FBAR Reminder and Update

The due date for form TD F 90.22-1 is rapidly approaching. The form (Report of Foreign Bank and Financial Accounts) – or FBAR – reports interests in financial accounts exceeding $10,000 (in aggregate) at any point in the year.

Deadline
The due date for 2009 form TD F 90.22-1 is June 30, 2010.

Considerations
Please consider the following issues and clarifications for 2009 filings:

• The FBAR is to be RECEIVED by the IRS no later than June 30 each year. Postmark date is not applicable.
• Foreign accounts include: banking, checking, savings, debit/prepaid credit cards, securities accounts, securities derivatives, other financial accounts (co-mingled funds, but not private funds)
• The Office of Professional Responsibility of the United States Justice Department takes the position a CPA is expected to complete an FBAR if they become aware of a client’s interest in a foreign financial account. The expectation is rooted in the due diligence requirement under Circular 230.

Definitions
IRS Announcement 2010-16 and Notice 2010-23 provide additional interim definitional guidance on FBAR filings in the absence of final regulations.

• Entities not organized under the laws of a U.S. possession or state would not be required to report, even if they could be considered to “be in or doing business in” the U.S.
• Reportable accounts include interests in foreign mutual funds that issue shares available to the general public with a regular NAV determination and regular redemptions. The treatment of other foreign investment funds is reserved, but Notice 2010-23 provides that for 2010 and prior years, only interests in foreign mutual funds need to be reported. Therefore, interests in foreign hedge funds or foreign private equity funds are not required to be reported under the notice.
• Interests in foreign annuity contracts and cash-value insurance policies would constitute reportable “other financial accounts.”
• Participants and beneficiaries in qualified retirement plans and owners and beneficiaries of IRAs and Roth IRAs would not be required to file reports with respect to foreign financial accounts held by or on behalf of the plan/IRA.
• Notice 2010-23 further extends the deadline for filings for 2010 and prior years with respect to signatory authority to June 30, 2011.

FBAR “HIRE Act”
The Hiring Incentive to Restore Employment Act of 2010 added new reporting rules for U.S. owners of foreign financial assets in addition to the existing FBAR rules. The act adds two penalty provisions: Section 6038D and Section 6662(j). New Section 1471(d) (2) expands the definition of foreign financial accounts. New Section 1471 (d) (4) expands the definition of a foreign financial institution. The provisions apply to tax years beginning after March 18, 2010.

Reporting
Any U.S. individual who holds an interest in a “specified foreign financial asset” is required to report on the individual’s tax return certain information about the asset if the aggregate value of the assets exceeds $50,000. The IRS has authority to issue regulations extending this rule to any U.S. domestic entity that is formed or used to hold specific foreign financial assets.

Specified foreign financial assets include: depository or custodial accounts with foreign financial institutions, and any of the following, to the extent that they are not held in either an account with a U.S. financial institution or an account with a foreign financial institution that itself has been subject to reporting;

• Stocks and bonds issued by foreign persons
• Financial instruments or contracts held for investment issued by a non-U.S. person or having a non-U.S. counterparty
• “Any interest in a foreign entity”

The information to be reported regarding each specified foreign financial asset includes the following:

• For accounts, the account number and the name and address of the financial institution
• For securities, the account number and the name and address of the issuer and other issue information
• For other instruments, any information necessary to identify it and names and addresses of all issuers and counterparties
• The maximum value of the assets by year

Penalties
The penalty for failure to disclose this information is $10,000 unless reasonable cause applies. An individual has a 90-day period after notification from the IRS to correct a failure to disclose, after this 90-day period, a $10,000 penalty for each additional 30-day period of failure to disclose applies, up to a maximum of $50,000.

A 40% penalty is imposed on any portion of an underpayment of tax attributable to any foreign financial asset that was required to be, but was not, disclosed by the taxpayer under either the new rules regarding foreign financial assets or existing law.

Statute of limitations
The statute of limitations is extended from three to six years for omissions of gross income of $5,000 or more attributable to foreign financial assets.

If there is a failure to report information about foreign financial accounts, passive foreign investment companies (PFICs), or interests in or transfers to foreign entities that must be reported on Forms 926, 5471, or 8865 under current law, the statute of limitations with respect to the entire return will not begin to run until the missing information is provided (limited technical correction for inadvertent overlooked filings or omitted information).

Every U.S. shareholder of a PFIC must file a report with respect to the PFIC each year unless otherwise provided by the IRS.

Contact
For more information on FBAR rules and reporting, please contact Elliott Davis International Tax Services Chair Kay Biscopink at 864.250.3941 or .(JavaScript must be enabled to view this email address).