On August 7, 2009, the IRS announced an extension of the deadline for the Report of Foreign Bank and Financial Accounts (“FBAR”) until June 30, 2010 for (1) U.S. persons with signature authority over, but with no financial interest in, a foreign financial account; and (2) for U.S. persons with a financial interest in a foreign commingled fund. The extension was announced in Notice 2009-62 and applies to the FBAR for 2008 and earlier years.
As Kilpatrick Stockton reported in Legal Alerts released in late June, 2009, the IRS had recently taken an expansive and unexpected view of what constitutes a foreign financial account for FBAR reporting purposes, which resulted in investors, such as pension plans, in offshore hedge funds, private equity funds and other similar commingled investments being subject to the FBAR reporting requirements for this year and past years. This recent IRS view represented a fairly significant departure from how the pension and investment management markets understood the FBAR reporting requirements to apply. Further, because the FBAR reporting requirements apply to U.S. persons with signature and other authority over financial accounts, the IRS’s expansive position could result in a trustee or investment fiduciary (such as a pension investment committee and its members) of a pension fund or custodian of an IRA account being subject to the FBAR reporting requirements.
In the weeks leading up to the original June 30, 2009 deadline, the IRS was hammered by criticism by industry representatives and professionals concerning the FBAR filing requirements. Many persons and entities such as pension plans and pension plan fiduciaries who had only recently become aware of the ostensibly new IRS view that the FBAR filing requirements apply to offshore hedge fund and private equity fund investors were concerned that they would not have sufficient time to file 2008 FBARs by the June 30, 2009 deadline. The IRS initially responded to these comments by updating its administrative guidelines, and providing guidance that taxpayers who had only recently been made aware of the filing requirements and were unable to file by the June 30, 2009 deadline would not be subject to penalties for failure to file so long as they filed a delinquent FBAR by September 23, 2009, along with a tax return for 2008 (e.g., a pension plan’s Form 5500) and a statement of why the FBAR was filed late.
Now, however, Notice 2009-62 provides broader relief by extending this deadline until June 30, 2010, for all U.S. persons who have signature authority over, but not a financial interest in, foreign accounts, and for all U.S. persons who have a financial interest in a foreign commingled fund. Although the extension in Notice 2009-62 does not expressly address U.S. persons with “other authority” over a financial account, there is reason to believe that the extension is intended to apply to U.S. persons with other authority as well because the FBAR instructions define “other authority” as powers comparable to signature authority. Unlike the prior relief, this extension is not limited to those taxpayers who were unaware of their FBAR reporting requirements in time to file by the June 30, 2009 deadline. However, on its face, the extension does not appear to apply to pension plans that have a direct interest in a foreign account (such as plan securities in a foreign custody account), but these situations generally were known to be subject to the FBAR requirement before the IRS adopted its expanded interpretation.
Notice 2009-62 also includes a request for comments on issues relating to FBAR reporting that the IRS intends to address in forthcoming regulations. Some of the issues the IRS has identified involve factors that may weigh against pension plans, their fiduciaries and other investors in foreign commingled funds from being subject to FBAR reporting. For example, the IRS is considering under what circumstances a U.S. person with signature authority over, but no financial interest in, a foreign financial account should be required to file an FBAR report if an FBAR has already been filed by a person with a financial interest in the same foreign account. The IRS is also considering eliminating FBAR reporting in instances where it would be duplicative of other filings. This may be the case, for example, where pension plans already report investments on Form 5500.
In short, while Notice 2009-62 itself only provides an extension for reporting until June 30, 2010, the forthcoming regulations or other guidance might eliminate the filing requirement for pension plans, ERISA fiduciaries and other U.S. persons with interests in foreign commingled funds altogether.