Treasury Releases Proposed FBAR Regulations
and Limited Interim Filing Relief
On February 26, 2010, the Department of the Treasury published proposed regulations under 31 CFR Part 103 addressing the future reporting of foreign financial accounts and the form used to file these reports (Form TD-F 90-22.1, Report of Foreign Bank and Financial Accounts, which is commonly referred to as the "FBAR" form). The proposed regulations clarify which persons will be required to report accounts and which accounts will be reportable, as well as establish several specific exceptions to these future filing requirements. On the same day, the Internal Revenue Service (IRS) issued Notice 2010-23 and Announcement 2010-16 to provide limited filing relief until the regulations are finalized. Comments on the proposed regulations are due by April 27, 2010.
General Comments on Implications for Governmental Pension
Plans
The regulations would explicitly and entirely exempt governmental pension plans from the FBAR filing requirement if the regulations are finalized in their current form. Additional good news is that the employees of governmental pension plans who have signatory authority over foreign financial accounts have no filing obligation until June 30, 2011, by which time the proposed regulations may have been finalized and these employees would be exempt from filing.
However, the regulations and other guidance do not
explicitly deal with governmental entities for prior years. If governmental pension plans are treated by
the IRS as "United States persons," the plans may have a filing
obligation on June 30, 2010, for certain foreign financial accounts including
bank accounts, brokerage accounts and commingled funds (which includes only
mutual funds for this purpose). During
the past year, many governmental entities have taken the position that they
were not covered by the FBAR reporting requirements
in the first place. This position was
based on language in the BSA, which states that a
"person" includes a governmental entity "when
the Secretary prescribes." 31 U.S.C. § 5312(a)(5) (emphasis added). The existing treasury regulations are broadly
stated, but do not expressly cover governmental entities. Therefore, under the Bank Secrecy Act
of 1970 (BSA) many governmental entities have taken
the position that governmental entities, including governmental pension plans,
are not covered by the FBAR reporting
requirements. The fact that the proposed
regulations specifically exclude accounts of governmental entities from the FBAR filing requirements reinforces this position.
Overview of Proposed Regulations Under 31 CFR Part 103
Who Must File
Form TD F90-22.1, Report of Foreign Bank and Financial Accounts?
The reporting obligation applies to a "United States person" who has "a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country." 31 CFR 103.24, 75 Fed. Reg. 38 (Feb. 26, 2010).
Who is a United
States Person?
· The BSA, as amended by the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, defines "person" as "in addition to its meaning under section 1 of title 1 [of the U.S. Code], includes a trustee, a representative of an estate and, when the Secretary prescribes, a governmental entity." 31 U.S.C. § 5312(a)(5).
· 31 CFR § 103.24(b) defines "United States person" for these purposes to include:
§ A United States citizen.
§ A United States resident. (A resident alien under Section 7701(b) of the Internal Revenue Code of 1986, as amended (the "Code"), but using the definition of "United States" in 31 CFR 101.11(nn).)
§ Any entity (such as a corporation, partnership, trust or limited liability corporation) created, organized or formed under the laws of the United States, a state, the District of Columbia, the territories or possessions of the United States or the Indian tribes.
· The proposed regulations promulgated under the BSA at 31 CFR § 103.24(a) would provide as follows:
Each United States person having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country shall report such relationship to the commissioner of the Internal Revenue for each year in which such relationship exists, and shall provide such information as shall be specified in a reporting form."
The prescribed reporting form is TD-F 90-22.1.
· Persons having a financial interest in 25 or more foreign financial accounts need only note that fact and provide some basic information on the form. Such persons will be required to provide detailed information concerning each account when so requested by the secretary or his delegate.
What is a Foreign Financial
Account?
· This term includes any bank, securities or other financial account.
· "Other financial account" means an account with a person in the business of accepting deposits in a financial agency, an account that is an insurance policy with cash value or an annuity policy, an account with a broker or dealer in futures or options in any commodity on or subject to the rules of a commodity exchange or association, an account with a mutual fund or similar pooled fund, or any other investment fund.
Do Governmental Entities Have to Report Their Foreign Financial
Accounts?
· The proposed regulations contain an exception for accounts of certain governmental entities, including a department or agency of the United States, a state or political subdivision of a state, an Indian tribe, or a wholly-owned entity, agency or instrumentality of these entities. The exception also extends to an entity that is created under the laws of one of the listed entities and that exercises governmental authority. Accounts held by these entities need not be reported.
· Certain other types of accounts (including those in an international institution of which the United States government is a member, in a United States military banking facility, and a correspondent or nostro account) are also excluded from the reporting requirements.
What is a Financial Interest in a Foreign Financial Account?
· A person has a "financial interest" in a Foreign Financial Account if the person is the owner of record or has legal title, whether for its own benefit or for the benefit of others.
· A person has a "financial interest" if the owner of record or holder of legal title is:
§ acting as the agent, nominee, attorney or in another capacity on behalf of the person;
§ a corporation in which the person owns, directly or indirectly, more than 50 percent of (i) the total value of shares of stock or (ii) the voting power of shares of stock;
§ a partnership in which the person owns more than 50 percent of the profits or capital;
§ a trust in which the person has a present beneficial interest, directly or indirectly, of more than 50% of the assets or receives more than 50 percent of the income.
· A person has a financial interest if the owner of record or holder of legal title is a trust, or a person acting on behalf of a trust, established by the person and for which a trust protector has been appointed.
What constitutes Signature or Other Authority?
· A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of instructions to the bank or other person with whom the account is maintained.
· Exceptions are provided for the following:
§ An officer or employee of a bank, provided the individual has no financial interest in the account. (The bank must be examined by the comptroller of the currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or the National Credit Union Administration.)
§ An officer or employee of a financial institution, provided the individual has no financial interest in the account. (The financial institution must be registered with and examined by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission.)
§ An officer of employee of an authorized service provider with respect to accounts owned or maintained by an investment company registered with the SEC, provided the individual has no financial interest in the account. (An authorized service provider is an entity that is registered with and examined by the SEC and that provide services to an investment company registered under the Investment Company Act of 1940.)
§ An officer or employee of an entity with a class of equity securities listed on any United States national exchange, provided the individual has no financial interest in the account. This includes an officer or employee of a subsidiary of such entity, provided the subsidiary is included in a consolidated FBAR filed by the parent.
§ An officer or employee of a United States entity with a class of equity securities registered under section 12(g) of the Securities Exchange Act, provided the individual has no financial interest in the account.
Is There an Exception
for Participants and Beneficiaries of Retirement Plans?
Participants and beneficiaries in 401(a), 403(a) and 403(b) retirement plans and owners and beneficiaries of traditional or Roth IRAs are not required to file a report with respect to foreign financial accounts held by or on behalf of the retirement plan or IRA.
Overview of Draft Instructions for Form TD-F90-22.1
· Governmental entities are specifically exempted from filing by the draft instructions:
A foreign financial account of any governmental entity is not required to be reported on an FBAR by any person. For purposes of this form, governmental entity includes: (1) a college or university that is an agency or instrumentality of, or owned or operated by, a governmental entity; and (2) an employee retirement or welfare benefit plan of a governmental entity. (Emphasis added.)
· In addition IRA owners and beneficiaries are exempted from filing requirements by the draft instructions:
An owner or beneficiary of an IRA is not required to file an FBAR with respect to a foreign financial account held in the IRA.
A participant in or beneficiary of a retirement plan described in Internal Revenue Code §401(a), 403(a), or 403(b) is not required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement plan.
Overview of Announcement 2010-16
Announcement
2010-16 suspends the FBAR filing requirement for 2009
and prior calendar years for any person that is not a United States citizen,
resident or domestic entity.
Overview of Notice 2010-23
Notice 2010-23 provides administrative relief from FBAR filing for certain groups. Persons with signature authority over, but no financial interest in, a foreign financial account during 2010 and prior calendar years for which an FBAR filing might otherwise be required by June 30, 2010, are granted a filing extension until June 30, 2011. These delayed filings will be subject to the guidance in effect at the time the FBAR is filed, therefore providing time for the proposed regulations (and the exceptions contained therein) to be finalized.
The notice also provides that the term "commingled fund" will be interpreted as meaning only mutual funds for calendar year 2009 and prior years. Those persons with an interest in a foreign mutual fund must file for 2009 and all prior years by the June 30, 2010, deadline specified in Notice 2009-62. However, the IRS will not pursue enforcement against anyone with a financial interest in, or signatory authority over, a foreign commingled fund during that time period. Anyone subject to the relief provided in Notice 2010-23 may check "no" in response to the FBAR-related questions on their federal tax forms for 2009.
For more information about FBAR, the proposed rule, Announcement 2010-16, Notice 2010-23, and how the FBAR materials may impact your governmental plan, please contact Mary Beth Braitman, Terry A.M. Mumford, Katrina M. Clingerman or your Ice Miller LLP employee benefits attorney.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
CIRCULAR 230 DISCLOSURE: Except to the extent that this advice concerns the qualification of any qualified plan, to ensure compliance with recently-enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments, is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein.