Reports of Foreign Bank and Financial Accounts on Form TD F 90-22.1 (FBAR) for financial accounts held during the 2008 calendar year are due next Tuesday, June 30, 2009. Although the IRS has not provided official guidance on whether investor interests in private investment funds, including private equity, venture capital and hedge funds, are deemed "financial accounts" for FBAR purposes, IRS representatives recently stated that an interest in a foreign hedge fund generally would be considered a "foreign financial account" for FBAR purposes and asserted that any foreign partnership or foreign corporation that was used by investors to commingle funds for investment would be a "foreign financial account." Accordingly, U.S. persons with a financial interest, signatory authority, or other authority over a foreign private investment fund, should file a FBAR.
Each U.S. person must file a FBAR if:
- The person has a "financial interest" in or "signature authority," or other authority over any "financial account" in a foreign country; and
- The aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
FBARs for the 2008 calendar year, due June 30, 2009, must be filed by persons meeting the definition of a "United States person": (i) a citizen or resident of the United States, (ii) a domestic partnership, (iii) a domestic corporation, or (iv) a domestic estate or trust. The IRS temporarily suspended the FBAR filing requirement for calendar year 2008 for persons who are not U.S. citizens or residents but who are in, and doing business in, the United States.
The term “financial account” is broadly defined and includes any bank, securities, securities derivatives or other financial instruments accounts. "Financial account" also includes any savings, demand, checking, deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution. For 2008, the instructions to the FBAR were changed to add a statement that such accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds).
A U.S. person has a "financial interest" in each account for which such person is the owner of record or has legal title, whether the account is maintained for his or her own benefit or for the benefit of others including non–U.S. persons. A U.S. person also has a "financial interest" in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is: (i) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person; (ii) a corporation in which the U.S. person owns directly or indirectly more than 50% of the total value of shares of stock or more than 50% of the voting power for all shares of stock; (iii) a partnership in which the U.S. person owns an interest in more than 50% of the profits (distributive share of income, taking into account any special allocation agreement) or more than 50% of the capital of the partnership; or (iv) a trust in which the U.S. person either has a present beneficial interest, either directly or indirectly, in more than 50% of the assets or from which such person receives more than 50% of the current income.
A person has "signature authority" over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained. "Other authority" exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.
The following U.S. persons may be required to file a FBAR with respect to a foreign private investment fund:
- Direct investors in the fund;
- Domestic feeder funds; and
- Principals or employees of any entity that manages the fund.
FBAR forms are deemed filed when received by the IRS, not when postmarked. There is no extension available for filing the FBAR. Persons who fail to file may be subjected to civil and criminal penalties, including fines and/or imprisonment, depending on the facts of the violation.