Recognizing the need for additional guidance on the Foreign Bank and Financial Accounts Report filing requirement, the IRS 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 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 by September 23, 2009.
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 extended deadline described above. 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.
Recap of the FBAR Filing Requirement and Consequences of a Failure to File
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. The term “foreign financial account” includes bank, securities and other types of financial accounts. IRS officials recently indicated that a “foreign financial account” includes offshore hedge funds (and likely private equity and venture capital funds as well). 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.
Ordinarily, the FBAR must be filed with the Treasury Department (not the IRS) by June 30 of each year. The penalty for failure to file 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.
For general information regarding the FBAR requirement, please see our June 16th and June 30th client alerts: “Foreign bank account disclosure requirement applies to corporate officers“ and “Investors face expanded FBAR filing obligation, deadline extended.”