An obligation to file a Report of Foreign Bank and Financial Accounts ("FBAR") currently applies to any United States person, who has a financial interest in or signature or other authority over any financial accounts in a foreign country, if the aggregate value of these financial accounts exceed $10,000 at any time during the calendar year. The Internal Revenue Service (“IRS”) has not issued any official guidance as to whether a United States person, who has a financial interest in or signature or other authority over a foreign private investment fund, would be subject to the above filing obligation. We believe the better interpretation is that an investment in a private investment fund, as an investment in a partnership or corporation, is not a “financial account” for FBAR purposes, but we have been unable to persuade the IRS to issue such an interpretation. In light of the seriousness of the penalties for failing to comply with the FBAR requirements, the lack of guidance on this issue from the IRS and the mixed messages to the industry from different personnel at the IRS, we recommend that U.S. persons with the requisite interest in a foreign investment fund file a precautionary FBAR with the IRS as a preventative measure against such penalties. Thus, a U.S. "feeder fund" invested in a foreign "master fund", a U.S. manager with an interest (including carried interest) in an offshore "mini-master fund," and any U.S. person with signature or other authority over a foreign fund should make the protective FBAR filing. Therefore, we also recommend that managers of foreign investment funds consider advising their U.S. investors, including U.S. tax-exempt investors, and relevant U.S. employees that they may have an FBAR filing obligation, and that they should seek the advice of their own counsel or accounting firm as to whether they are obligated to file an FBAR. The FBAR is due by June 30, 2009.
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