The Bank Secrecy Act requires "United States persons" to file a Form TD F
90-22.1, Report of Foreign Bank and Financial Accounts (commonly called an "FBAR"),
if they have a "financial interest" in or "signature authority" over a
"financial account" in a "foreign country" with a total value of more than
$10,000 at any time during the year.
June 19, 2009, McGuireWoods news update provided an overview of these rules
and a discussion of a recent change to the definition of "United States person."
On June 24, 2009, the IRS updated its list of
Frequently Asked Questions relating to foreign bank accounts. Question 43
asked how taxpayers should proceed if they only recently learned that they have
an FBAR filing obligation but do not have sufficient time to gather the
information necessary to properly file the FBAR by June 30.
The IRS response to this question allows United States persons who (1)
reported and paid tax on all their 2008 taxable income, but (2) only recently
learned of their FBAR filing obligation, and (3) have insufficient time to
gather the necessary information to complete the FBAR, to file the delinquent
FBAR on or before Sept. 23, 2009, according to the instructions, and attach a
statement explaining why the report is filed late. In this situation, the IRS
will not impose a penalty for the failure to timely file the FBAR.
Filers should, however, file the delinquent FBAR with the IRS Philadelphia
Offshore Identification Unit, rather than the office in Detroit where taxpayers
generally file FBARs. United States persons who file the FBAR after June 30 but
before Sept. 23 should include their 2008 individual income tax returns with the
FBAR, unless the 2008 individual income tax return is due after Sept. 23, 2009.
This delay is the result of confusion stemming from comments made by IRS
representatives on a June 12, 2009, conference call. On the call, IRS
representatives stated that the IRS considered off-shore hedge funds to be
"financial accounts" and United States persons with a sufficient financial
interest in the off-shore hedge fund therefore had an FBAR filing requirement.
Investors, both individuals and entities, expressed surprise at the comments,
and dismay at the short time available to obtain the financial information
necessary to determine whether they were required to file an FBAR. In order to
alleviate the pressure on these investors, but still receive the FBARs that the
IRS believes it is entitled to, the IRS allowed the almost three-month grace
Criminal Tax Controversy/Litigation Group routinely handles tax
controversies and litigation against the IRS, and has broad experience
representing clients in matters related to the reporting of foreign income, FBAR
reporting requirements, and the FBAR voluntary disclosure initiative.
McGuireWoods' legacy team in
London is a leading
advisor and provider of tax advice and solutions in the United Kingdom for
private clients in the United Kingdom, Europe and across the globe. The London
private client team enjoys an outstanding reputation in many quarters,
particularly in cross-border tax issues related to international structures
involving onshore and offshore trusts and insurance products, income and
inheritance planning, the provision of advice to private and international banks
for the review of their off-shore offering to their client base, and
international tax reporting obligations.