The Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN)
issued final regulations on February. 24, 2011, governing Reporting on Foreign
Financial Accounts (FBAR). The final regulations will be effective for the 2010
FBAR filings that are due June 30, 2011, and any FBAR filing that was deferred
pursuant to IRS Notices 2009-62 and 2010-23.
Though the final regulations have made certain clarifications that are
beneficial to employee benefit plan sponsors, they do not exempt all foreign
accounts related to tax qualified retirement plans or other employee benefit
plans from the FBAR requirements.
The FBAR regulations apply to every United States person who
has a financial interest in, or signature authority
over, any foreign financial accounts that have an aggregate value
exceeding $10,000 at any time during a calendar year. Persons who fall in this
category must file an FBAR report on or before June 30th of the following year.
United States Persons
United States persons include:
- Citizens of the United States;
- Residents of the United States; and
- Entities, including but not limited to, corporations, partnerships,
trusts or limited liability companies, that are created, organized or formed
under U.S. laws.
Employee benefit plans may fall in the third category.
As under the proposed regulations, the final FBAR requirements do not apply
- Participants and their beneficiaries in plans that meet the tax
qualification requirements of Code Sections 401(a), 403(a), or 403(b); or
- Owners and beneficiaries of individual retirement accounts under Code
Sections 408 or 408A.
The final regulations state that a United States person has a financial
interest in a foreign bank, securities or other financial account if:
- The United States person is the owner of record or has legal title to
the account, regardless of whether the account is maintained for himself or
- Any person acts as an agent, nominee, attorney or in some other capacity
on behalf of a United States person with respect to the account;
- The account is held by a corporation in which the United States person
owns, directly or indirectly, more than 50% of the total voting power or the
total value of the shares;
- The account is held by a partnership in which the United States person
owns, directly or indirectly, more than 50% of the interest in profits or
- Any other entity holds the account and such entity is owned, either
directly or indirectly by a United States person who has more than 50% of
the voting power, total value of the equity interest or assets, or interest
- A trust, of which a United States person is the trust grantor and has an
ownership interest in the trust for federal tax purposes, maintains the
- The account is held by a trust in which a United States person either
has a present beneficial interest in more than 50% of the assets or from
which such person receives more than 50% of the current income.
The final regulations narrow the concept of “financial interest in a bank,
securities or other financial account in a foreign country” to exclude persons
who establish trusts and subsequently appoint one or more trust protectors.
Therefore, a plan sponsor that establishes a trust to hold tax qualified plan
assets does not automatically have a financial interest in the accounts if the
sponsor appointments of a committee to monitor and/or replace the trustee. In
such a circumstance, the committee should review whether it has signature
authority, as discussed below, and whether it is required to make FBAR filings.
In a significant change for benefit plans, FinCEN also limited the scope of
the persons who are deemed to have “signature or other authority” over foreign
accounts to those who have the ability to control the disposition of assets in
the foreign account by direct communication with the person who maintains the
account. The preamble to the final regulations states that the test for
determining whether a United States person has signature authority over an
“whether the foreign financial institution will act upon a direct
communication from that individual regarding the disposition of assets in
Therefore, members of a retirement plan committee who do not have such
authority will not be required to indicate on their personal tax returns that
they have a relationship to a foreign financial account and need not complete a
FBAR filing. However, the filing requirements will apply to the committee
members who are able to direct the disposition of assets or who have a financial
interest in the trust, as described above.
Reportable Foreign Financial Accounts
The final regulations also broadly define types of reportable accounts to
include bank accounts, securities accounts, mutual fund or pooled accounts, and
a catch-all of “other financial accounts” that is designed to include other
similar deposit, insurance and brokerage accounts.
The preamble to the final regulations clarifies that a United States person
who cannot directly access the foreign financial account will not have to file
FBAR reports with respect to such an account. Therefore, United States persons
who maintain foreign accounts that are controlled by intermediaries or
custodians with direct access to the funds do not trigger FBAR responsibilities.
This could include the sponsor of an employee benefit plan trust where a
financial institution serving as trustee maintains a foreign account for the
As a result of the issuance of the FBAR final regulations, sponsors of
employee benefit plans with assets held in foreign accounts should carefully
review the final regulations to make sure they comply with the FBAR filing