Treasury Releases Final FBAR Rules
March 10, 2011
Approximately a year ago, the Financial Crimes Enforcement Network (FinCEN), issued proposed regulations under a provision in that statute requiring U.S. persons who have a financial interest in, or signatory authority over, a foreign bank or other financial account exceeding $10,000 in a calendar year to file annual reports with the Treasury Department. FinCEN is the bureau within the Treasury Department charged with enforcement of the Bank Secrecy Act. The form on which this information must be reported - Form TD F 90-22.1 or the Report of Foreign Bank and Financial Accounts (FBAR) - must be filed by June 30 of the year following the year in which the person had the ownership interest in or signature authority over the foreign account.
The final rules, published February 24 by FinCEN, reflect the proposed rules, with some modifications.
FBAR Regulations Proposed Last Year. The February 2010 proposed regulations set forth rules and guidelines regarding the FBAR requirements. Notably, the proposal included a reporting exemption for governmental entities, including public colleges and universities and their employees. No exemption was included, however, for private institutions of higher education and their employees.
In addition, the proposed regulations provided substantial definitions regarding the general FBAR reporting requirements, such as an explanation of a "U.S. person" required to file the form, and definitions for "bank account," "securities account," and "other financial account" for reporting purposes.
Final Rules. The final regulations, which become effective on March 28, 2011, generally adopt the proposed regulations. The rules define the scope of individuals and entities required to file the FBAR, describe the types of reportable accounts, and exempt certain persons and accounts from the reporting requirement. Notably, the final regulations do not create any additional categories of filing exemptions, which means that private colleges and universities and their employees are still required to file the FBAR.
The final regulations also:
- Clarify the definition of "signature authority" to include only situations where the individual has the authority to control the disposition of assets in the account by direct communication (in writing or otherwise) to the foreign financial institution. This means, for example, that an individual who merely participates in the decision to allocate assets or has the ability to instruct or supervise others with signature authority over a reportable account does not have the requisite signature authority over the account and is not required to file the FBAR.
- State that an account is not a foreign account if it is maintained with a financial institution located in the U.S. For example, securities of a foreign company purchased through a U.S. securities broker and maintained with a U.S financial institution are not "foreign," and the account is not a foreign account simply because it holds foreign securities.
- Explain that officers or employees who file the FBAR because of signature or other authority over the foreign financial account of their employers are not expected to personally maintain the records of the accounts owned by their employers.
- Specify that the term "other financial accounts" is now defined to include:
1). an account with a person that is in the business of accepting deposits as a financial agency;
2). an account that is an insurance policy with a cash value or an annuity policy;
3). an account with a person that acts as a broker or dealer for futures or options transactions in any commodity exchange or association; or
4). an account with a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions.
For institutions with foreign investments, this reference to "mutual fund or similar pooled fund" excludes hedge funds and private equity funds as they are not offered to the general public. For now, FinCEN continues to reserve treatment on the question of whether accounts with hedge funds and private equity funds should be considered financial accounts under the FBAR rules. Unless and until FinCEN publishes further guidance, owners of hedge funds and private equity funds do not have an FBAR filing obligation.
In a series of previous notices, the IRS extended the FBAR filing deadline for certain persons who had reporting obligations for the 2008, 2009, and previous calendar years. The IRS rules state the FBARs for these earlier years, together with the FBAR for 2010, could be filed by June 30, 2011. Persons eligible for this extension are those with signature authority over, but no financial interest in, a foreign financial account, and persons with a financial interest and/or signature authority over foreign mutual funds. The revised definitions also may be applied to filings that were delayed last year until June 30, 2011.
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