The Department of the Treasury recently issued new proposed regulations governing the reporting of foreign bank, brokerage and other foreign financial accounts ("FBAR") on TD F 90-22.1. In connection with the issuance of the proposed FBAR regulations, the IRS has issued Announcement 2010-16 and Notice 2010-23 providing interim guidance in the absence of final regulations. Some of the highlights of the proposed FBAR regulations and the IRS releases including the following:
- Foreign persons are not required to file FBARs for 2009 (i.e., the suspended filing obligation for foreign persons for 2008 is extended another year and, if the proposed FBAR regulations become final, there will be no FBAR reporting obligation for foreign persons going forward). The definition of a "United States person" subject to the FBAR filing obligation includes only a U.S. citizen, a U.S. resident, or a U.S. domestic entity (including U.S. entities that are disregarded entities for U.S. tax purposes). Based on this definition, foreign entities doing business in the United States would not be required to file FBARs.
- Although the proposed FBAR regulations reserve on whether interests in offshore private investment vehicles such as hedge funds, venture capital, and private equity funds constitute reportable financial accounts, Notice 2010-23 provides 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 years 2009 and prior years. However, if a U.S. person owns more than 50% of an entity (e.g., a private equity fund), the U.S. person would still have a reportable financial interest in the fund's foreign financial accounts and would be required to file FBARs for accounts owned by the fund.
- Interests in the following are subject to FBAR reporting: foreign bank accounts, securities accounts, mutual funds or similar pooled funds that issue shares to the public and have regular valuations and redemptions, accounts with brokers or dealers in commodity futures or options, an insurance policy with a cash surrender value, and an annuity policy. An account is not established by simply using a foreign financial institution to wire money or purchase a money order.
- The FBAR filing deadline for persons with signature authority over (but no financial interest in) a foreign financial account during 2010 and earlier years is due June 30, 2011.
- Officers and employees who have signature or other authority over (but no financial interest in) the reportable accounts of the following entities are exempt from filing FBARs: certain federally regulated institutions, registered broker-dealers, SEC-registered investment advisers that provide services to regulated investment companies, and entities listed on a U.S. national securities exchange.
- Participants and beneficiaries in qualified retirement plans and owners and beneficiaries of IRAs and Roth IRAs are not required to file FBARs with respect to foreign financial accounts held by or on behalf of the plan or IRA.
U.S. persons with financial interests in, or signature or other authority over, any foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year must file a FBAR with respect to the account on or before June 30 of the following year. The FBAR proposed regulations, among other things, provide a more detailed definition of the financial accounts that would be subject to FBAR reporting. For example, the FBAR proposed regulations provide that a U.S. person has a financial interest in each foreign bank, securities, or other financial account 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 U.S. person also has a financial interest in a foreign financial account where the record or legal title holder 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. 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% 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.