Relief From IRS on FBAR Deadline

July 14, 2009

Following a wave of confusion related to the Foreign Bank Account Reporting (FBAR) requirements just prior to the June 30 deadline for filing Forms TD F 90-22.1, the IRS stated that no penalties would be imposed on organizations filing the disclosures by September 23, as long as the form is accompanied by a statement explaining the late filing. as well as a copy of the organization's 2008 tax return.

The reporting requirement for foreign financial accounts is not new. A foreign financial account typically refers to any bank, securities, securities derivatives, other financial instrument accounts, as well as commingled funds.

During a June 12 teleconference hosted by the American Bar Association and the American Institute of Certified Public Accountants, an IRS official stated that, for purposes of FBAR, "commingled account" includes offshore hedge funds. This position is a departure from previous IRS practice and the instructions to the FBAR, and launched widespread concern and uncertainty leading up to the June 30 filing deadline.

In response, on June 24 the IRS posted language on its website providing relief until September 23 for filing organizations that needed extra time to gather the information required to report on previously unreported offshore investment funds. This information was published as part of the Frequently Asked Questions on the voluntary disclosure of offshore bank accounts. Institutions meeting the requirements set forth in questions #43 and 44 will not be penalized for failure to file.

While it is unclear what the filing requirements might be related to venture and private equity funds, most tax and investment advisers are urging taxpayers to now file Forms TD F 90-22.1 on those as well. Civil penalties for failure to file can go up to $10,000 per account, with much higher amounts for willful failure to file: $100,000 or 50% of the financial account balance, in addition to criminal penalties.

Simplified reporting is available for institutions reporting on 25 or more foreign financial accounts. Specific information is not required on each account, but records must be maintained and available for disclosure to the Treasury Department upon request.

Information related to FBAR reporting, including definitions, recordkeeping requirements, and the range of civil and criminal penalties can be found in the IRS Workbook on the Reporting of Foreign Bank Accounts.

It is not known if or when the Service might publish additional guidance on this issue.