OUR THOUGHTS ON:

IRS Issues Additional Guidance on Filing of Form TD F 90-22.1, FBAR for 2009 and Earlier Calendar Years

Tax

By Ron Kramer

On February 26, 2010, the Internal Revenue Service (IRS) issued the long awaited additional guidance to certain filers of FBARs who had been granted an extension of time until June 30, 2010, to file their reports for 2008 and prior years (IRS Notice 2010-23). The guidance brings welcome news to those who have not yet filed their FBARs for 2008 and prior calendar years by further extending administrative relief to those filers.

On August 31, 2009, the IRS issued its Notice 2009-62, which extended the 2008 (and any prior year) FBAR filing deadline until June 30, 2010, for:

  1. persons with no financial interest in a foreign account but with signature or other
    authority over that account; and
  2. persons with a financial interest in, or signature authority over, a foreign financial account in which the assets are held in a commingled fund.

The IRS granted the extension in order for the Treasury Department to have the time necessary to develop comprehensive FBAR guidance in these and other areas. The extension of the 2008 filing deadline was IRS’ response to the significant confusion that resulted from its announced position that investments in foreign hedge funds and private equity accounts should be treated as foreign accounts subject to FBAR reporting. This position caught many investors by surprise and without the necessary information to file timely FBARs.

Accordingly, in IRS Notice 2009-62, the IRS requested public comments regarding a person’s FBAR filing obligation to assist it in the development of comprehensive FBAR guidance including:

  1. providing that when a person with signature authority over, but no financial interest in a foreign financial account, they should be relieved of filing an FBAR for that account;
  2. whether the exception from FBAR filing available for officers and employees of banks and certain publicly-traded domestic companies should be expanded; 
  3. when an interest in a foreign entity should be subject to FBAR reporting; and
  4. whether a United States person should be relieved from an FBAR filing requirement with respect to a foreign commingled fund in other circumstances, such as when filing would be duplicative of other reporting.

The IRS has considered the many comments from the public and has issued IRS Notice 2010-23 which provides the following relief to FBAR filers:

Signature Authority

Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until
June 30, 2011, to report those foreign financial accounts. Thus, the June 30, 2011 deadline applies to FBARs reporting foreign financial accounts for the 2010 and prior calendar years. The IRS advises that when completing the extended FBAR, persons should adhere to FBAR guidance in effect at the time the FBAR is filed.

This further extension for signature authority accounts might indicate that the IRS is further considering eliminating entirely the need to file signature authority reports in the future.

Certain Foreign Commingled Funds

Persons with a financial interest in, or signature authority over, a foreign commingled fund that is a mutual fund are required to file an FBAR unless another filing exception, as provided in the FBAR instructions or other relevant guidance, applies. The IRS will not interpret the term “commingled fund” as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, a financial interest in, or signature authority over, a foreign hedge fund or private equity fund, will not be required to be reported in an FBAR for 2009 and earlier calendar years.

The Treasury Department indicated that interests in foreign hedge funds and private equity accounts might become the subject of separate legislation for regulation and oversight. Accordingly, it will reserve treatment of these accounts for FBAR purposes for 2010 and beyond. Further guidance may be expected on these accounts.

FBAR-Related Questions on Federal Tax Forms

A taxpayer who qualifies for filing relief provided in the Notice and who has no other reportable foreign financial accounts for the year should check the “no” box in response in response to FBAR-related questions found on federal tax forms for 2009 and earlier years that ask about the existence of a financial interest in, or signature authority over, a foreign financial account.

Summary and Conclusions

Although Notice 2010-23 does not provide permanent relief to those FBAR filers having only signature authority over foreign financial accounts, the notice hints that further guidance may be coming in this area. However, the permanent relief from filing FBARs for 2009 and earlier years for a financial interest in, or signature authority over a foreign hedge fund or private equity fund is welcome news for many.

Please contact your Schneider Downs representative if you have any questions regarding your specific FBAR requirements in light of this new guidance from the IRS. 

Schneider Downs provides accounting , tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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