Filing Requirements of Foreign Bank and Financial Accounts (FBAR)
By Rose Lu Chen, CPA
Greenstein, Rogoff, Olsen & Co.
The IRS has recently imposed a severe penalty on failure to disclose information related to foreign bank and financial accounts. June 30, 2010 is the deadline to file form TD F 90-22.1 to report foreign bank or financial accounts for calendar year 2009. Also, the IRS Notice 2009-62 extended the filing date until June 30, 2010 for eligible persons to report FBAR for year 2009, 2008 and up to six (6) prior years. The eligible persons include (i) persons with signature or other authority over, but no financial interest in, foreign financial accounts, and (ii) persons with financial interest in, or signature authority over, foreign financial accounts in which assets are held in a commingled fund.
However, the IRS Notice 2010-23 dated February 26, 2010 provided administrative relief to eligible taxpayers who are otherwise required to file FBAR by June 30, 2010. Persons with signature authority over, but no financial interest in, foreign financial accounts will now have until June 30, 2011 to file for 2010 and prior calendar years.
Below is a summary of filing requirements for FBAR.
The requirement to file FBAR is not under U.S. Code, Title 26, Internal Revenue Code, but under U.S. Code, Title 31, Money and Finance.
A United States person must file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, FBAR) if he/she meets following:
- He/she has financial interest in, signature authority or other authority over foreign financial account(s), and
- The aggregate value of these account(s) exceeds $10,000 at any time during the calendar year.
United States person:
A United States person is:
- A citizen or resident of the United States, or a person in and doing business in the United States,
- A domestic partnership,
- A domestic corporation, or
- A domestic trust or estate.
For FBAR purposes, whether a person will be considered “in and doing business in the United States” will be determined based on an analysis of the facts and circumstances of each case. The IRS FAQs state that “generally, a person is not considered to be in, and doing business in the United States unless that person is conducting business within the United States on a regular and continuous basis.”
The Announcement 2010-16 provides temporary relief for persons who are not U.S. citizens, U.S. residents, or domestic entities, by suspending the requirement to file the FBAR for the 2009 and earlier calendar years.
The rules also require taxpayers to report indirect ownership interests in bank or financial accounts. A financial interest is deemed to exist if the owner of an account is:
- a corporation in which the U.S. person owns directly or indirectly more than 50% of the voting power or the total value of the shares
- a partnership in which the U.S. person owns directly or indirectly more than 50% of the interest in profits or capital;
- a trust in which the U.S. person has a beneficiary interest in more than 50% of the assets or from which the person receives more than 50% of the current income.
Foreign bank and financial accounts:
These include bank, securities, securities derivatives, mutual funds, hedge funds, and other financial accounts. The IRS emphasizes on the geographic location of the accounts. In other words, the taxpayers may need to report information related to accounts with a foreign subsidiary of a U.S. financial institute, while not being required to report the accounts located in the U.S. with a branch of a foreign financial institute.
Due date for filing:
The FBAR is due by June 30 of the year following the calendar year to which it relates. Extensions for filing the FBAR are not available. The mailbox rule does not apply. Thus, the FBAR must be received by the IRS on and before June 30.
If the information required to complete the FBAR is not available in time, the account holder(s) should file the FBAR as completely as they can and then amend the document when the complete or new information becomes available.
With respect to FBAR for prior years (from 2003 to 2008), no penalty will be imposed if the delinquent FBAR was filed by September 23, 2009 with a statement explaining the reason for the late filing and the filer meets the following criteria:
- Had only recently learned of their FBAR filing obligation,
- Had insufficient time to gather information necessary to complete the FBAR, and
- Had reported and paid the tax on all their taxable income for prior years, but didn’t file the FBAR.
If taxpayers have not filed the delinquent FBAR by the due date, it is recommended that they voluntarily file the late forms rather than wait for the notice by the IRS. Delinquent filers who voluntarily file the forms are often in a better position when negotiating with the IRS with regard to penalties or late filing consequences.
The IRS Notice 2010-23 provides the following administrative relief to certain persons who may be required to file the FBAR:
- Extends the FBAR filing due date until June 30, 2011 for the 2010 calendar year and prior years for the U.S. persons with signature authority over, but no financial interest in, a foreign financial account,
- Clarifies, for FBAR reporting purpose, the foreign commingled fund is limited to foreign mutual funds. Investments in foreign hedge funds or private equity funds are exempt from FBAR filing requirements.
- Guides the taxpayer who has no other reportable foreign financial accounts and qualifies for Notice 2010-23 relief to answer "no" to FBAR-related questions on the federal tax forms for 2009 and earlier years.
Based on the above filing requirements and the most recent IRS guidance, below are suggestions to the taxpayers:
- For everyone: report every foreign account if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
- For more-than-50%-interest owner: report your shares of that entity's foreign bank and financial accounts.
- For a person with signature authority over, but no financial interest in, foreign financial accounts: start to track those foreign accounts as you will have reporting requirements by June 30, 2011.
- For less-than-50%-interest partner of foreign hedge funds or private equity funds: no filing requirement exists.
- For a delinquent filer not having IRS 2010-23 relief: file delinquent FBAR forms as soon as possible.
- For a filer who only has incomplete information for year 2009: file FBAR for year 2009 by June 30, 2010 and then amend the documents when updated information is available.
Please send completed forms to:
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
If an express delivery service is used, please send completed forms to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
The contact phone number for the delivery messenger service is 313-234-1062. The number cannot be used to confirm that your FBAR was received.
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