FinCEN Proposes Rule to Clarify Which Persons Will Be Required to File FBARs and Which Accounts Will Be Reportable

March 2, 2010

On February 26, 2010, the Financial Crimes Enforcement Network (FinCEN) proposed revising the regulations implementing the Bank Secrecy Act to clarify which persons will be required to file Reports of Foreign Bank and Financial Accounts ("FBARs") and which accounts will be reportable.  IRS Announcement 2010-16, 2010-11 IRB 1; IRS Notice 2010-23, 2010-11 IRB 1.  The proposed rule would include a definition of United States persons and definitions of bank, securities, and other financial accounts in a foreign country.  In addition, the proposed rule would exempt certain persons with signature or other authority from filing the FBAR.  Finally, it would clarify that private equity funds and hedge funds are not "commingled funds" for which an FBAR filing would otherwise be necessary. 

FinCEN proposes using a new term "United States person" to indicate persons that would be required to file an FBAR.  The proposed rule defines a United States person as a citizen or resident of the United States, or an entity, including a corporation, partnership, trust or limited liability company, organized under the laws of the United States or any state.  Foreign persons engaged in a trade or business in the United States would not be included in the definition of a United States person, and would not be required to file an FBAR.

The proposed rule also adds definitions of the financial accounts subject to reporting, which include bank accounts, securities accounts, and other financial accounts.  The term "other financial account" includes mutual funds or similar pooled funds, but does not include hedge funds, venture capital funds and private equity funds.  This definition resolves recent confusion about whether the FBAR filing requirements for "commingled funds" included interests in foreign hedge funds, venture capital funds and private equity funds.

Finally, FinCEN’s proposed rule would exempt certain United States persons with signature or other authority over reportable accounts from filing the FBAR.  This exception generally applies to officers and employees of financial institutions that have a federal functional regulator, and certain entities that are publicly traded on a United States national securities exchange.  However, the exception only applies if the officer or employee has no financial interest in the reportable account.

Given the confusion that had arisen concerning the FBAR requirements, the proposed rule is a welcome development.  It provides clarification regarding which persons will be required to file FBARs and which accounts will be reportable.  FinCEN requests public comments on the proposed rule by April 27, 2010.

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  If you have questions about the requirements, concerns about failure to file FBARs in the past, or potential tax issues coupled with a failure to file FBARs, please contact the Gibson Dunn attorney with whom you work or any of the following:

Financial Institutions Practice Group
Amy G. Rudnick – Washington, D.C. (202-955-8210, [email protected])
Linda Noonan – Washington, D.C. (202-887-3595, [email protected])

Tax Practice Group
Arthur D. Pasternak – Washington, D.C. (202-955-8582, [email protected])
Jeffrey M. Trinklein - New York (212-351-2344, [email protected])
Romina Weiss – New York (212-351-3929, [email protected])
Benjamin H. Rippeon – Washington, D.C. (202-955-8265, [email protected])

Investment Fund Practice Group
Edward D. Nelson – New York (212-351-2666, [email protected])
Edward Sopher
– New York (212-351-3918, [email protected])
C. William Thomas, Jr. – Washington, D.C. (202-887-3735, [email protected])

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