Every U.S. person with a financial interest in, or signature or
other authority over, any financial account outside the U.S. must
file an annual report on Treasury Form TD F 90-22.1 (Report of
Foreign Bank and Financial Accounts, commonly known as an
"FBAR") if the aggregate value of all such accounts
exceeds 10,000 USD at any time during the calendar year.
Unlike tax returns, which may be
mailed on the filing deadline and
be considered timely, the FBAR for 2011 must be
received by Treasury by June 30,
2012.
As summarized below, over the past year, the Financial Crimes
Enforcement Network ("FinCEN") has issued guidance
regarding extended filing FBAR deadlines and new filing options.
The Internal Revenue Service has also issued a new form (Form 8938)
that requires additional disclosure regarding foreign financial
assets.
Extended deadlines
As noted in a previous alert on
June 21, 2011 an officer or employee of certain types of
entities (a "Specified Entity") is not required to file
an FBAR to report a foreign financial account owned or maintained
by the Specified Entity so long as such officer or employee has no
financial interest in the account. However, a United States or
foreign entity more than 50 percent owned (directly or indirectly)
by a Specified Entity (a "Controlled Person") is
not exempt from the FBAR filing requirement
and thus persons with signature authority over (but no financial
interest in) foreign financial accounts held by such Controlled
Persons are subject to the FBAR filing requirement.
Last year, FinCEN extended the FBAR filing deadline to June 30,
2012 for officers and employees of a Specified Entity or a
Controlled Person that have signature authority over (but no
financial interest in) a foreign financial account owned or
maintained by the Controlled Entity. Earlier this year, FinCEN
further extended this relief in Notice 2012-1 which provides that these
filers have until June 30, 2013 to file an FBAR
for 2011 and 2010 in connection with these accounts.
Also, as noted in a subsequent alert last year on
June 22, 2011, FinCEN extended the filing deadline for officers
and employees of investment advisers that are registered with the
Securities and Exchange Commission, who have signature or other
authority over (but no financial interest in) a foreign financial
account in connection with FBARs for calendar year 2010 and prior
years for which the filing deadline was previously deferred. This
year, Notice 2012-1 also provides that these filers have until
June 30, 2013 to file an FBAR for 2011 as well as
for prior years covered by previous deferrals in connection with
these accounts.
New E-Filing Option
There is now an online filing option for FBARs that require only
one signature. The online form and instructions provide for a more immediate
means by which to ensure that the FBAR is received by the June 30
deadline. Since only one signature can be submitted on the
electronic form, the e-filing process is not an option for joint
filers.
The printable FBAR form may be found at here. For filers not using the e-filing option,
this form must be filed with the U.S. Department of Treasury, P.O.
Box 32621, Detroit, MI, 48232-0621. The address for commercial
delivery is: IRS Enterprise Computing Center, Attn: CTR Operations
Mailroom, 4th Floor, 985 Michigan Avenue, Detroit, MI, 48226,
contact phone number: 313-234-1062. Note that the contact phone
number for courier delivery may not be used to confirm receipt of
the FBAR.
Basic FBAR Terms
gulations which were issued last year, the following definitions
determine those individuals and entities subject to the FBAR filing
obligation:
1. "United States person" is
defined to mean a United States citizen or resident; an entity,
including but not limited to a corporation, partnership, or limited
liability company, created or organized in the United States or
under the laws of the United States; and a trust or estate formed
under the laws of the United States. Non-U.S. persons doing
business in the United States are not required to file FBARs.
2. A "financial account"
includes a savings deposit, demand deposit, checking, securities,
security derivatives, debt card, prepaid credit card and any other
financial instrument account, including certain insurance products
and foreign pension funds. This includes an account with "a
mutual fund or similar pooled fund which issues shares available to
the general public that have a regular net asset value
determination and regular redemptions."
An equity interest in a hedge fund or private equity fund is not
currently considered to be a "financial account," though
the IRS is considering this question further.
A United States person having a financial interest in 25 or more
foreign financial accounts, or signature or other authority over 25
or more foreign financial accounts, need only provide the number of
financial accounts and certain other basic information on the FBAR
form. If requested in the future, detailed information concerning
each account must be provided.
3. A person has a "financial interest"
in an account if he has legal title or is the owner of record,
regardless of whether the account is maintained for his benefit.
For example, IRS guidance provides that an individual who may
access a foreign financial account held on another's behalf due
to a power of attorney and who is the owner of record on the
account has a "financial interest" in such account and
must file the FBAR.
In some cases, certain direct and indirect stockholders of
corporations, partners of partnerships and persons holding voting
or equity interests in other entities may be required to file FBARs
with respect to foreign financial accounts of these entities. In
particular, these rules apply to a United States person who owns,
directly or indirectly, more than 50 percent of (a) the voting
power or the total value of the shares of a corporation, (b) the
interest in profits or capital of a partnership, or (c) the voting
power, total value of the equity interest or assets, or interest in
profits. For example, if a U.S. corporation owns 100% of a foreign
company that has foreign financial accounts, the domestic
corporation must file an FBAR, as must any shareholder who owns
more than 50% of the voting power or total value of the shares of
the U.S. corporation.
A present beneficial interest in more than 50% of the current
income or more than 50% of the assets of a trust that holds a
foreign financial account triggers an FBAR filing requirement by
the trust beneficiary. However, a trust beneficiary does not need
to file the FBAR if the trust, trustee or an agent is a United
States person and files an FBAR disclosing the trust's foreign
accounts. A person with a remainder interest in a trust is not
within the scope of the FBAR. It is also possible that a
discretionary beneficiary of a trust may not have an FBAR filing
requirement with respect to the trust.
4. "Signature authority" is defined as
the power of an individual to control the disposition of assets
held in a foreign financial account by direct communication
(whether in writing or otherwise) with the financial institution
that maintains the financial account. An individual who merely has
the power to allocate assets within an account does not have
"signature authority" for the purposes of the FBAR filing
requirement.
Note that a United States person that causes an entity to be created for the purpose of evading the FBAR requirement shall have a reportable financial interest.
New Form 8938, "Statement of Specified Foreign Financial Assets"
As noted in a recent
alert, in addition to any applicable FBAR filing
obligations, certain individual U.S. taxpayers holding specified
foreign financial assets with an aggregate value exceeding $50,000
must report information about those assets on new Form 8938. Unlike the FBAR, which is filed with
the Treasury separate from any other tax filings by a June 30
deadline, Form 8938 must be attached to the individual
taxpayer's annual income tax return. Higher asset thresholds
apply to U.S. taxpayers who file a joint tax return or who reside
abroad (see below).
Form 8938 reporting applies for specified foreign financial assets
in which the taxpayer has an interest in taxable years starting
after March 18, 2010. For most individual taxpayers, this means
they should have started filing Form 8938 with their 2011 income
tax return. Individual taxpayers that hold interests in foreign
financial accounts may thus need to report such accounts on at
least three separate forms: their individual U.S. tax return, the
FBAR and Form 8938. Individual taxpayers are encouraged to consult
with their tax advisers to determine which of these or other forms
may be required.
The IRS and U.S. Treasury have issued proposed regulations that,
once finalized, will extend the Form 8938 reporting obligation in
later tax years – possibly as early as 2012 –
to U.S. entities that meet certain ownership percentage
thresholds.
Penalties
The penalty for failure to file the FBAR, if non-willful, is up
to $10,000. Willful failures to comply with the filing requirement
incur penalties of up to $100,000 or 50% of the foreign financial
account balances; criminal penalties may also apply. The IRS says
willfulness can be a conscious effort to avoid learning about FBAR
reporting. In its internal audit guidance, the IRS says that with
hardly any diligence, a taxpayer could have learned of the FBAR
filing requirements quite easily. Thus taxpayers with foreign
accounts are advised to read the information the government
specifies in its tax forms and instructions. A failure to follow-up
on this knowledge may provide evidence of "willful
blindness."
The penalty for failure to file Form 8938 is up to $10,000 for a
failure to disclose the foreign financial assets and an additional
$10,000 for each 30-days of non-filing after the IRS issues a
notice of failure to disclose, for a maximum potential penalty of
$60,000; criminal penalties may also apply.
Circular 230
To ensure compliance with requirements imposed by Treasury Department Regulations, we inform you that any United States tax advice contained in this alert is not intended or written to be used, and cannot be used, for the purpose of: (i) avoiding penalties under the Code that may be imposed on the taxpayer, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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.
