Effective for taxable years beginning after March 18, 2010, any individual who, during any taxable year, holds any interest in a “specified foreign financial asset” must attach an information disclosure statement to his or her income tax return for such taxable year with respect to each such asset if the aggregate value of all such assets exceeds $50,000. In addition, to the extent provided in IRS regulations or other guidance, the new reporting requirement will apply to any domestic entity formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets, in the same manner if such entity were an individual.

The term “specified foreign financial assets” means (i) with respect to any foreign financial institution, any financial account (depository or custodial accounts or any equity or debt interest in such financial institution (other than publicly traded interests)) maintained by such institution, and (ii) any stock or security issued by a foreign person, any financial instrument or contract held for investment that has an issuer or counterparty that is a foreign person, and any interest in a foreign entity.

A penalty of $10,000 is imposed for failing to provide the required information for a taxable year and an additional $10,000 can be imposed for certain periods for failing to provide the required information for each thirty day period after ninety days from the date the IRS notifies such person by mail of the failure to provide such information. The penalty is subject to a reasonable cause exception.

Under existing law, every U.S. person having a financial interest in or signature or other authority over a bank, securities or other financial account in a foreign country, which accounts aggregate $10,000 or more for a calendar is required to file a report on Form TDF 90-22.1 (Report of Foreign Bank and Financial Account) (“FBAR”). An FBAR is filed annually and is due on June 30th following the calendar year for which filed. Failure to file an FBAR can result in severe penalties.

The information required to be filed with the IRS under the new specified foreign financial asset reporting requirements is somewhat duplicative of the information required to be reported in an FBAR.