This Notice provided that (i) persons with signature authority over, but no financial interest in, a foreign financial account and (ii) persons with a financial interest in, or signature authority over, a foreign commingled fund, would have until June 30, 2010, to file an FBAR for the 2008 and earlier calendar years with respect to these foreign financial accounts. On August 7, 2009, the IRS issued Notice 2009-62, 2009-35 IRB 260, which provided partial temporary relief. (For further coverage of this development, see our June 19, 2009, client alert, “Interests in Foreign Hedge Funds and Private Equity Funds May be Reportable as Foreign Financial Accounts – Reports Due on June 30, 2009,” here.) These statements also suggested that foreign private equity funds could be subject to the same treatment.
This concern was exacerbated last summer when representatives of the IRS stated informally that an interest in a foreign hedge fund generally would be considered a “foreign financial account” for purposes of the FBAR form. Historically, the FBAR form instructions have defined “financial accounts” quite broadly, so that the term could be interpreted to apply to interests in a foreign hedge fund (feeder or master) or a foreign private equity fund. person who has a financial interest in, or signature or other authority over, any “foreign financial account” during a calendar year must file the FBAR form on or before June 30 of the following year if the aggregate value of these financial accounts exceeds $10,000 at any time during the year. Proposed regulations issued by the Treasury Department on the same date (“Proposed Regulations”) would reserve on the treatment of such funds for subsequent calendar years, although the preamble to the Proposed Regulations (“Preamble”) indicates that the issue is still under study. persons owning interests in foreign hedge funds and private equity funds in respect of the 2009 or prior calendar years. As discussed in more detail below, updated IRS guidance issued on February 26, 2010, clarifies that the IRS will not take any adverse enforcement action for failure to file an FBAR form in the case of U.S. tax-exempt entities, to file FBAR forms on an annual basis to report their ownership interest in such funds. Informal Internal Revenue Service (IRS) guidance in the summer of 2009, along with certain changes to the instructions of the FBAR form for the 2008 calendar filing year, had suggested that interests in foreign hedge funds and, perhaps, foreign private equity funds constituted “foreign financial accounts” for purposes of these rules-a conclusion that would have the effect of requiring U.S. The purpose of these rules is to identify situations that present opportunities for money laundering. persons who own interests in certain foreign financial accounts to file an annual Report of Foreign Bank and Financial Accounts (the “FBAR form”) (TD F 90-22.1). A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.Rules adopted under the Bank Secrecy Act generally require U.S. The penalties for failing to meet one’s FBAR obligations are steep.Ī person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. For example, an entity disregarded for federal tax purposes must still file an FBAR if filing is otherwise required. An entity disregarded for federal tax purposes must still file an FBAR if filing is otherwise required. The federal tax treatment of a person or entity does not determine whether an FBAR filing is required. laws, including, but not limited to, domestic corporations, partnerships, limited liability companies (LLCs), trusts, and estates. citizens, resident aliens, and entities created, organized, or formed under U.S. The June 30 deadline may not be extended. FBARs must be received (not just filed) by the Department of Treasury for each calendar year on or before June 30 of the succeeding year. Thus, for example, whereas persons must indicate on their Form 1040, Schedule B, whether they have an interest in a foreign financial account by checking the appropriate box, the Schedule B then directs the taxpayer to the FBAR. The information is acknowledged on a taxpayer’s tax return but reported on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (commonly referred to as FBAR). person must disclose any financial interests in, signature authority over, or other authority over foreign financial accounts if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year.
By the terms of the FBAR requirements, a U.S.
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