The Treasury Department recently promulgated final regulations under the Bank Securities Act regarding the filing of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, colloquially referred to as “FBAR.” The final regulations do not differ significantly from the proposed regulations that were issued early last year.

Generally, every U.S. person that has a direct ownership interest in, or signature or other similar authority over, a foreign financial account the balance in which exceeded $10,000 at any time during a year must file an FBAR with respect to that account for that year. The FBAR regulations clarify certain details of this filing requirement, and certain aspects of the regulations are of particular interest for investors and managers of investment vehicles.  

Concerns for Investors

  • The final regulations do not currently require an FBAR filing for investors in foreign hedge funds or other foreign funds that do not have a regular net asset value determination and regular redemptions. As was the case with the proposed regulations, the final regulations “reserve” with respect to this subject and the preamble to the regulations indicate that the Treasury Department is continuing to study the matter and may impose an FBAR filing requirement at some point in the future.  
  • Investors in U.S. mutual funds do not have to file FBARs with respect to their accounts in the funds, even though the mutual funds themselves may invest in foreign securities. Likewise, no FBAR filing is required with respect to accounts maintained at financial institutions located in the United States, even though brokerage accounts may include securities of foreign companies and bank accounts may include interests in an omnibus account maintained offshore.  
  • Investors in foreign open-end mutual funds are required to file an FBAR if they meet the $10,000 filing threshold with respect to any particular such fund.  
  • In response to the proposed regulations, several comments were submitted requesting exemptions from FBAR filing requirements for pension plans and welfare benefit plans and for U.S. persons living abroad. In promulgating the final regulations, the Treasury Department declined to provide any such exemptions.  

Concerns for Fund Managers

  • U.S. entities with foreign bank accounts, securities accounts, or other financial accounts, including brokerage accounts, are required to file FBARs with respect to any such accounts over the $10,000 threshold.  
  • A U.S. person with “signature or other authority” over a foreign account with a balance in excess of $10,000 is required to file an FBAR, even though the requirement may generate duplicative filings. “Signature or other authority” is limited to a person who has the authority (alone or in conjunction with another) to control the disposition of money, funds or other assets in a financial account by direct written or oral communication to the person with whom the financial account is maintained.

The deadline for filing FBARs each year is June 30 of the following year. Unlike the rule for tax returns, to be timely filed, the FBAR must be received by the Treasury Department on or before the deadline – merely mailing the form by that date is not enough. A copy of the final regulation can be found at http://edocket.access.gpo.gov/2011/pdf/2011-4048.pdf.