Reporting of financial assets for US owners of foreign disregarded entities

Disregarded entities are business entities that are separate from its owner but for tax purposes are treated as not separate from its owner. Meaning the business is treated as a sole proprietorship, and all business income and expenses are taxed on the individual level. Generally speaking, a US person has an interest in any specified foreign financial asset if any income, loss, credit, or distribution from holding or liquidating the asset would be required to be reported or otherwise reflected on the US individual’s income tax return. As such, all assets of the disregarded entity held in a financial institution must be reported on Part II of the US owner’s FinCEN Report 114 and all of the entity’s financial assets must be reported on the individual’s Form 8938 (both assets held in financial institution and assets not held in financial institution, see f-bar and FATCA reporting requirements). Be aware that unlike accounts of foreign corporations owned by US individuals, each and every one of the foreign disregarded entities’ assets needs to be detailed on the 8938.