June 30 is just around the corner, so it's a good time to consider the FBAR (Treasury Department form TD F 90-22.1 Report of Foreign Bank and Financial Accounts) and review some of the changes made for the 2009 Report.  For an earlier NLS Express article about the FBAR, click here. 

 

U.S. persons with a financial interest in or signature authority over foreign financial accounts whose aggregate value exceeds $10,000 at any time in 2009 must file the FBAR by June 30, 2010.  The form and instructions are available on the IRS website along with FAQs on Filing Requirements and Financial Accounts. 

 

Treasury has delegated to the IRS certain responsibilities for compliance and investigation but the authority to clarify filing obligations and issue regulations remains with the Financial Crimes Enforcement Network pursuant to the Bank Secrecy Act, rather than the IRS.  As a result, definitions and concepts we are accustomed to using for tax returns do not necessarily apply to the FBAR, and some of those distinctions are discussed below. Treasury continues to work on guidance to be issued in the future and on revising the instructions for the FBAR for use in reports on years after 2009.

 

 

While the form and instructions are still the same as for the 2008 report, the IRS has issued some clarifications and extended the due date for some reports with respect to 2009 and earlier years.  Click here for Notice 2010-23 on the IRS website.  Readers of International Tidbits will recall that comments by the IRS at a conference last year led to concerns and confusion over whether foreign hedge funds, private equity funds, and some foreign partnerships were "foreign financial accounts" for purposes of the FBAR.  The Treasury continues to study this matter and may issue additional guidance before FBARs with respect to 2010 are due next year, but has provided the following guidance for 2009 reports:

 

 

The IRS indicated in Notice 2010-23 that persons falling into the categories described above are instructed to check the "no" box in response to FBAR-related questions on federal tax forms for 2009 and earlier years.  This assumes that the taxpayer does not have other foreign financial accounts (including mutual funds) that would require filing an FBAR.

 

 

In Announcement 2010-16, the IRS suspended the filing requirement for the FBAR due June 30, 2010 for persons who are not U.S. citizens, U.S. residents (defined to include persons considered resident for purposes of U.S. federal income tax), or domestic entities.  For example, if a nonresident alien is engaged in a U.S. trade or business and has a foreign bank account, that person would not need to file an FBAR for 2009.

 

 

The IRS has indicated in the FAQs covering Filing Requirements that single member LLCs treated as disregarded entities for federal income tax purposes are U.S. persons for FBAR purposes.

 

For example, some foreign investors use single member LLCs (formed under state law) to invest in other countries but have no activity in the U.S. which might cause the LLC or its foreign owner to have a tax return filing requirement for federal income tax purposes.  As a "domestic entity" the LLC would have an FBAR filing requirement even if not engaged in a U.S. business and not required to file a U.S. tax return.

 

 

There are no extensions available for the FBAR. The IRS recommends filing the form by June 30 with the information that is available and then filing an amended form later to report additional information.  In addition, its position is that the FBAR is not an income tax return and so it is considered timely filed when received by the Treasury, not when postmarked.  There is no e-filing capability for the FBAR and it is filed separately from tax returns.  It can be sent to:

 

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
 

Information not included on the FBAR instructions has been provided by the IRS for situations in which an express delivery service is used (contact phone is 313-234-1062):

IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4^th Floor
985 Michigan Avenue
Detroit, MI 48226
 

 

The Foreign Account Tax Compliance Act or "FATCA" went into effect earlier this year in connection with the Hiring Incentives to Restore Employment Act ("HIRE") and created new IRC §6038D requiring an information return by U.S. taxpayers for taxable years beginning after March 18, 2010.  Individuals with an interest in a "specified foreign financial asset" and where the aggregate value of all such assets is greater than $50,000, must include a disclosure statement with their tax return.  While similar to the information required for the FBAR, this new reporting requirement will not take the place of FBAR reporting.  This legislation both increased penalties and doubled the statute of limitations period for assessment of tax on understatements of income attributable to foreign financial assets.

 

While these Questions and Answers are intended as a reminder about the upcoming due date for the 2009 FBAR, it is not an exhaustive discussion.  Readers are encouraged to contact their advisors to discuss whether an FBAR needs to be filed and whether the box needs to be checked on federal income tax forms about the existence of a foreign financial account.