Schroepfer and Justin
Although requirements to file a
Report of Foreign Banks and Financial Accounts ("FBAR") (Form TD-F-90-22.1) have
been in effect since the early 1970s, until recently it was not generally known
that the government takes the position that FBAR reports may be required to be
filed for pension plans and welfare benefit plans. Benefit plans, plan investment committee
members, plan trustees and others who may have investment control over benefit
plans may have obligations to file FBARs. In many cases, the FBAR filing deadline
of a person with signature authority over foreign accounts was extended until
June 30, 2011.
The penalty for failure to file an
FBAR (if not due to a willful failure to file) is up to $10,000 per failure.
Final FBAR Rules Issued For FBAR
Reports Due June 30, 2011. The
Department of Treasury and the Financial Crimes Enforcement Network (FinCEN)
issued the Final Bank Secrecy Act Regulations (the "FBAR Regulations")
effective March 28, 2011, that are applicable to certain legally required
reports concerning foreign accounts that are due on June 30, 2011 (for the 2010
calendar year and, if applicable, prior calendar years) and for FBARs filed for
calendar years after 2010.
General FBAR Filing Requirement. The FBAR Regulations
generally provide that each United States Person (defined below) having a
financial interest in, or signature or other authority over, a bank,
securities, or other financial account in a foreign country must report the
relationship to the Internal Revenue Service for each year that the
relationship exists by filing an FBAR. The FBAR filing requirement applies to a
United States Person if the aggregate value of the accounts in which he has a
financial interest or over which he has signature or other authority exceeds
$10,000 at any time during the calendar year.
Next Deadline for Filing FBAR. The next FBAR filing
deadline is June 30, 2011. The granting by the Internal Revenue Service of an
extension to file Federal income tax returns does not extend the due date for
filing an FBAR.
Types of Reportable Accounts Subject
to FBAR Reporting. The following types of accounts in
a foreign country may be subject to FBAR reporting:
(1) a bank account (defined as a
savings deposit, demand deposit, checking, or any other account maintained with
a person engaged in the business of banking, including time deposits such as
certificates of deposit accounts),
(2) a securities account (defined as
an account maintained with a person in the business of buying, selling, holding
or trading stock or other securities), or
(3) an "other financial account"
(defined as an account with a person that is in the business of accepting
deposits as a financial agency, an account that is an insurance or annuity
policy with a cash value, an account with a person that acts as a broker or dealer
for futures or options transactions in any commodity on or subject to the rules
of a commodity exchange or association, or an account with a mutual fund or
similar pooled fund that issues shares available to the general public and that
has a regular net asset value determination and regular redemptions).
These foreign accounts are referred
to herein as "Reportable Accounts."
The FBAR Regulations contain a
placeholder (marked "reserved") for an account with an "other investment fund."
Until rules are issued defining the term "other investment fund," no FBAR
reports will be required with respect to such accounts.
With respect to global custodial
arrangements, the preamble to the FBAR Regulations indicates that FinCEN takes
the position that an omnibus account under which a United States Person has the
legal right to access its holdings outside of the United States only through a
United States custodian bank is not a Reportable Account for which the United
States Person would have to file an FBAR. If the custodial arrangement permits
the United States Person to directly access its foreign holdings maintained at
the foreign institution, the Person would have a Reportable Account.
For 2009 and prior calendar years,
no FBARs were due by persons with a financial interest in, or signature
authority over, a foreign financial account in which the assets are held in a
commingled fund other than a mutual fund. This relief applied to funds such as
foreign hedge funds or private equity funds.
Meaning of the Term "United States
Person." For purposes of the FBAR rules, the
term "United States Person" generally means (1) a citizen of the United
States, (2) a resident of the United States (defined as a resident alien under
26 U.S.C. 7701(b) and the regulations issued thereunder but using the
definition of United States in 31 CFR 1010.100(hhh) and (3) an entity,
including but not limited to a partnership, trust, or limited liability company
created, organized or formed under the laws of the United States, any State,
the District of Columbia, the Territories and Insular Possessions of the United
States. A single member limited liability company or other entity that is a
disregarded entity for United States tax purposes is treated as a United States
Meaning of the Term "Signature or
Other Authority." Generally a United States Person
has "signature or other authority" if he or it has authority (alone or in
conjunction with another) to control the disposition of money, funds or other
assets held in a Reportable Account by direct communication (whether in writing
or otherwise) to the person with whom the Reportable Account is maintained.
Under this "direct communication" test, if, for example, an investment
committee of a pension plan has no authority to communicate instructions
directly to the person with whom a Reportable Account is maintained, but
rather, merely has authority to communicate directions to the plan trustee, the
investment committee and its members would not be considered to have signature
or other authority that triggers an obligation for them to file FBARs.
Meaning of the Term "Mutual Fund." The definition of a mutual fund includes a requirement that
the shares be available to the general public in addition to having a regular
asset value determination and regular redemption features. Typically, hedge
funds and private equity funds will not qualify as "mutual funds."
Meaning of the Term "Financial
Interest." A United States Person has a
"financial interest" in each Reportable Account in a foreign country for which
he is the owner of record or has legal title regardless of whether the account
is maintained for his own benefit or for the benefit of others. A United States
Person also has a financial interest in each Reportable Account in a foreign
country for which the owner of record or holder of legal title is one of the
following: (1) a person acting on behalf of that United States Person, such as
an attorney, agent or nominee with respect to the Reportable Account, (2) a
corporation or partnership in which the United States Person owns (directly or
indirectly) more than 50 percent of the voting power or the total value of the
shares, or more than 50 percent of the interests in profits or capital, or any
other entity (other than a trust described in clause (3) or (4)) in which the
United States Person owns directly or indirectly more than 50 percent of the
voting power, total value of the equity interest or assets, or interest in
profits, (3) a trust if the United States Person is the trust grantor and has
an ownership interest in the trust for United States Federal tax purposes (such
as a "rabbi trust"), or (4) a trust in which the United States Person either
has a present beneficial interest in more than 50 percent of the assets or from
which such person receives more than 50 percent of the current income.
Signature Authority Exemptions. Where they have no financial interests in the Reportable
Accounts but rather merely have signature authority for the Reportable
Accounts, officers and employees of certain entities including the following
entities do not have to file FBARs with respect to Reportable Accounts of such
entities: (1) a United States or foreign entity that has a class of equity
securities or American depository receipts listed on any United States national
securities exchange, (2) a United States subsidiary of a United States entity
with a class of equity securities listed on a United States national securities
exchange if the United States subsidiary is named in a consolidated FBAR report
filed by the parent, or (3) a United States or foreign entity that has a class
of equity securities registered under section 12(g) of the Securities Exchange
Act (including American depository receipts in respect of equity securities
registered under section 12(g) of the Securities Exchange Act).
For the 2010 calendar year and
calendar years prior to 2010, a person who has signature authority over, but no
financial interest in, a Reportable Account for which an FBAR reporting
exemption does not apply will have until June 30, 2011 to file an FBAR for the
No Blanket Exemption for Pension
Plans and Welfare Benefit Plans.
The government declined to grant a blanket exemption from FBAR reporting
requirements for pension plans and welfare benefit plans.
Exemption for Participants and
Beneficiaries in Certain Pension Plans.
Participants and beneficiaries in retirement plans described in section 401(a),
403(a) or 403(b) of the Internal Revenue Code of 1986, as amended do not have
to file FBAR reports for Reportable Accounts held by or on behalf of such
plans. Participants and beneficiaries who are not covered by this exemption
should determine whether they are exempt from FBAR filing on the basis that
they do not have a "financial interest" in the Reportable Accounts.
Exemption for Certain Trust
Beneficiaries. A beneficiary of a trust in which
the United States Person either has a present beneficial interest in more than
50 percent of the assets or from which such person receives more than 50
percent of the current income does not have to file FBAR reports for Reportable
Accounts held by or on behalf of such trust if the trust, the trustee of the
trust or agent of the trust is a United States Person that files an FBAR
disclosing the Reportable Accounts.
Person Responsible for Filing in the
Case of Life Insurance. The FBAR
Regulations clarify that the person responsible for filing an FBAR in the case
of life insurance is the policy holder not the beneficiary.
Multiple Reports May Be Due on June
30, 2011 for a Reportable Account for Multiple Calendar Years. Technically the FBAR filing requirements have been in
effect for many years but many people were unaware of the filing requirements.
The Internal Revenue Service in effect granted an amnesty period for filing
certain FBARs. To the extent that a United States Person with signature
authority was granted an extension of time to file FBARs under Internal Revenue
Service Notice 2010-23 for calendar years before 2010, the United States Person
may have an obligation to file multiple FBARs for the same Reportable Account
for up to six multiple calendar years.
This article was prepared by Stephanie Schroepfer (firstname.lastname@example.org
or 713 651 5591) and Justin S.
Coddington (email@example.com or 713 651 8204) from
Fulbright's Employee Benefits
Practice Group. If you have any questions or need assistance related to these
matters, please feel free to contact the above authors, John R. Allender (firstname.lastname@example.org
or 713 651 5664), Alan L. Aronson
or 212 318 3013), Barry W. Cowan
or 214 855 7187), Jay Friedman
(email@example.com or 210 270 7175), Andrius Kontrimas
(firstname.lastname@example.org or 713 651 5482), Stephen A. Kuntz (email@example.com
or 713 651 5241), Mark S. Miller
or 713 651 5617) or another Fulbright Employee Benefits' Practice Group
attorney listed on our
IRS Circular 230 Disclosure
To ensure compliance with
requirements imposed by the IRS, we inform you that any U.S. federal tax advice
contained in this communication (including any attachments) is not intended or
written to be used, and cannot be used, for the purpose of (i) avoiding
penalties under the Internal Revenue Code or (ii) promoting, marketing or
recommending to another party any transaction or tax-related matter[s].
 This Briefing is a mere summary of certain legal
issues. This Briefing does not constitute legal advice. It may be advisable to
seek legal counsel concerning the specific facts involved to ascertain whether
an FBAR should be filed in a given situation.
 FBARs may
also be required to be filed in the case of foreign accounts unrelated to
pension plans and welfare benefit plans.
Revenue Service FAQs Regarding Report of Foreign Bank and Financial Accounts
(FBAR) - Filing Requirements.
Revenue Service Notice 2010-23.
 Internal Revenue Service FAQs Regarding Report of Foreign
Bank and Financial Accounts (FBAR) - Filing Requirements.
government did, however, grant a blanket exemption for certain governmental
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