Seyfarth Shaw recently published a client alert discussing the effect of Treasury Department Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) on pension funds. Employers should be aware, however, that the FBAR filing requirements also may apply to equity awards granted by a foreign multinational company to a “U.S. person.”
There has been limited guidance from the IRS on the FBAR as it relates to equity plans, so each situation should be analyzed to determine if there is an FBAR filing requirement. Failure to file an FBAR can result in severe civil and criminal penalties, and in certain situations, civil penalties can be as much as 50% of the amount in the account at the time of the violation (up to $100,000).
FBAR Applicable to Equity Awards by Foreign Issuer
Where U.S.-based employees receive equity compensation awards under an equity plan of a multinational corporation, an FBAR filing requirement may be triggered if the award program is structured so that the participating employee has a “financial interest” in a foreign financial account. For most common equity compensation plan designs, this should not present an issue because it is the issuer of the award, rather than the employee, who has a “financial interest” in any financial account established in connection with the equity plan. However, the following situations may create an FBAR filing requirement:
- Exercise/Purchase of Equity Award. Under the equity plans of some foreign multinational companies, the purchase price for stock, whether purchased outright or through the exercise of a stock option, is held in an account for a number of days prior to purchase. If the purchase price is held in a foreign account with respect to which the U.S. person has authority or the U.S. person has the right to rescind the purchase and recoup the purchase price directly from the account, an FBAR filing could be required.
- Vesting of Restricted Unit Award. Restricted stock unit plans of some foreign multinational companies provide that after the restricted stock units vest, the stock is held in an account in the U.S. person’s name for a number of years until certain transfer restrictions lapse. If such stock is held in the U.S. person’s name in a foreign account, an FBAR filing also could be required.
Ability to File the FBAR by September 23, 2009 and Recent FBAR Guidance
The due date for filing the FBAR with respect to a calendar year is normally June 30 of the following calendar year. However, as noted in our previous alert, the IRS announced on June 24, 2009 that filers will have until September 23, 2009 to file the FBAR for 2008 and prior years, if applicable, provided that (i) they have only recently learned of their obligation to file, (ii) there is insufficient time to gather the information needed to file, and (iii) any income from the “account” has been properly reported and paid for 2008 and prior years. Such a filing will still be late, but no penalties will be assessed. The form(s) should be filed with a cover statement explaining the reason for late filing.
As further FBAR guidance related to equity plans is not anticipated in the immediate future, the September 23, 2009 filing due date described above should be adhered to if there is an FBAR filing requirement for equity awards granted by a multinational company.