A1. U.S. persons (including individuals and legal entities) have long been required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as "FBAR," by June 30 each year to report a financial interest in foreign bank and financial accounts whose aggregate value exceeded $10,000 in the prior calendar year, even if the person had no income from the accounts. High-profile enforcement efforts by the IRS targeting U.S. individuals with unreported income in foreign bank and brokerage accounts has led to heightened scrutiny of FBAR compliance in general. 
 

A2. No. The FBAR is a Treasury Department form dating back decades and based on provisions in the Bank Secrecy Act. In 2003, responsibility for enforcement was delegated to the IRS. The Form and Instructions have changed significantly for the 2008 reporting period, incorporating a requirement that the value of each account be included, and expanding definitions of who must report and what constitutes a foreign financial account. The instructions to the form along with information posted on the IRS website are the principal sources of guidance. Statements by IRS personnel at seminars and on conference calls have led to some confusion, such as the extent to which foreign hedge funds are considered "foreign financial accounts" (see Q&A 4, below). Unlike tax returns where some forms allow one person to file on behalf of another, there are only limited cases where a U.S. person can avoid the responsibility to file an FBAR because someone else has reported on the same account.
 

A3. Limited information about criminal penalties is in very small print at the bottom of the first page of the form in the Privacy Act and Paperwork Reduction Act Notice; there is nothing in the instructions. Criminal penalties can include a fine of not more than $500,000 and imprisonment of not more than five years. The civil penalty for willfully failing to file could be as high as the greater of $100,000 or 50% of the total balance of the account. Nonwillful violations are subject to a civil penalty of $10,000 or less. 
 

A4. Some of the most common examples of failure to file include:
 

(1) U.S. legal entities (including C corporations, S corporations, limited liability companies and partnerships) that have a controlling interest in a U.S. or foreign corporation or partnership that owns the foreign financial account. Since ownership is traced up the chain from the account holder through tiers of U.S. persons who control it, multiple FBARs may be required in order to comply fully with the reporting requirements. While the instructions provide for the possibility of a "consolidated" report by a U.S. parent corporation and its subsidiaries, this is limited to subsidiaries that are U.S. corporations. Therefore, multiple FBARs may be required to report accounts of foreign corporations as well as U.S. and foreign partnerships. The instructions to Form 90-22.1 provide the possibility to forego detailed reporting of all the accounts involved if the person filing the FBAR is reporting at least 25 accounts, and if detailed information about the accounts is retained. The due date for these delinquent FBARs is September 23, 2009.

(2) U.S. individuals who have signature authority over a foreign financial account but have no ownership interest in the account.  If the individual has signature authority over at least 25 accounts, the IRS has indicated on its website that a summary filing, similar to that described in (1), above, may be used. In limited circumstances, the person with signature authority may rely on someone else to file the form, if, for example, the domestic corporation filing the report has assets exceeding $10 million, has at least 500 shareholders and other conditions are met. The due date for these delinquent FBARs has been extended from September 23, 2009 to June 30, 2010.

(3) U.S. persons who invest in foreign hedge funds. By defining a foreign financial account to include a foreign "commingled fund" such as a hedge fund, the IRS now expects the hedge fund to be reported on an FBAR. However, in a notice issued earlier this month, the IRS indicated that it would extend the due date for delinquent FBARs reporting on commingled funds from September 23, 2009 to June 30, 2010.

The foregoing examples do not include U.S. persons who have not filed the FBAR and have also failed to report their income from the foreign financial accounts (see next question). 
 

A5. You should consider whether to make a Voluntary Disclosure under an amnesty program announced by the IRS on March 23, 2009 and expiring September 23, 2009. The program involves filing delinquent FBARs and amending tax returns dating back to the 2003 tax year. A penalty equal to 20% of the amount in the foreign accounts in the year with the highest account value would be assessed for failure to file the FBAR in addition to federal income taxes and interest due plus accuracy or delinquency penalties. Making a Voluntary Disclosure holds out the possibility of resolving unpaid tax liabilities without criminal prosecution.
 

The IRS has indicated that taxpayers who have filed delinquent FBARs, paid the additional tax and have filed amended income tax returns (termed a "quiet" disclosure) prior to the amnesty program, may want to consider making a Voluntary Disclosure (termed a "noisy" disclosure). This allows the taxpayer to take advantage of the 20% offshore penalty rather than face higher penalties that could be asserted if the taxpayer's return is selected for examination.
 

A6. In addition to contacting your UHY Advisors' tax professional, there is information on the IRS website (enter the key word "FBAR" in the search box). The following are links to some of the resources mentioned above: