Investors have been bombarded for months by reminders and warnings from their lawyers and accountants regarding the requirements for United States persons who have "bank, securities or other financial accounts in a foreign country" to file the infamous Report of Foreign Bank and Financial Accounts ("FBAR") forms with the Department of the Treasury (Form TD-F 90-22.1).  Many individuals and companies have taken advantage of two Offshore Voluntary Disclosure Programs ("OVDP") that the government has made available in order to reduce penalties and avoid criminal prosecution. 

Because the government views FBAR reporting requirements as a key tool in combating terrorism and the use of undisclosed off-shore accounts to evade taxes, the government is vigorously enforcing the FBAR provisions. 

Due to criminal penalties and significant civil fines ranging from $25,000 to $100,000 for each account not reported, FBAR filing is a major concern for United States persons who have foreign accounts.  Accounting and law firms are representing many clients with respect to the government's current voluntary disclosure programs in an effort to reduce these penalties. 

On the "good news" front, the IRS just announced that the current OVDP deadline of August 31, 2011, may be extended for up to 90 days for taxpayers who cannot meet the deadline but can demonstrate a good faith attempt to comply.  The OVDP offers partial amnesty for United States individuals and companies who failed to file FBARs in prior years.

Less encouraging are recent statements by senior government representatives that have provided even more shocks and surprises as to the scope and breadth of the FBAR reporting requirements. 

Specifically, in a recent conference an IRS attorney stated that:

  • A United States taxpayer with a financial interest or signature authority over an account held by a branch of a domestic bank located in a foreign country is required to report the account if the aggregate amount held in the preceding year exceeded $10,000.  So, for example, a United States individual or entity with a financial interest in deposits with the London branch of a bank headquartered in New York must file an FBAR with respect to that account.  This is the case even though the bank headquartered in the United States reports interest income received by the depositor on the foreign account on a Form 1099-INT.
  • A United States taxpayer holding an insurance or annuity policy with a cash value purchased from an issuer domiciled outside the United States is required to report the policy if its face value exceeds $10,000.  For example, a taxpayer who purchased a life insurance policy from a Canadian insurer must file an FBAR for that policy.  The beneficiary of the life insurance policy is not required to file an FBAR with respect to the policy.  

On the other hand, under the heading of good news, the IRS attorney stated that:

  • A United States taxpayer with an investment in a hedge fund, private equity fund, or other pooled fund that does not issue shares available to the general public is not required to report the underlying foreign accounts held by the fund.  However, a United States taxpayer who has a financial interest exceeding $10,000 in a foreign mutual fund or similar foreign fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions must file an FBAR with respect to the account.

In light of these developments and in light of the extensions of the voluntary compliance programs, United States individuals and companies need to consider yet again whether they need to look at the FBAR compliance issue.

If you have any questions about the FBAR regulations and how they will affect you and your business, please contact one of  the authors or a member of MMM's Tax Practice.

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.