June 29, 2009
On June 24, 2009, the Internal Revenue Service ("IRS") announced that it was extending the June 30, 2009 deadline for filing Reports of Foreign Bank and Financial Accounts ("FBAR"), TD F 90-22.1, to September 23, 2009, for certain taxpayers, i.e., taxpayers that properly report and pay tax on 2008 income, but that only recently learned that they have FBAR filing obligations and do not have sufficient time to gather the information necessary to complete the form. The extension follows remarks made in mid-June by IRS representatives and confirmed on Friday, June 26, by an IRS spokesperson that, based on the instructions to the revised FBAR form that was issued in October 2008, foreign hedge funds and private equity funds are included in the definition of foreign "financial account" subject to the FBAR requirements.
As described below, specific filing procedures apply to FBARs filed pursuant to this extension. According to the IRS, it will not impose civil penalties for not filing FBARs timely if taxpayers comply with these procedures.
The new FBAR instructions have been causing considerable confusion about the filing requirements. While the IRS has responded to some concerns, questions remain. In April 2009, the IRS relaxed some of the revised FBAR form completion requirements for U.S. persons with signature or other authority over 25 or more foreign financial accounts but who do not have any financial interest in the accounts, although the instructions on the form remain unchanged. Earlier this month, the IRS suspended FBAR filings for persons who are not U.S. citizens, residents, or domestic entities that were not subject to reporting requirements under the prior FBAR. At the same time, the IRS invited interested persons to submit comments on the revised form and instructions. Comments are due by August 31, 2009.
The FBAR requirement also has received widespread press attention because of the IRS voluntary disclosure program relating to U.S. taxpayers who have undisclosed foreign private banking accounts and the recent deferred prosecution agreement and summons enforcement action involving UBS relating to some of these taxpayers.
FBAR Reporting Requirements
FBARs must be filed annually by persons who have (i) a financial interest in, or (ii) signature or other authority over, one or more financial accounts in a foreign country that total over $10,000 in value at any time during the previous calendar year.
The term "financial account" includes bank, securities, securities derivatives and other financial instrument accounts. FBARs must be filed even if the accounts are not interest bearing or otherwise do not generate income. The recent confusion in the FBAR filing requirements for interests in hedge funds and private equity funds arises from the additional definition in the new instructions, which states that "[s]uch accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account holder holds an equity interest in the fund (including mutual funds)." As noted above, the IRS has confirmed that an interest in a hedge fund or private equity fund will be considered a "financial account" for purposes of FBAR reporting.
A U.S. person will be considered to have a "financial interest" in a foreign account if such person is the owner of record or has legal title to a financial account. Accordingly, investors in offshore hedge funds or private equity funds will be considered to have a FBAR filing obligation with respect to interests in hedge funds or private equity funds. U.S. persons also may have financial interests in foreign accounts held through corporations, partnerships, trusts or nominees.
In addition, with certain exceptions, FBARs must be filed by U.S. persons with signatory authority or other authority over a foreign financial account. However, persons who are officers and employees of U.S. public companies generally are not required to file an FBAR if they are only signatories on the company’s foreign accounts and have no personal interest in the accounts. Officers and employees of a bank that is subject to the supervision of a federal bank supervisory agency also are not required to file reports if they do not have a personal interest in the account.
"U.S. person" means a U.S. citizen or resident of the United States anywhere in the world and a U.S. legal person, including a partnership, corporation, association, estate, trust, and non-profit organization. While the revised FBAR filing obligation extends the definition of U.S. person to foreign persons "doing business in the United States," on June 5, 2009, the IRS announced the temporary suspension of that requirement for FBARs filed for 2008.
Extended September 23, 2009 Deadlines for Filing 2008 FBARs
For Late Filings Where Taxpayers Have Reported and Paid or Will Report and Pay 2008 Taxable Income
Taxpayers who reported and paid tax on all their taxable income for 2008, but only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the form, should file the late FBAR reports according to the instructions on the form and attach a statement explaining why the report is filed late.
In addition, a copy of the late-filed FBAR, together with a copy of the taxpayer’s 2008 tax return, should be filed by September 23, 2009, with the Philadelphia Offshore Identification Unit, at the following address:
Internal Revenue Service
11501 Roosevelt Blvd.
South Bldg., Room 2002
Philadelphia, PA 19154
Attn: Charlie Judge, Offshore Unit, DP S-611.
Furthermore, if all 2008 taxable income is timely reported (including pursuant to an extension) by a U.S. person who only recently learned of their FBAR filing obligation, then such person may follow the preceding procedures and no penalty will be imposed; provided that, for 2008 tax returns that are due after September 23, 2009, the tax return does not need to accompany the 2008 FBAR filing.
For Late Filings Where Taxpayers Have Unreported Income
If a taxpayer has undisclosed foreign accounts and unreported income related to those accounts, the taxpayer may be eligible for a special IRS voluntary disclosure program that may reduce liability if timely formal disclosure is made before September 23, 2009. In these cases, different disclosure rules and filing requirements apply. To take advantage of this program, the taxpayer must follow the special instructions issued by the IRS for this category of FBAR filing.
 See Report of Foreign Bank and Financial Accounts, http://www.fincen.gov/forms/files/f9022-1_fbar.pdf
 See IRS Announcement posted June 24, 2009, regarding September 23 Deadline for Some FBAR, Filers, http://www.irs.gov/newsroom/article/0,,id=210174,00.html
 The FBAR requirement arises under the authority of the Bank Secrecy Act ("BSA") statute and regulations, 31 U.S.C. § 5314 and 31 C.F.R. § 103.24, and is not a tax reporting requirement. Unlike other BSA reporting requirements, the Department of the Treasury, Financial Crimes Enforcement Network ("FinCEN"), has delegated to the IRS the authority to administer FBARs, including the authority to impose civil penalties for failure to file and to issue guidance. A range of civil and criminal penalties could apply to failures to file FBARs, depending on the reason for the non-filing and whether income attributable to the foreign account has been accurately reported. A failure to file based on a good faith misunderstanding of the requirement without tax consequences and provided that the taxpayer follows the IRS’ instructions for filing should not result in any action by the IRS.
 See IRS Announcement, Headliner Volume 265, FBAR Reporting by Persons with Only Signature Authority or Other Comparable Authority, http://www.irs.gov/businesses/small/selfemployed/article/0,,id=206219,00.html
 See IR-2009-58 and Announcement 2009-51, http://www.irs.gov/newsroom/article/0,,id=209418,00.html
 See Voluntary Disclosure Announcement, http://www.irs.gov/newsroom/article/0,,id=206012,00.html, and Frequently Asked Questions (June 24, 2009), http://www.irs.gov/newsroom/article/0,,id=210027,00.html
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 have 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:
Tax Practice Group
Arthur D. Pasternak – Washington, D.C. (202-955-8582, email@example.com)
Jeffrey M. Trinklein - New York (212-351-2344, firstname.lastname@example.org)
Romina Weiss – New York (212-351-3929, email@example.com)
Benjamin H. Rippeon – Washington, D.C. (202-955-8265, firstname.lastname@example.org)
Investment Fund Practice Group
Edward D. Nelson – New York (212-351-2666, email@example.com)
Edward Sopher – New York (212-351-3918, firstname.lastname@example.org)
C. William Thomas, Jr. – Washington, D.C. (202-887-3735, email@example.com)
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