The Financial Crimes Enforcement Network (FinCEN) issued final regulations regarding Form TD F 90-22.1, the Report of Foreign Bank and Financial Accounts (FBAR). The final regulations largely adopt the proposed regulations, with some changes and clarifications discussed below. The effective date of the final regulations was March 28, 2011. The final regulations apply to FBARs required to be filed by June 30, 2011 with respect to foreign financial accounts maintained in calendar year 2010, and to FBARs required to be filed for all subsequent calendar years.
With very limited exceptions, the FBAR requires a U.S. person who has a financial interest in, or signature authority over, one or more financial accounts in a foreign country to report those accounts annually to the Internal Revenue Service (IRS) if the aggregate value of all such U.S. person’s foreign financial accounts exceeds $10,000 at any time during the calendar year. An FBAR must be filed by June 30 of the succeeding year. Failure to comply with the FBAR reporting requirements can result in civil penalties and criminal penalties.
The final regulations are not retroactive but permit filers who properly deferred their filing obligations for calendar year 2009 and prior years under earlier IRS guidance to apply the provisions of the final regulations in determining their FBAR filing requirements for reports due June 30, 2011, with respect to foreign financial accounts maintained in calendar years beginning before 2010.
The final regulations continue to reserve the treatment of interests in pooled investment funds such as hedge funds and private equity funds that are not foreign mutual funds. Therefore, there continues to be no FBAR filing requirement for owners of hedge fund and private equity fund interests until further notice, although this matter remains under consideration and there may be such a requirement in the future. As noted under a prior IRS notice, any such requirement would not apply to any hedge fund or private equity fund interest held in calendar year 2009 and prior years. In contrast, interests in foreign mutual funds or similar pooled funds which issue shares to the general public and have a regular net asset value determination and a regular redemption feature are considered foreign financial accounts and must be reported.
Significant clarifications to the definition of “signature or other authority” were made under the final regulations. Under these rules, an individual has “signature or other authority” only if such individual has the authority (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account “by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.” Separately, FinCEN noted that the revised FBAR instructions will clarify that only individuals may have signature or other authority over an account.
FinCEN also clarified that a U.S. customer of a U.S. global custodian does not need to report any custody accounts created by the custodian outside the United States to hold the assets of multiple customers, so long as the U.S. customer has no legal rights in those foreign accounts and can only access its holdings in those accounts through the U.S. global custodian.
It is important to note that the FBAR filing obligations are in addition to other reporting obligations that a U.S. person may have under U.S. law, including reporting obligations imposed under the Internal Revenue Code. In particular, new tax rules adopted in March 2010 generally require individuals to report annually their interests in “specified foreign financial assets” with an aggregate value in excess of $50,000.