Each United States person who has a financial interest in, or signature or other authority over, any foreign financial accounts must file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (the “FBAR”), with the US Treasury Department if the aggregate value of these financial accounts exceeds $10,000 at any time during the applicable calendar year. With respect to the 2008 calendar year, the FBAR is due by June 30, 2009. The FBAR and related instructions were revised for filings in respect of the 2008 calendar year, and two aspects of these revisions have given rise to recent uncertainty and are of particular interest to the asset management community.
First, there is a significant question as to whether equity interests in offshore hedge funds or offshore private equity funds are considered foreign financial accounts for this purpose. The instructions to the FBAR define a “financial account” to include “…any bank, securities, securities derivatives or other financial instruments accounts. Such accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds)….”1 Although there is some conflicting authority on the subject, the IRS has recently indicated that it would consider an interest in an offshore hedge fund to be a financial interest in a foreign “financial account.” If an interest in an offshore hedge fund is considered to be a financial interest in a foreign financial account, an interest in an offshore private equity fund likely would be as well. Under this interpretation, any United States person that, in 2008, held a financial interest in, or had “signature or other authority over,”2 an offshore hedge fund or offshore private equity fund would have to file an FBAR by June 30, 2009.
Second, as noted above, the FBAR is required to be filed only by “United States persons.” The instructions to the FBAR define a “United States person” as “a citizen or resident of the United States, or a person in and doing business in the United States.” As a result of the receipt of numerous questions and comments, the IRS has issued guidance stating that, for FBARs due on June 30, 2009, taxpayers may use the following more limited definition of “United States person,” -- “a citizen or resident of the United States, a domestic partnership, a domestic corporation, or a domestic estate or trust.”3
It is possible that additional guidance will be forthcoming on the scope of the FBAR filing requirements, and related issues such as prior year filing obligations. However, in the absence of any additional guidance, you should carefully consider the FBAR filing requirements in light of the substantial civil and criminal penalties that may be imposed on United States persons who fail to file a required FBAR.4