still think using a “couple two three” tax haven holding company is crazy business today? Don’t you just love IRS form 8621?

Here’s a sample of a PFIC Annual Information Statment for a company incorporated in Bermuda. and


PS. If tax planning using two offshore companies – one to own the other one – is good enough for Goldman Sachs (Cayman Islands), it should be good enough for anyone. Ya think?

PSS. You won’t see GS getting busted in the Caymans like this well known Cayman banker, but you never know! Note, the US clients of this Cayman bank will end up with criminal record and have about 40% of their offshore accounts sequestered.

File the forms people.

Headline: Two Cayman Island Financial Institutions Plead Guilty in Manhattan Federal Court to Conspiring to Hide More Than $130 Million in Cayman Bank Accounts

Cayman Companies Admit to Helping U.S. Taxpayer-Clients Hide Assets in Offshore Accounts, and Agree to Produce Account Files of Non-Compliant U.S. Taxpayers


First Conviction of Non-Swiss Financial Institution For Tax Evasion Conspiracy



Note: I estimate there will be another 150 to 350 Cayman banks going down like Cayman National Securities Ltd. (CNS) and Cayman National Trust Co. Ltd. (CNT) – both Cayman Island affiliates of Cayman National Corporation.

The IRS so far has taken down 100 Swiss banks and fined them from $1M to $800M each. The IRS also received the names of thousands of US bank account holders from these bankers. All of the American account holders had one thing in common. They had not filed a FBAR disclosing the account.  In their FBAR prosecutions the IRS has so far had a conviction rate of 100%.

Switzerland has approximately 300 registered banks. Some of the Swiss banks went into liquidation because of the IRS/FBAR probe (i.e., undisclosed offshore bank accounts).

Email me. I’ll send you a list of the 98 Swiss banks that pleaded “guilty” and paid the IRS these finesand gave them “names”.

The author of this article has filed a FBAR since 1995. The FBAR needs to be filed annually.



Kind regards,



Tom Azzara

Overseas agent / Anguilla Registrar / Since 2001

SEC Registered Investment Advisor / Since 2009

Stock analyst

Nassau, Bahamas

1 242 327 7359

1 242 359 0202 (cell)

Gilead Sciences has FOUR companies incorporated in the Cayman Islands.

“Avoidance of taxes is not a criminal offense” – says the IRS



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About New Providence

Overseas agent - Anguilla registrar (since 2001) Company Formations/Trusts New Providence Estate Planners, Ltd. (since 1995) 54 Sandyport Drive P.O. Box CB 11552 Nassau Bahamas 1 242 327 7359 Fax/phone: (242) 327-7359 E-mail: Need good advice for your international operations? Hire us. Need planning that really works to fend off the IRS? I have 23 years experience. We form offshore company and foreign trusts. Over 1,330 offshore companies since 1995. We can win with FATCA, because we know US Tax Code.
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