Clarification of Complex Foreign Financial Reporting Rules

The Treasury Department’s Financial Crimes Enforcement Network has issued final changes to the regulations that require the reporting of foreign financial accounts. The ruling addresses who is required to file reports, what types of foreign accounts are reportable, and how certain individuals may obtain relief from the filing requirements.

Although the ruling applies to every foreign account holder, it should be of specific interest to anyone who deferred filing in calendar year 2009 and earlier. Deferrals were awarded to allow time to develop guidance for individuals with complex situations, including signature authoring issues and investment in foreign comingled funds.

Key Point: The deadline for FBAR submission is June 30, 2011! If you have deferred a FBAR filing in 2009 or 2010, the new Treasury rules should be applied to determine whether a filing is required.

Key Aspects of the Final Rules

The new ruling provides significant clarification for several complex situations. Below we have outlined the provisions most relevant to our clients.

• Custodial Account Clarification – The ruling asserts that an account is not a foreign account if it is maintained with a financial institution in the United States. Assets held in an omnibus account and maintained by a U.S. based global custodian are not subject to FBAR. An exception applies in situations where a U.S. person can access their assets directly from a foreign financial institution. In this case, a FBAR filing is required.
• Revised Definition of Authority. The new rules provided additional clarification about when an individual has appropriate authority to require a FBAR filing: Individuals that control the disposition of money, funds, or other assets held in a financial account by direct communication with the foreign financial institution, or the individual for whom the account is maintained. The test for determining whether an individual has authority is whether a foreign financial institution will act on a direct communication to disburse assets or funds. If so, then there is a FBAR filing requirement.
• Trust Reporting Requirements – There is direction provided that a beneficiary of a trust is not required to report the trust’s foreign financial accounts if the trust, trustee, or agent is a United States person that already files a FBAR disclosure with the IRS.
• Record Maintenance Requirements – The ruling clarifies that officers or employees who file a FBAR because of signatory or other authority over the foreign financial account of their employer are not expected to personally maintain the records of their employer’s account.

Penalties for Noncompliance

There can be severe penalties for noncompliance with FBAR filing requirements. Civil penalties for “non-willful” violations can range in fines up to $10,000 per violation. Civil penalties for “willful” violations can result in fines up to $100,000 or 50% of the amount in the account at the time of violation. There are also criminal penalties for noncompliance which range from a $250,000 to $500,000 fine, 5-10 years in prison, or both depending on the circumstances. In addition, civil and criminal penalties may be imposed together!

Contact Us

Do you know how the new rules will impact your filing requirements? The deadline for FBAR submission is June 30, 2011! The deadline is approaching quickly and the penalties for noncompliance can be significant! CALL US NOW to determine whether you are required to submit a FBAR filing with the IRS. For additional information on the new FBAR regulations or any other International Tax issues, contact Mark Chaves, CPA, Partner in Charge of International Tax, at 561-367-1040, or click here to email Mark.