A Report of Foreign Bank and Financial Accounts, Form TD-F 90-22.1 (“FBAR”), must be filed by June 29, 2012 by any U.S. person that held a financial interest in, or signature or other authority over, a foreign financial account for calendar year 2011, if the aggregate value of all the U.S. person’s foreign financial accounts exceeded $10,000 at any time during the year. The report must be received by the U.S. Department of Treasury on June 29, 2012 (not merely postmarked by that date), rather than June 30, 2012 because June 30, 2012 is a Saturday.

As described below, the ownership of an interest in a hedge or private equity fund by itself is not currently subject to FBAR reporting. However, the fund itself may have a filing obligation under certain circumstances, as well as officers and employees of the fund or of its investment manager or general partner, and an investor that owns a controlling interest in the fund. Scenarios that may trigger FBAR reporting for hedge funds or private equity funds include:

  • A U.S. fund may have to file if it owns a foreign bank account.
  • A U.S. feeder fund may have to file if it owns more than 50% of a foreign master fund that owns a foreign bank account.
  • A U.S. fund with a controlling interest in a portfolio company may have to file with respect to the portfolio company’s foreign bank accounts.
  • An officer of a fund may have to file with respect to his or her signature authority over the foreign bank accounts of a portfolio company.
  • An investor in a foreign feeder fund may have to file with respect to the fund’s foreign securities account if it owns more than 50% of the foreign feeder.

Last year, the Financial Crimes Enforcement Network (“FinCEN”) released guidance (FinCEN Notice 2011-1 and FinCEN Notice 2011-2) that provided an extension of time to file FBARs for officers and employees of certain entities who had signature authority over, but no financial interest in, certain foreign financial accounts. Pursuant to FinCEN Notice 2012-1, this deadline was extended for reports for 2011 and prior years from June 30, 2012 to June 30, 2013. Among the limited categories of individuals covered by these notices are officers and employees of investment advisers registered with the SEC with signature or other authority over the foreign financial accounts of entities that are not registered investment companies (officers and employees with signature or other authority over the foreign financial accounts of registered investment companies generally are exempt from filing the FBAR).

As described in our prior client alerts, although an interest in a hedge fund or private equity fund is not treated as a foreign financial account under the current FBAR rules, the final regulations issued by FinCEN reserve the treatment of interests in pooled investment funds such as hedge funds and private equity funds. As a result, there may be an FBAR filing requirement with respect to interests in private funds organized outside the United States in the future. Based on a prior IRS notice, any such requirement would not apply to any hedge fund or private equity fund interest held in calendar year 2009 and prior years. Interests in foreign mutual funds or similar pooled funds that issue shares to the general public and have a regular net asset value determination and a regular redemption feature are considered foreign financial accounts for FBAR purposes, and therefore should be reported.

The FBAR filing obligations are in addition to other reporting obligations that a U.S. person may have under U.S. law, including reporting obligations imposed under the Internal Revenue Code. In particular, individuals generally are required to report on IRS Form 8938 annually their interests in “specified foreign financial assets” with an aggregate value in excess of $50,000. Specified foreign financial assets include, to the extent held for investment and not held in a financial account, foreign stock or securities, any interest in a foreign entity, and any financial instrument or contract with a foreign issuer or counterparty.

For further discussion of recent FBAR guidance, please see our client alerts dated March 14, 2011: FinCEN Issues Final Rules on FBAR and June 16, 2011: Delayed FBAR for Signature Authority.