FBAR Update: IRS Delays Due Date in Certain Circumstances

June 26, 2009

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.

A 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 period.

McGuireWoods’ Civil and 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.