What you need to know: The IRS has extended the Report of Foreign Bank and Financial Accounts, or FBAR, filing deadline to June 30, 2010 for US persons with signature authority over, but no financial interest in, a foreign financial account and those with a financial interest in or signature authority over a “foreign commingled fund.” US persons not eligible for this extended deadline may be able to take advantage of the previously extended deadline of September 23, 2009.
What you need to do: First determine whether you are eligible for the newly extended filing period described above and file all delinquent FBARs and accompanying documentation by June 30, 2010. If you are not eligible for the newly extended deadline, file all forms and documentation by September 23, 2009.
An annual FBAR must normally be filed with the US Treasury Department by June 30 each year. Recent IRS comments indicate that US investors are now responsible for disclosing interests in offshore investment funds, including private equity and venture capital, on the FBAR. Failure to file an FBAR can result in penalties equal to half of the balance of the foreign account.
Who Must File? What Must Be Disclosed? In general, a US person who has a financial interest in or signature authority over a foreign financial account must file an FBAR if the aggregate value of all such accounts exceeds $10,000 at any time during the calendar year. A US person includes a citizen or resident of the US, domestic business entities and domestic estates or trusts.
The term “foreign financial account” includes:
- Bank accounts
- Brokerage and investment accounts
- Other types of unspecified “financial accounts”
A reportable interest includes an “indirect interest,” defined as an interest held by an entity in which the US person has a greater than 50% interest, as well as a direct interest in any foreign financial account.
During a recent teleconference, IRS officials unofficially stated that “other financial accounts” for purposes of the FBAR include interests in offshore hedge funds. If interests in offshore hedge funds must be disclosed on an FBAR, it is very likely that interests in foreign private equity, venture capital and other investment funds must be disclosed as well. Given the timing of the IRS comments, many US investors may not have been aware of their filing obligation in time to disclose such interests on a 2008 FBAR form by the June deadline. Moreover, such investors also may not have filed an FBAR for earlier years.
Deadline Extended In June, the IRS extended the filing deadline to September 23, 2009 for those caught off guard by the FBAR filing requirement. Recognizing the need for additional guidance on the Foreign Bank and Financial Accounts Report filing requirement, the IRS recently granted a further extension of the FBAR filing deadline for certain persons. A recent IRS Notice provides that US persons with signature authority over, but no financial interest in, a foreign financial account and a financial interest in or signature authority over a “foreign commingled fund” now have until June 30, 2010 to file the FBAR without penalty. During this extended filing period, FBARs for the years 2003 through 2008 should be filed.
Since this Notice supplements the earlier IRS guidance that extended the filing deadline to September 23, 2009, the procedures set forth in that earlier guidance must be followed. Thus, in addition to filing FBARs by June 30, 2010, the filer must enclose a statement explaining the reason for the delinquency and copies of tax returns for the years relating to each delinquent FBAR. In addition, all US taxes on income derived from the foreign financial accounts must have been reported and paid as required by US tax law. US persons not eligible for the extended deadline should continue to follow the earlier IRS guidance and file delinquent FBARs by September 23, 2009.
Further Guidance Expected, Relief Possible According to the Notice, the IRS intends to address issues relating to the FBAR filing requirement and explore the need to provide “administrative relief” for the persons eligible for the June 30, 2010 extended deadline. The IRS currently seeks public comment on several FBAR-related issues, including when a person having only signature authority over, but no financial interest in the foreign financial account should be relieved of the filing duty, and whether a US person should be relieved from the FBAR filing with respect to a foreign commingled fund when such filing would be duplicative. The IRS noted that it intends to issue regulations clarifying the FBAR requirements for such persons.
Filing and Penalties for Noncompliance The penalty for failure to file an FBAR can be as much as $10,000 per failure where the failure to file was not “willful.” Where the failure was “willful,” the maximum penalty increases to the greater of $100,000 or 50% of the balance of the foreign account in question. In the most egregious cases, criminal penalties may apply.