This updates our March 17, 2010, In Brief Tax client alert discussing new proposed regulations governing the reporting of foreign bank, brokerage and other foreign financial accounts ("FBAR") on Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts). Each U.S. person who, during calendar year 2009, had a "financial interest" in, or "signature or other authority over," a financial account in a foreign country must file an FBAR with the U.S. Department of the Treasury no later than June 30, 2010. The obligation to file is applicable if, during calendar year 2009, the aggregate amount in one or more foreign financial accounts exceeded $10,000.
The term "U.S. person" includes a U.S. citizen, resident and domestic entity (including U.S. entities that are disregarded entities for U.S. tax purposes). However, for FBAR reports due June 30, 2010, this definition does not include non-residents or foreign entities doing business in the United States.
A U.S. person has a financial interest in each foreign bank, securities, securities derivatives, mutual fund or other financial instruments for which the person is the owner of record or holds legal title, whether or not the account is maintained for his own benefit or for the benefit of others. A foreign financial account may also include certain insurance and annuity products. In a recent Notice, the IRS stated that persons with a financial interest in, or signature authority over, a foreign private equity, venture capital, or hedge fund are not required to file FBARs for calendar year 2009 and prior years.
A U.S. person also has a financial interest in a foreign financial account where the owner of record or holder of legal title is a person acting on behalf (e.g., as an attorney, agent or nominee) of that U.S. person. Thus, both the holder of record and the beneficial owner are required to file an FBAR. A U.S. person also has a financial interest in a foreign financial account for which the owner of record or holder of legal title is a corporation in which the U.S. person owns directly or indirectly more than 50 percent of the total value of its shares or controls more than 50 percent of its voting shares, or a partnership (foreign or domestic) in which the U.S. person owns more than 50 percent of the profits or capital of the partnership. In the case of a trust, a U.S. person will have a financial interest in a foreign financial account not only when that person has an interest in more than 50 percent of the assets or current income of a trust but also when a U.S. person is the settlor of the trust and is deemed to have an ownership interest in the account for U.S. federal tax purposes, or when the U.S. person established the trust and has appointed a trust protector who is subject to the U.S. person's direct or indirect instruction.
Recently, the IRS has given those persons who only have signature authority over, but no financial interest in, a foreign financial account until June 30, 2011, to file FBARs for 2009 and earlier years.
A U.S. person who fails to file an FBAR may be subject to civil and criminal penalties. The penalty for a willful violation to file the FBAR is the greater of $100,000 or 50 percent of the amount of the transaction or of the balance of the account at the time of the offense.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
