Originally published June 22, 2009

Keywords: Internal Revenue Service, TD F 90-22.1, FBAR, Non-US investment vehicles, hedge funds.

Several US Internal Revenue Service (IRS) officials have recently indicated that TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) (FBAR) should be filed by United States persons that own interests in certain non-US investment vehicles, such as hedge funds. 

The FBAR is an informational filing that is made to the US Treasury Department.  The IRS administers the FBAR, however, it is not a tax return, and a person who is obligated to file the FBAR does not pay any tax when submitting the FBAR. 

Because the FBAR is not a tax return, the information collected may be provided to and used by other US government entities, such as the Securities and Exchange Commission or the Department of Justice.  Severe penalties may apply to persons who fail to file a FBAR, if required (e.g., the penalty for certain non-filers may equal 50 percent of the value of such person's account).  FBARs that relate to the 2008 calendar year must be received by the IRS no later than June 30, 2009.

The FBAR must be filed with respect to each United States person who has a financial interest in, or signature or other authority over, any foreign financial accounts, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.1  If the circumstances require that an FBAR be filed, the FBAR must be filed on or before June 30 of the following year.2 

The term "financial account" is defined in the instructions to the FBAR to include "any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds)."3  The definition of "financial account" found in the instructions to the FBAR is not found in the statute authorizing the filing of the FBAR or the regulations.4  The instructions do not define the term "commingled fund," but given the context, the IRS has apparently interpreted this term broadly, as including all vehicles for which investments are made on a pooled basis (e.g., to include mutual funds and hedge funds).  It is also possible that private equity funds and structured finance vehicles are included, but they are not specified in the instructions. 

The geographic location of the financial account, not the nationality of the financial institution in which the account is found determines whether the account is in a foreign country.  Accordingly, the organization of a fund outside of the United States may be sufficient to satisfy the "foreign" requirement to the extent the fund itself is considered to be a financial account, however, it is unclear whether the "foreign" requirement is satisfied if the underlying commingled assets that comprise an offshore fund are held in an account located within the United States and not in a foreign country (e.g., the account that holds the offshore fund's investments is located within of the United States). 

Due to the significant risks associated with failing to file an FBAR, non-US investment vehicles may wish to contact investors that are United States persons to inform them of the IRS's position.  Similarly, investors who are United States persons and who have a financial interest in an offshore commingled fund or other foreign financial accounts that exceeds $10,000 in the aggregate may want to consider the IRS's position concerning the FBAR filing requirement. 


1. TD F 90.22-1, at 6, located at http://www.irs.gov/pub/irs-pdf/f90221.pdf.

2. Id.

3. Id. The instructions to the FBAR define the term financial interest to include those accounts owned directly as well as certain accounts that are owned by corporations, partnerships or trusts, more than 50 percent of the ownership or beneficial interests of which are owned by such United States person.

4. 31 U.S.C. 5314; 31 C.F.R. 103.24.

Learn more about our Tax Transaction practices.

Visit us at www.mayerbrown.com.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2009. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.