Guidance Provides FBAR Relief

Guidance Provides FBAR Relief

The IRS has issued guidance that provides some administrative relief from FBAR filing requirements.

To recap, the FBAR was significantly revised in late 2008, and these changes made more individuals and entities subject to FBAR filing. In particular, last summer there was discussion about whether foreign hedge funds and private equity funds were now included in the definition of  “foreign financial account.” An IRS official indicated last June in a teleconference that such accounts would be included in the definition and thus require an FBAR filing, although that had not previously been the case.

One important component of the new guidance is the IRS’ decision not to interpret the term “foreign commingled fund” as applying to funds other than mutual funds for calendar year 2009 and prior years. This means that interests in a foreign hedge fund or private equity fund will not require an FBAR filing for calendar year 2009 or earlier years. Thus, an FBAR filing for such funds won’t be required (if at all) until the calendar year 2010 filing. Proposed regulations that also were recently issued by the U.S. Treasury Financial Crimes Enforcement Network have reserved treatment of foreign hedge funds and private equity funds, and so their future treatment is still uncertain.

Another important issue in the guidance deals with individuals who have signing authority over a foreign account, but no financial interest in the account. These individuals, who would otherwise be required to file an FBAR by June 30, 2010, will not have to report those accounts on an FBAR until June 30, 2011. This continues a deferment that was issued last year, meaning that FBARs from calendar year 2008 and prior years that already had an extended deadline will now have until June 30, 2011, to be filed.

The guidance also clarifies how taxpayers should answer questions about foreign accounts on other tax forms. If a taxpayer is covered by either of the relief provisions discussed above and does not have any other reportable foreign accounts, he should check the “no” box in response to these questions.

In addition, the guidance suspends the FBAR filing requirement for persons who are not U.S. citizens, U.S. residents, or domestic entities (corporations, partnerships, trusts or estates).

Below are links to the recent guidance:

http://www.irs.gov/pub/irs-drop/n-10-23.pdf

http://www.irs.gov/pub/irs-drop/a-10-16.pdf