Do you need to file FBARs for the 2009 calendar year by 30 June?

Clients that are "US Persons" with bank accounts outside the US will be all too familiar with reporting the existence of such accounts on Form 90.22-1 ("FBARs"). The IRS has issued new guidance and this Insight provides a timely update to clients in order to clarify which "US Persons" must file FBARs for the 2009 calendar year by 30 June 2010 and to highlight changes to the definition of reportable foreign accounts.

Introduction

The IRS has announced that persons may rely on the definition of a "United States Person" as (1) a citizen or resident of the US, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.

"US Persons" with bank accounts outside the US are required to report the existence of such accounts on Form 90.22-1 ("FBARs"). These are due by 30 June following the year-end where the balance of all such accounts exceeds $10,000 at any point during a calendar year (regardless of whether the foreign account actually generates any income).

In October 2008, a revised Form 90.22-1 was issued together with accompanying instructions which sought to clarify the scope of foreign accounts that trigger FBAR filing requirements. Since then the IRS has issued a plethora of new guidance in the form of Announcements, Notices and Proposed Regulations and this Insight provides an update to clients in order to clarify which "US Persons" must file FBARs for the 2009 calendar year and to clarify changes to which foreign accounts are reportable.

Unfortunately, there is no provision for extending the due date of these reports beyond 30 June (unlike US tax returns) and the penalty for filing these forms late or failure to file them can be as high as $10,000 per violation. Any non-compliance deemed "wilful" by the IRS can lead to significantly higher penalties and, in the most extreme cases, can lead to criminal penalties and imprisonment.

It will therefore be crucial for clients who have a reporting requirement and who have not already submitted these forms for the 2009 calendar year to take action by 30th June 2010.

Who needs to file FBARs for 2009 and by when?

These forms are required to be filed with the US Department of the Treasury by 30 June following the year-end if the "US Persons" have financial interests in or signature or other authority over bank, securities or other financial accounts in a foreign country where the combined total maximum balance of all accounts exceeds $10,000 (using the forex rate as at 31 December, 1.59 USD = 1GBP, 1.43 USD = 1EUR), at any time during the calendar year.

However, the IRS has announced that persons with signature authority over a foreign account, but no financial interest in the account, for which an FBAR would otherwise be due on 30 June 2010 now have until 30 June 2011 to report those accounts. Clients in these circumstances may still wish to report these accounts by 30 June 2010, if they are otherwise filing these forms, to save having to remind themselves to report these accounts for 2009 by 30 June 2011.

NB: 30 June is the date by which FBARs must be received by the Treasury Department. The usual tax return rule that a foreign postmark establishes the filing date does not apply to FBARs.

Changes to which foreign accounts are reportable

As a result of revised FBAR instructions issued in October 2008, persons should be aware of the expanded definition of "financial account," which now means that additional reports are due for certain foreign investment accounts - although there has been a lack of clarity over exactly what type of foreign investments are caught by the expanded reporting definition. However, in particular, the IRS has recently announced that persons with a financial account in, or signatory authority over, a foreign commingled fund must file an FBAR only if the fund is a mutual fund. Hedge funds and private equity funds are specifically excluded from this definition.

As a final note, many personal pensions, such as SIPPs, are considered to be foreign financial accounts, for which FBAR reportings are required.