June 30, 2010 Deadline Approaching for Certain U.S. Persons Required to File Reports Relating to Foreign Bank Accounts

June 15, 2010 Authors: Jasper G. Taylor III, Andrius R. Kontrimas, Charles W. Hall, Richard Lee Hunn, Robert C. Morris

Increased Enforcement Efforts in the International Arena

The Internal Revenue Service ("IRS") has placed offshore tax abuses, along with various other international taxation issues, at the top of its list of enforcement priorities. In fact, IRS personnel have informally stated that offshore compliance efforts represent the new "tax shelter compliance program." Consequently, it is critical that both individual taxpayers and executives understand the complex offshore information reporting requirements – chiefly those associated with reporting certain interests in foreign financial accounts. This is especially true in light of recent IRS announcements and notices that provide guidance with respect to certain persons who may be required to report certain foreign financial accounts by June 30, 2010, for the 2009 calendar year, and in certain circumstances, earlier calendar years. Failure to understand the filing requirements could result in harsh civil penalties, and even criminal penalties in some cases.

General FBAR Filing Requirements

As a general rule, U.S. persons having a financial interest in, or signature authority or other authority over, a financial account in a foreign country are required to file Form TD F 90-22.1, Report of Foreign Bank Accounts ("FBAR"), if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year. U.S. persons who are required to report their accounts must file an FBAR each year that they have a financial interest in, or signature authority or other authority over, any financial accounts in a foreign country, including bank, securities or other types of financial accounts. For each calendar year for which an obligation to file an FBAR exists, such FBAR must be filed with the Department of Treasury on or before June 30 of the succeeding year. No extensions are available to file an FBAR, and an extension of time to file a U.S. federal income tax return does not extend the due date for filing an FBAR.

Extended Filing Date for U.S. Persons with Signature Authority Over, but No Financial Interest in, Foreign Financial Accounts

On February 26, 2010, the IRS issued Notice 2010-23, 2010-11 I.R.B. 441, which extended the filing deadline until June 30, 2011, for U.S. persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010. The IRS had previously stated that U.S. persons with signature authority over, but no financial interest in, a foreign financial account had until June 30, 2010 to file an FBAR for the 2008 and earlier calendar years with respect to such foreign financial accounts. See IRS Notice 2009-62, 2009-35 I.R.B. 260. The June 30, 2011 deadline applies to FBARs with respect to foreign financial accounts for which the U.S. person has signature authority over, but no financial interest in, for the 2010 and prior calendar years.

Clarification of "Commingled Funds"

Also under Notice 2010-23, U.S. persons with a financial interest in, or signature authority over, a foreign commingled fund that is a "mutual fund" are required to file an FBAR by June 30, 2010, for the 2009 and earlier calendar years, unless another filing exception, as provided in the FBAR instructions or other guidance, applies.

According to the current FBAR instructions, the term "financial account" encompasses, in part, any account in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). The parenthetical including "mutual funds" was added in October 2008, but its practical application has been unclear due to its potentially broad interpretation by the IRS and numerous unofficial comments by IRS employees in 2009, which indicated that private equity investments in foreign hedge funds and foreign private equity funds are reportable for FBAR purposes. Consequently, many investors (including tax-exempt investors and U.S. qualified plans) in foreign hedge funds and foreign private equity funds have been uncertain as to the requirement to file an FBAR.

Under Notice 2010-23, the IRS stated that the term "commingled fund," however, will not be interpreted by the IRS to apply to any funds other than "mutual funds" with respect to FBARs for the 2009 and prior calendar years. The IRS specifically stated that it will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund, including a hedge fund or a foreign private equity fund, with respect to that account for the 2009 and prior calendar years.

June 30, 2010 Filing Requirement is Suspended for Certain Foreign Persons and Entities

The IRS also released on February 26, 2010, Announcement 2010-16, 2010-11 I.R.B. 450, which suspends the June 30, 2010 FBAR filing requirement for certain foreign persons and entities. For persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts or estates), Announcement 2010-16 suspends the requirement to file an FBAR for the 2009 and earlier calendar years. Announcement 2010-16 supplements and supersedes Announcement 2009-51, 2009-25 I.R.B. 1105, which directed taxpayers and practitioners to refer to the definition of "United States person" in the July 2000 version of the FBAR instructions to determine if they have an FBAR filing obligation for the 2009 and earlier calendar years. Under the July 2000 version of the FBAR instructions, the term "United States person" means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic trust or estate.

Under Announcement 2010-16, the requirement to file an FBAR due on June 30, 2010, is suspended for persons who are not United States citizens, United States residents, or domestic entities. The substitution of the definition of "United States person" applies only with respect to FBARs for the 2009 calendar year and, as provided in Announcement 2009-51, earlier calendar years. Accordingly, all other requirements of the 2008 version of the FBAR form and instructions, as modified by Notice 2010-23 as discussed above, remain in effect until amended or changed by subsequent guidance issued by the Department of Treasury, including the IRS.

Summary of Filing Deadlines

  • U.S. persons that have a financial interest in foreign financial accounts (not including commingled funds other than "mutual funds") with an aggregate value that exceeds $10,000 at any time during the 2009 calendar year are required to file an FBAR with the Department of Treasury by June 30, 2010. This includes persons with a financial interest in, or signature authority over, a foreign commingled fund that is a "mutual fund."
  • U.S. persons with a financial interest in, or signature or other authority over, foreign commingled funds which are not "mutual funds" are not required to file an FBAR with respect to those accounts for the 2009 and prior calendar years.
  • U.S. persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would have otherwise been due on June 30, 2010, now have until June 30, 2011 to file such an FBAR.
  • The requirement to file an FBAR on June 30, 2010, for the 2009 and earlier calendar years is suspended for persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts or estates).

Civil and Criminal Penalties for Failure to File an FBAR

U.S. persons failing to comply with the FBAR filing requirements could face civil and criminal penalties for non-compliance. Civil penalties for a non-willful violation of FBAR reporting requirements are up to $10,000 per violation, and civil penalties for a willful violation are the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. For each violation, civil and criminal penalties may be imposed simultaneously.


This article was prepared by Jasper G. Taylor III (jtaylor@fulbright.com or 713 651 5670), Andrius R. Kontrimas (akontrimas@fulbright.com or 713 651 5482) and Brian P. Teaff from Fulbright's Tax Controversies Practice Group. If you have any questions or need any assistance related to these or any other tax controversy matters, please feel free to contact any of the authors listed above or Nancy T. Bowen, Brent Gardner (bgardner@fulbright.com or 713 651 5307), Charles W. Hall (chall@fulbright.com or 713 651 5268), Richard L. Hunn (rhunn@fulbright.com or 713 651 5293), Kathryn Keneally, William S. Lee (wlee@fulbright.com or 713 651 5633), Robert C. Morris (rmorris@fulbright.com or 713 651 8404) or Shawn R. O'Brien (sobrien@fulbright.com or 713 651 5285).

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