Foreign Bank Accounts and Tax Filings

31 USC 5314(a)

US institutions and citizens that have an ownership interest in foreign bank accounts, or US citizens with signature authority over a foreign bank account have to file form

TD F 90.22-1 (FBAR).

The latter must report the account on an FBAR even if the foreign financial account is reported on an FBAR filed by the owner of the account (or other person that has a financial interest in the account). This form must be filed by June 30 of the year following any year during which they possessed signature or other authority over, or had a $ interest in foreign financial accounts whose value exceeded $10,000 at any time during the calendar year.

Notice 2010-23

Persons with signature authority over, but no financial interest in a foreign financial account for which an FBAR would otherwise have been due June 30, 2010 will now have until June 30, 2011 to report those foreign financial accounts. Provided the taxpayer has no other reportable foreign financial accounts for the year in question, a taxpayer who qualifies for the filing relief provided in this notice should check the no box in response to FBAR related questions on tax forms for 2009 and earlier years.

The Report of Foreign Bank and Financial Accounts (FBAR) provides necessary information for certain governmental agencies. Information on the FBAR may be used in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. Note the proposed regulations contain an exception for public entities, includes IHEs. The proposed regulations also state that the IRS must have received the form by June 30th, a postmark by June 30th does not count.

See also Seyfarth Shaw:

FBAR: Further Relief for Employee Benefit Plans and Certain Foreign Commingled Funds.

College and University Tax Report by Bert Harding, March 2010

This section of Bert Harding's newsletter was reprinted with permission of the author.

IRS EXTENDS FBAR FILING RELIEF; NEW FBAR PROPOSED REGULATIONS

As most institutions are aware, U.S. persons or entities that have a financial interest in, or signature or other authority over, a bank, securities, or other foreign financial account exceeding $10,000 in a calendar year must file a report with the Treasury Department by June 30 of the following year. The form that must be filed is Form TD F 90-22.1, the Report of Foreign Bank and Financial Accounts, commonly referred to as the “FBAR.”

In August, 2009, the IRS issued Notice 2009-62, which extended to June 30, 2010, the filing deadline for (1) persons with signature authority over (but no financial interest in) a foreign financial account, and (2) persons who had either a financial interest in or signature authority over a foreign account where the assets were held in a commingled account. This extension applied to FBAR filings for the 2008 calendar year due on June 30, 2009, as well as any delinquent FBARs that had not been filed for prior years.

The IRS has now issued Notice 2010-23, which extends these filing deadlines in the following manner

  • Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts. But the IRS notes that when completing an FBAR that is subject to this extension, the persons must adhere to FBAR guidance in effect at the time the FBAR is filed.
  • Persons with a financial interest in and/or signature authority over a foreign commingled fund that is a mutual fund are required to file an FBAR unless another filing exception applies. But the IRS will not interpret the term “commingled fund” as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, relief is granted to those persons who have a financial interest in and/or signature authority over a foreign hedge fund or private equity fund.
  • With respect to the requirement that persons required to file FBARs are also required to respond to FBAR-related questions on certain tax forms (including Form 1040), persons who qualifies for Notice 2010-23 relief should check the “No” box for 2009 and earlier years, provided the person has no other reportable foreign financial accounts for the year in question.

At the same time, the Financial Crimes Enforcement Network (“FinCEN”), the bureau within the Treasury Department with authority over FBAR reporting, issued new proposed FBAR reporting regulations together with a draft set of FBAR instructions that reflect the provisions in the regulations. The highlight of these new proposed regulations for the higher education community is the creation of a proposed FBAR filing exemption for governmental entities, which includes (1) colleges or universities that are agencies or instrumentalities of, or owned or operated by, a governmental entity, and (2) an employee retirement or welfare benefit plan of a governmental entity.

In addition, the new proposed regulations include a revised definition of a “United States person” required to file the FBAR to mean any citizen or resident of the U.S., including domestic corporations, partnerships, trusts, and limited liability companies. While these regulations are only proposed and are not yet in effect, the IRS issued Announcement 2010-16, which states that effective immediately the requirement to file an FBAR “due on June 30, 2010, is suspended for persons who are not United States citizens, United states residents, or domestic entities.”

The proposed regulations also modify the definitions of the different types of foreign financial accounts that are subject to reporting. The regulations contain definition of a “bank account,” a “securities account,” as well as a definition of an “other financial account.” An “other financial account” is defined in the regulations as follows:

  • an account with a person that is in the business of accepting deposits as a financial agency;
  • an account that is an insurance policy with a cash value of an annuity policy;
  • an account with a person who acts as a broker or dealer for futures or options transactions in any commodity subject to the rules of a commodity exchange or association,
  • or an account with a mutual fund or other pooled fund that issues shares available to the general public.