The following is an overview of Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts, otherwise known as FBAR. There are new regulations effective this year which may affect you. We've included some frequently asked questions that will help you understand its impact on you and your business.
Each U.S person who had a financial interest in or signature authority, or other authority over any bank, securities, or other financial account in a foreign country that exceeded $10,000 in aggregate value at any time during the calendar year must report that relationship by filing Form TD F 90-22.1 with the Treasury Department on or before June 30 of the succeeding year. This requirement often applies to investment funds and/or officers or employees of such funds.
On February 24, 2011, the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury Department, published final regulations amending the Form TD F 90-22.1 (FBAR) filing requirements. These regulations became effective on March 28, 2011 and apply to FBARs required to be filed with respect to foreign financial accounts maintained in calendar year 2010 and for foreign financial accounts maintained in calendar year 2009 and prior years for which a person has signature or other authority over such accounts.
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A U.S. person means: (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.
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A "U.S. person" will be treated as having a "financial interest" in an account if:
(1) the person is the owner of record or has legal title, whether the account is maintained for his or her own benefit or for the benefit of others; or
(2) the person is not the owner of record or legal title but the owner of record or legal title is either:
- a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S person
- a corporation in which the U.S. person owns directly or indirectly more than 50 percent of the total value of shares of stock or the voting power of all shares of stock
- a partnership in which the U.S. person owns an interest in more than 50 percent of the profits or capital, or
- a trust in which the U.S. person either has a present beneficial interest, either directly or indirectly, in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income;
(3) the person is owner of record or the holder of legal title is a
trust, or a person acting on behalf of a trust, that was established by the U.S person and for which a trust protector has been appointed.
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The types of financial accounts reportable for purposes of the FBAR include but are not limited to a securities, brokerage, savings, demand, checking, deposit, or other account maintained with a financial institution. A financial account specifically includes a commodity futures or options account, an insurance policy with a cash value, an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. A "mutual fund or similar pooled fund" means a fund that is available to the general public with a regular net asset value determination and regular redemptions.
Exceptions for Certain Accounts: The revised regulations provide that US persons with a financial interest in, or signature or other authority over certain accounts are exempt from FBAR reporting. These "exempt accounts" include: Hedge Funds & Private Equity Funds, Pension Plans, IRAs, Correspondent/Nostro Accounts, and Accounts of Governmental Entities.
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Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.
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If the aggregate balance of the foreign financial accounts exceeds $10,000 at any time during the calendar year, then there is an FBAR filing obligation.
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A United States person having met the above criteria for a financial interest must file an FBAR by June 30th, 2011.
Please note: For foreign financial accounts maintained in calendar years beginning before 2010, filers who properly deferred filing obligations may apply the provisions of the final regulations in determining their FBAR filing requirements for reports due June 30th, 2011, for prior years.
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A 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. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. 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. Criminal penalties may also apply to willful violations.
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If you filed an FBAR prior to the enactment of the new changes (effective March 28, 2011) your FBAR must be amended and/or refiled. Please contact your Fund Accountant to inquire on how to proceed.
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In addition to the filing requirements listed above, an individual taxpayer with a Form TD F 90-22.1 filing requirement will also need to disclose that they have an interest in or a signature or other authority over a foreign financial account and list the foreign country the account is in on line 7 of Schedule B of their Form 1040.
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No. However, the IRS and the Financial Crimes Enforcement Network has granted a one-year extension on the June 30, 2011 deadline, but only for a small subset of individuals who have only signature authority. The extension applies for the following individuals: an employee or officer of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a "controlled person"); or an employee or officer of a controlled person of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
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Please review all foreign accounts (if any) that your fund has an interest in to determine if the fund and/or any of the offices or employees of the fund have a Form TD F 90-22.1 filing requirement. If you've determined that there is a filing requirement, or that there may be one, please contact your Fund Accountant immediately to address this important, time-sensitive regulation.
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Preparation of Form TD F 90.22-1 is included as part of your Fund's tax preparation fee. If additional forms for related entities are required, the fee to prepare would be $250 per form/entity.
For more information on FBAR, including the new changes for 2011, click here.
If you have any questions, please contact your KRFS professional or email funds@krfs.com.
