02/08/2010 10:21:00 AM EST
Recent Developments in Treasury's FBAR Program
Recent Activity. The IRS recently issued a new version of the FBAR form (October 2008), and added new guidance in the form of frequently asked questions documents (September, June, and May 2009). That guidance is important as there are no traditional proclamations or guidance (beyond the Code and regulations) with respect to the FBAR rules... The new guidance is particularly timely in light of a recent proposal by the Obama administration to expand the FBAR reporting requirement (currently, we only report on an FBAR form) by adding an FBAR schedule to the income tax return form.
Foreign Persons Covered. In what can only be described as borderline draconian, the IRS has stated that as of 2009, “United States persons,” for FBAR purposes, includes foreigners “in and doing business in” the United States... What we don't know about the new rule is how far the Service intends to extend it. For example, does HKSB, the world's largest bank, need to file an FBAR report for every non-U.S. account it holds for itself and all of its subsidiaries merely because it has a U.S. branch?...
Reporting Requirement. A United States person must report having a signature or other authority over a foreign bank or securities account. Signature authority must be reported whether or not the owner or beneficiary of the foreign account is also subject to the reporting requirement. “Other authority” exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means...
What is Reportable? Reportable “financial” accounts include banks, securities, securities derivatives, and other financial instruments accounts. A financial account is reportable even if it holds solely non-monetary assets, such as commodities, and even if it does not generate income in the reporting year. Other accounts in which assets are held “in a commingled fund,” such as mutual funds, and the account owners holding equity interests in such fund should also be reported...
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Note, however, that foreign financial instruments, such as stocks, bonds and other notes are not considered “financial accounts” and therefore are not subject to the reporting requirement. Additionally, debt of a foreign business that is not a financial institution is not a reportable financial account, whether it generates (interest) income or not. Note, however, that other key elements such as “equity interests” and “securities accounts” are still undefined and potentially difficult to apply.
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