Originally published June 25, 2009

Keywords: US Internal Revenue Service, file, FBAR, foreign financial accounts, Report of Foreign Bank and Financial Accounts,

A United States person1 with a financial interest in, or signature authority over, "foreign financial accounts," may be required to file a "Report of Foreign Bank and Financial Accounts" (Form TD F 90-22.1, or "FBAR").  As we discussed in our previous Client Alert on this topic (available here), the US Internal Revenue Service 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 in the definition of "foreign financial accounts," but they are not specified in the instructions.  As a general matter, FBARs for the 2008 calendar year must be received by the Treasury Department by June 30, 2009.

The IRS has amended a list of frequently asked questions (FAQ) on its web site relating to FBAR filing obligations to provide that filers have until September 23, 2009, to file an FBAR if they have (i) only recently learned of their obligation to file an FBAR, (ii) insufficient time to gather the necessary information, and (iii) reported (e.g., on a Form 5471, Information Return of US Persons With Respect To Certain Foreign Corporations) and paid taxes for 2008.2

The FAQ also provides that while FBAR filings made after June 30 will still be considered delinquent, and should be filed with a statement explaining the delinquency, the IRS will not impose penalties for such a delinquency if the filer otherwise satisfies the conditions imposed by the IRS.  United States persons who file after the June 30, 2009 deadline will need to provide a copy of their 2008 US federal income tax return and provide a statement explaining why the 2008 report is filed after the June 30, 2009 deadline.  Accordingly, we recommend that United States persons who are obligated to file an FBAR for the 2008 calendar year should attempt to satisfy their filing obligation in a timely manner.

The manner in which the FAQ is drafted creates uncertainty with respect to whether the filer must have reported and paid tax with respect to such person's entire amount of taxable income for the 2008 taxable year or merely with respect to the income attributable to the foreign financial account for which the filing relates.  Similarly, it remains unclear whether the Treasury Department is taking the position that FBARs should be filed with respect to calendar years prior to 2008 in which a United States person had a financial interest in a non-US investment vehicle that constitutes a foreign financial account. 

If a United States person intends to file FBARs relating to calendar years prior to 2008, the United States person must also file the corresponding tax returns for those taxable years and provide a statement explaining why the reports are filed late.  The IRS will not assert penalties if these delinquent FBARs are filed by September 23, 2009, and the person has reported and paid all US federal income tax due for the taxable years for which delinquent FBARs relate.

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1. For this purpose the term "United States person" means a US citizen or resident of the United States, a domestic corporation (including tax exempt entities), a domestic partnership and a US trust or estate.  Accordingly, the extension of the June 30, 2009, filing requirement applies to such United States persons who have a FBAR filing requirement.

2. http://www.irs.gov/pub/irs-utl/faqs-revised_6_24.pdf.

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