TaxIQ Meeting Materials - American Bar Association. RIN-1506-AB08, Internal Revenue Service, February 26, 2010 ... Manual (IRM) to provide guidance to IRS personnel involved in the

FOREIGN BANK AND FINANCIALACCOUNTS REPORT (“FBAR”)

OUTLINE

* * *

Edward M. Robbins, Jr., Esq.Hochman, Salkin, Rettig, Toscher & Perez, P.C.

9150 Wilshire Boulevard, Suite 300Beverly Hills, California 90212

Tel. No. (310) 281-3200Fax No. (310) 859-1430

Email: [email protected]

FOREIGN ACCOUNT REPORTING ANDCOMPLIANCE UPDATE

Presented byEdward M. Robbins, Jr., Esq.

CONTENTS

OUTLINE

I. BANK SECRECY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. FBAR STATUTORY AND REGULATORY AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. DELEGATION OF AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV. PURPOSE OF THE FBAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

V. IRS EFFORTS TO INCREASE COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

VI. FBAR - IN GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

VII. WHO MUST FILE THE FBAR? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

VIII. DEFINITION OF A UNITED STATES PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

IX. DEFINITION OF FINANCIAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

X. DEFINITION OF FOREIGN ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

XI. DEFINITION OF FINANCIAL INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

XII. DEFINITION OF SIGNATURE OR OTHER AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

XIII. EXEMPTIONS FROM FILING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

XIV. ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

XV. REPORTING FOR JOINT ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

XVI. RECORDKEEPING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

XVII. PENALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

XVIII. TAXPAYER EDUCATION AND GUIDANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

XIX. NEW IRS EXAMINATION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

XX. CRIMINAL PROSECUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

XXI. RECENT IRS INITIATIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

XXII. HIRE ACT OF 2010 & FACTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

APPENDIX

( TD F 90-22.1, REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS- Form and Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

( Financial Crimes Enforcement Network Proposed Rule, RIN 1506-AB08,T.D. RIN-1506-AB08, Internal Revenue Service, February 26, 2010 . . . . . . . . . . . . . . . . . . . . . A-9

( Announcement 2010-16, I.R.B. 2010-11, March 15, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29

( Notice 2010-23, I.R.B. 2010-11, February 26, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30

( “Epilog: The IRS Penalty Memos and the Voluntary Disclosure of OffshoreAccounts,” by Charles P. Rettig and Kathryn Keneally, CCH Journal of Tax

Practice and Procedure (December 2009 – January 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32

( Memorandum on Routing of Voluntary Disclosure Cases, March 23, 2009 . . . . . . . . . . . . . . . A-38

( Memorandum to Apply Penalty Framework to Voluntary Disclosure RequestsRegarding Unreported Offshore Accounts and Entities, March 23, 2009 . . . . . . . . . . . . . . . . . . A-40

( Memorandum on Emphasis on and Proper Development of Offshore ExaminationCases. Managerial Review, and Revocation of Last Chance Compliance Initiative.March 23, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42

( “FBAR Enforcement – Five Years Later,” by Steven Toscher and Michel R. Stein,CCH Journal of Tax Practice and Procedure (June – July 2008) . . . . . . . . . . . . . . . . . . . . . . . . A-46

( FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) - Financial Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-67

( FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) - Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-71

1Edward M. Robbins, Jr.

Hochman Salkin Rettig Toscher & Perez, P.C. © 2010 All Rights Reserved

FOREIGN ACCOUNT REPORTING AND COMPLIANCE UPDATE

I. BANK SECRECY ACT

The Foreign Bank and Financial Accounts Report (“FBAR”) reporting requirements aregrounded in the Bank Secrecy Act (BSA) of 1970, as amended, which authorizes theSecretary of the Treasury (“Secretary”) to require residents or citizens of the UnitedStates (or a person in, and doing business in the United States) to keep records and/or filereports concerning transactions with any foreign agency. The provisions of the Actresulted from Congressional concern that foreign financial institutions located injurisdictions having laws of secrecy with respect to bank activity were being extensivelyused to violate or evade domestic criminal tax and regulatory requirements.

II. FBAR STATUTORY AND REGULATORY AUTHORITY

Statutory authority for the FBAR is 31 U.S.C. § 5314. Section 5314 directs the Secretaryof the Treasury to require a resident or citizen of the United States, or a person in anddoing business in the United States, to keep records and/or file reports when makingtransactions or maintaining a relationship with a foreign financial agency.

31 U.S.C. § 5321(a)(5) establishes civil penalties for violations of the FBAR reportingand recordkeeping requirements.

Pursuant to this authority, the Treasury promulgated regulations under §103.24:

(a) Each person subject to the jurisdiction of the United States (except aforeign subsidiary of a U.S. person) having a financial interest in, orsignature or other authority over, a bank, securities or other financialaccount in a foreign country shall report such relationship to theCommissioner of the Internal Revenue for each year in which suchrelationship exists, and shall provide such information as shall be specifiedin a reporting form prescribed by the Secretary to be filed by such persons. . . .

FBAR issues can be researched at:

A. 31 U.S.C. §5314 of the United States Code

B. 31 C.F.R. Part 103 of the Code of Federal Regulations



C. Instructions to the FBAR (which contain some rules not found in statute orregulations)

D. Internal Revenue Manual 4.26.16 (covering FBAR law)

E. Internal Revenue Manual 4.26.17 (covering FBAR procedures)

III. DELEGATION OF AUTHORITY

The Bank Secrecy Act (BSA) gave the Department of Treasury authority to establishrecordkeeping and filing requirements for United States persons with financial interestsin or signature authority, or other authority over financial accounts maintained withfinancial institutions in foreign countries. This provision of the law requires that a FormTD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) be filed if theaggregate balances of such foreign accounts exceed $10,000 at any time during the year.

On April 10, 2003, the Financial Crimes and Enforcement Network (FinCEN) delegatedenforcement authority to the Internal Revenue Service (IRS). The IRS is now responsiblefor:

A. Investigating possible civil violations.

B. Assessing and collecting civil penalties.

C. Issuing administrative rulings.

D. Take any other action reasonably necessary for enforcement of these and relatedprovisions, including the pursuit of injunctions.

IV. PURPOSE OF THE FBAR

The FBAR rules were established because of the utility of the information required incriminal, tax, and other regulatory matters and in the conduct of intelligence orcounterintelligence activities including analysis to protect against international terrorism.The reports filed as a result of this regulation provide leads to investigators that facilitatethe identification and tracking of illicit funds or unreported income, as well as providingadditional prosecutorial tools to combat money laundering and other crimes.

V. IRS EFFORTS TO INCREASE COMPLIANCE



Recently, Congress, the Treasury Department and the IRS have taken steps to increasecompliance--reflecting a serious effort to curb abuse in the use of offshore accounts. TheDepartment of Justice Tax Division has also added its resources to the enforcementeffort.

A. Office of Fraud/BSA - A significant step–adding some institutional continuity--was the establishment of a new IRS organization, the Office of Fraud/BSA(consisting of four territories, with about 310 field examiners reporting tomanagers located in 33 field offices nationwide) which has primary jurisdictionfor civil FBAR enforcement. Congress also expanded the civil penalties forviolations of FBAR reporting requirements, adding a new penalty for non-willfulfailures and increasing the penalty for willful violations – to potentially draconianlevels. Most recently, the IRS issued new Delegation Order 4-35 (March 24,2008), which establishes responsibility in the IRS for the various FBARenforcement functions within the IRS and has updated the Internal RevenueManual (IRM) to provide guidance to IRS personnel involved in the newenforcement initiative.

B. Education - The IRS has also made serious efforts to educate, tax professionalsand the public about the FBAR reporting requirements including hosting a IRSNational Phone Forum on FBARs in 2007.

C. Some IRS Success - It appears that FBAR compliance has improved. In 2001,the number of FBAR forms filed with the Treasury was 177,151. At the time, itwas believed that there may have been as many as one million U.S. taxpayersrequired to file an FBAR in any given year. The recent data for 2007 shows thatthere were more than 322,000 filings, almost twice the number. This representsa compliance rate of around 30% (assuming IRS estimates are correct) – leavingroom for improvement and fertile ground for IRS enforcement.

VI. FBAR - IN GENERAL

The FBAR is not a tax return, but a report filed with the Treasury stating that the personfiling has a financial interest in, or signatory authority over, financial accounts in aforeign country with an aggregate value exceeding $10,000 at any time during thetaxable year. As part of the FBAR reporting requirement, persons are instructed toindicate on their Form 1040, Schedule B, Part III, whether the individual has an interestin a financial account in a foreign country by checking “Yes or “No” in the appropriatebox. The Schedule B then directs the taxpayer to file the FBAR, which is used to reporta financial interest in or signatory authority over bank accounts in a foreign country. The



deadline for filing an FBAR for each calendar year is on or before June 30th thefollowing year - and this date cannot be extended.

The FBAR is not attached to the taxpayer’s individual income tax return. It is thereforenot subject to the stringent disclosure restrictions of Internal Revenue Code ("IRC”)Section 6013 (relating to confidentiality and disclosure of return information) and theinformation contained in the FBAR can be shared with other Federal, state and localagencies.

The prescribed Department of Treasury form is known as the Report of Foreign Bankand Financial Accounts TD F 90-22.1 (last revised in October 2008) (otherwise referredto as “FBAR”) and is available on the IRS website at www.irs.ustreas.gov. Theinstructions to the FBAR explain how compliance with the statute is achieved and setsforth in detail the required information and those person obligated to comply with theFBAR reporting requirements.

The FBAR is filed by mailing it to the U.S. Department of Treasury, P.O. Box 32621,Detroit, Michigan 48232-0621. The FBAR is considered filed when it is received inDetroit, not when it is postmarked.

VII. WHO MUST FILE THE FBAR?

A United States person must file an FBAR report if that person has financial interest in,signature authority or other authority over any financial account (s) in a foreign countryand the aggregate value of these account(s) exceeds $10,000 at any time during thecalendar year.

In order to determine whether or not the FBAR is required, all of the following arerequired:

A. The filer is a United States (“US”) Person;

B. The US Person has a financial account;

C. The financial account is in a foreign country;

D. The US Person has a financial interest in the account or signature or otherauthority over the foreign financial account; and



E. The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at anytime during the calendar year.

VIII. DEFINITION OF A UNITED STATES PERSON

A “United States person” is a citizen or resident of the United States.

A. Citizen - Look for US birth certificate or naturalization papers.

B. Resident - Not defined in FBAR instructions, statute or regulations. Look to

1. Green Card Test

2. Substantial presence test

3. Persons file a first year election on his income tax return to be treated as aresident alien

C. A person living in and doing business in the United States.

D. The term "person" includes individuals and all forms of business entities, trusts,and estates.

1. A certificate of incorporation from a US State establishes that thecorporation is a US person.

2. A foreign subsidiary of a US person is not subject to the FBAR filingrequirements. The US parent will be considered to have a financial interestin any foreign financial account owned by its subsidiary.

3. A corporation that owns directly or indirectly more than 50 percent interestin one or more other entities is permitted to file a consolidated FBAR. Theconsolidated report must include the list of entities. An authorized officialof the parent corporation should sign the consolidated FBAR.

IX. DEFINITION OF FINANCIAL ACCOUNTS

A financial account is:

A. Bank accounts such as savings accounts, checking accounts, and time deposits.



B. Securities accounts such as mutual funds, brokerage accounts, and securitiesderivatives accounts.

C. Accounts where the assets are held in a commingled fund and the account ownerholds an equity interest in the fund.

D. Any other account(s) maintained in a foreign financial institution or with a persondoing business as a financial institution.

E. An insurance policy having a cash surrender value.

F. NOT individual bonds, notes, or stock certificates held by the filer.

X. DEFINITION OF FOREIGN ACCOUNTS

Foreign financial accounts include accounts that are located outside all geographicalareas of the United States, including outside the:

- United States- Northern Mariana Islands - District of Columbia - American Samoa - Guam - Puerto Rico - U.S. Virgin Islands - Trust Territories of the Pacific Islands

The location of the account, and not the nationality of the financial institution with whichthe account is held, determines whether the account is in a foreign country. Anyfinancial account that is located in a foreign country should be reported, even if theaccount is held with a branch of a US financial institution located abroad.

XI. DEFINITION OF FINANCIAL INTEREST

Financial interest includes accounts for which the U.S. person is the owner of record orhas legal title, whether the account is maintained on his or her own benefit or for thebenefit of others including non-United States persons.



A. Financial interest also includes accounts where the owner of record or holder oflegal title is a person acting as an agent, nominee, or in some other capacity onbehalf of a U.S. person.

Example: John, a U.S. citizen who resides in Mexico, granted his brotherPaul, a U.S. citizen, a Power of Attorney to access his Mexican bankaccounts. Paul is the owner of record.

John has a financial interest in the account. Paul is acting onlyas an attorney on behalf of John. Paul also has a financialinterest in the account, since he is the owner of record. BothJohn and Paul must file an FBAR.

Example: Given the information in the above example, if Paul is a Mexicancitizen, must he file the FBAR?

No. Paul is not considered to be a U.S. person.

B. Financial interest in an account also includes a corporation in which a U.S. persondirectly or indirectly owns more than 50 percent of the total value of the shares ofstock.

Example: A Florida corporation that owns 100% of a foreigncompany that has foreign financial accounts has to file an FBARbecause the corporation is a U.S. person and the owner of record orholder of legal title is a corporation that directly owns more than50% of the total value of the shares of stock.

Example: A U.S. person who owns 75% of the Florida corporation in theprevious example has to file an FBAR because he indirectly owns morethan 50% of the total value of shares of stock of the foreign corporation.

C. Financial interest also includes an account where the owner of record or holder oflegal title is:

1. A partnership in which the U.S. person owns interest in more than 50% ofthe profits.



2. A trust in which the U.S. person either has a present beneficial interest inmore than 50% of the assets or receives more than 50% of the currentincome.

XII. DEFINITION OF SIGNATURE OR OTHER AUTHORITY

A person having signature or other authority over a financial account must file the FBAReven if the person has no financial interest in the account.

A U.S. person has account signature authority if that person can control the dispositionof money or other property in the account by delivery of a document containing hissignature to the bank or other person with whom the account is maintained.

A person with other authority over an account is one who can exercise power that iscomparable to signature authority over an account by direct communication, either orallyor by some other means to the bank or other person with whom the account ismaintained.

Example: A person who has the power to direct how an account is investedbut cannot make disbursements or deposits to the account does not have tofile an FBAR because the person has no power of disposition.

XIII. EXEMPTIONS FROM FILING

The following types of accounts and persons are exempt from the FBAR filingrequirement:

A. Accounts held in a military banking facility operated by a United States financialinstitution designated by the United States Government to serve U.S. Governmentinstallations located abroad.

B. Officers or employees of a bank under the supervision of the Comptroller of theCurrency, the Board of Governors of the Federal Reserve System, the Office ofThrift Supervision, or the Federal Deposit Insurance Corporation are exempt fromfiling the FBAR, if that officer or employee has NO personal financial interest inthe account.

C. Officers or employees of a domestic corporation whose equity securities are listedon national securities exchanges, or which has assets exceeding $10 million and



500 or more shareholders of record, need not file an FBAR concerning the othersignature authority over a foreign financial account of the corporation, if:

1. the officer or employee has NO personal financial interest in the account,and

2. has been advised in writing by the chief financial officer of the corporationthat the corporation has filed a current report which includes that account.

XIV. ACCOUNT VALUE

The FBAR is required for each calendar year during which the aggregate amount(s) inthe account(s) exceeded $10,000 valued in U.S. dollars at any time during the calendaryear. The maximum value of an account is the largest amount of currency and non-monetary assets that appear on any quarterly or more frequent account statement issuedfor the applicable year.

Example: If the statement closing balance is $9,000 but at any time duringthe year a balance of $15,000 appears on a statement, the maximum valueis $15,000.

If a periodic account statement is not issued, the maximum account value is the largestamount of currency and/or monetary instruments in the account at any time during theyear. If the account value exceeds $10,000 on any account statement at any timeduring the calendar year an FBAR must be filed.

Convert foreign currency by using the official exchange rate in effect at the end of theyear in question for converting the foreign currency into U. S. dollars. Historicalexchange rates will be needed to determine the value in a foreign account in prior years.

The value of stock, other securities, or other non-monetary assets in an account reportedon the FBAR is the fair market value at the end of the calendar year, or if withdrawnfrom the account earlier in the year, at the time of the withdrawal.

If the filer had a financial interest in more than one account, each account is valuedseparately in accordance with the previous paragraphs.

.

XV. REPORTING FOR JOINT ACCOUNTS



If two persons jointly maintain an account, or if several persons each own a partialinterest in an account, then each U.S. person has a financial interest in that account andeach person must file an FBAR.The IRS will accept a single FBAR for an account jointly held by husband and wife. Aspouse having a joint financial interest in an account with the filing spouse should beincluded as a joint account owner in Part III of the FBAR. The filer should write (spouse)on line 26 after the last name of the joint spousal owner. If the only reportable accountsof the filer's spouse are those reported as joint owners, the filer's spouse need not file aseparate report. If the accounts are owned jointly by both spouses, the filer's spouseshould also sign the report. It should be noted that if the filer's spouse has a financialinterest in other accounts that are not jointly owned with the filer or has signature orother authority over other accounts, the filer's spouse should file a separate report for allaccounts including those owned jointly with the other spouse.

XVI. RECORDKEEPING

FBAR records should be kept for five years from the due date of the report which is June30 of the following calendar year. The records should contain the following:

A. Name maintained on each account.

B. Number or other designation of the account.

C. Name and address of the foreign bank or other person with whom the account ismaintained.

D. Type of account.

E. Maximum value of each account during the reporting period.

Retaining a copy of the FBAR is not required. However, a copy of the FBAR formcontains most of the required information (but not address of foreign institution ormaximum values).

XVII. PENALTIES



The IRS has been delegated authority to assess FBAR civil penalties. The main penaltiesapplicable to FBARs are the (1) Non-Willful and (2) Willful penalties. The Job CreationAct of 2004 (“Jobs Act) added a new civil penalty for violations of FBAR reportingrequirements, whether or not the violation was willful, and an increased the existingpenalty for willful violations.

The FBAR penalties are determined per account, not per unfiled FBAR, for each personrequired to file. Penalties apply for each year of violation. As noted below, however,examiners are expected to exercise discretion, taking into account the facts andcircumstances of case, in determining whether penalties should be asserted and the totalamount of penalties to be asserted.There may be multiple FBAR civil penalties assessments arising from one account.There may be multiple penalties assessments if there is more than one account owner orif a person other than the account owner has signature or other authority over the foreignaccount. Each person can be liable for the full amount of the penalty.

A. Non-Willful Penalty - Under the changes, which apply to violations after October22, 2004 (the date of Jobs Act enactment), that is, FBAR forms due on or aferJune 30, 2005, the IRS may now impose a civil monetary penalty not exceeding$10,000, on anyone who violates, or causes any violation, of the FBAR reportingrequirement rules. This penalty, which did not previously exist, eliminates theneed for the IRS to prove willfulness - a main barrier to its ability to impose anyFBAR civil penalty in the past.

1. The penalty may be waived, however, if both of the following are met:

a. “such violation was due to reasonable cause”; and

b. “the amount of the transaction or the balance in the account at thetime of the transaction was properly reported.”

2. Reasonable Cause

a. With respect to the first part of the waiver provision – the“reasonable cause” requirement, the IRS will most likely turn to thereasonable cause standard set forth in existing Internal RevenueCode (“IRC”) sections, regulations and internal revenue manualprovisions.

3. Properly Reported



a. It is less certain what Congress meant by the reporting requirement– that is, “the amount of the transaction or the balance in the accountat the time of the transaction was properly reported.”

b. The Senate Finance Committee Report (S. Rep. No. 108-192) shedssome light on congressional intent by stating that “[t]he penalty maybe waived if any income from the account was properly reported onthe income tax return and there was reasonable cause for the failureto report. However, it is unclear what actions besides the reportingof income will satisfy the reporting requirement, and there are manyunanswered questions.

(1) Would checking “yes” on the Form 1040, Schedule B, PartIII, be sufficient to satisfy the reporting requirement?

(2) Does prior year reporting of income from the account orFBAR reporting satisfy this requirement?

(3) Also, how does one report the amount of the transaction in thecontext of the FBAR?

(4) Upon whom does the burden of proof rest with respect to non-willful penalty?

(5) Is reporting some, but not all, of the income from a foreignaccount sufficient to satisfy the reporting requirement? Atleast for the last question, it would appear that reporting “any”of the income would be sufficient.

c. The IRS interprets the provision to mean that the examiner musthave received the delinquent FBARs from the non-filer in order toavoid application of the non-willful penalty.

B. Willful Penalty - The Jobs Act also increased the civil penalty for willfulviolations. Under the changes, the civil penalty for willful violations has beenincreased to the greater of $100,000 or 50 percent of the amount of the transactionor the balance in the account at the time of the violation.



1. This is a significant increase from the penalty that applies to violationsexisting on or before October 22, 2004, where the civil penalty amount islimited to the greater of $25,000 or the balance in the account at the timeof violation, up to a maximum of $100,000 per violation.

Example: Under the new statute, if an individual with aforeign financial account containing $1 million is found to bein willful violation of the statute, the penalty could be as muchas $500,000 - a very steep penalty indeed.

2. Willful Standard

a. The willfulness penalty applies to any person who has willfullyviolated the FBAR reporting or recordkeeping provisions.

b. The test for willfulness is whether there was a voluntary, intentionalviolation of a known legal duty.

c. The burden of establishing willfulness is on the IRS.

d. If it is determined that the violation was due to reasonable cause, thewillfulness penalty should not be asserted.

e. Willfulness is shown by the person’s knowledge of the reportingrequirements and the person’s conscious choice not to comply withthe requirements. In the FBAR situation, the only thing that a personneed know is that he has a reporting requirement. If a person has thatknowledge, the only intent needed to constitute a willful violation ofthe requirement is a conscious choice not to file the FBAR.

f. Examples: The following examples from the Internal RevenueManual illustrate situations in which willfulness may be present:

(1) A person admits knowledge of, and fails to answer, a questionconcerning signature authority over foreign bank accounts onSchedule B of his income tax return. When asked, the persondoes not provide a reasonable explanation for failing toanswer the Schedule B question and for failing to file theFBAR. A determination that the violation was willful likelywould be appropriate in this case.



(2) A person files the FBAR, but omits one of three foreign bankaccounts. The person had closed the omitted account at thetime of filing the FBAR. The person explains that theomission was due to unintentional oversight. During theexamination, the person provides all information requestedwith respect to the omitted account. The information provideddoes not disclose anything suspicious about the account, andthe person reported all income associated with the account onhis tax return. The willfulness penalty should not apply absentother evidence that may indicate willfulness.

(3) A person filed the FBAR in earlier years but failed to file theFBAR in subsequent years when required to do so. Whenasked, the person does not provide a reasonable explanationfor failing to file the FBAR. In addition, the person may havefailed to report income associated with foreign bank accountsfor the years that FBARs were not filed. A determination thatthe violation was willful likely would be appropriate in thiscase.

(4) A person received a warning letter informing him of theFBAR filing requirement, but the person continues to fail tofile the FBAR in subsequent years. When asked, the persondoes not provide a reasonable explanation for failing to filethe FBAR. In addition, the person may have failed to reportincome associated with the foreign bank accounts. Adetermination that the violation was willful likely would beappropriate in this case.

C. Penalty Mitigation Guidelines

Recognizing its discretionary authority, and in order to promote consistency byIRS employees in exercising this discretion, the IRS has adopted PenaltyMitigation Guidelines for Calculation of FBAR Civil Penalty for its personnel.

Penalties should be asserted only to promote compliance with the FBAR reportingand recordkeeping requirements. In exercising their discretion, examiners shouldconsider whether the issuance of a warning letter and the securing of delinquent



FBARs, rather than the assertion of a penalty, will achieve the desired result ofimproving compliance in the future.

FBAR civil penalties have varying upper limits, but no floor. The examiner hasdiscretion in determining the amount of the penalty, if any. Examiner discretionis necessary because the total amount of penalties that can be applied under thestatute can greatly exceed an amount that would be appropriate in view of theviolation.

Examiners are expected to exercise discretion, taking into account the facts andcircumstances of each case, in determining whether penalties should be assertedand the total amount of penalties to be asserted. Because FBAR penalties do nothave a set amount, IRS has developed penalty mitigation guidelines to assistexaminers in the exercise of their discretion in applying these penalties. Themitigation guidelines are only intended as an aid for the examiner in determiningan appropriate penalty amount.

1. Guidelines For Violations Occurring Prior to October 23, 2004

a. Four Conditions - If all four of the following conditions aresatisfied, the Penalty Mitigation Guidelines would subject a personto less than the maximum authorized FBAR penalty. The Guidelinesgenerally provide that the amount of the penalty imposed would belimited to a percentage (i.e., either 5% or 10%) of the maximumamount in the foreign account (up to a maximum penalty of$100,000) for each foreign account that should have been reported,depending upon the amount in each account. In contrast, forsituations where a person does not qualify for the FBAR penaltyreduction (i.e., where the taxpayer fails to satisfies any one of thefour conditions), then generally the maximum penalty authorizedwill be asserted.

(1) The person has no history of past FBAR penalty assessment;

(2) No money passing through any of the foreign accountsassociated with the person was from an illegal source or usedto further a criminal purpose;

(3) The person cooperated during the examination; and



(4) The IRS did not determine a civil fraud penalty against theperson for an underpayment for the year in question due to thefailure to report income related to any amount in a foreignaccount.

2. Mitigation Guidelines - The method of calculating the penalty under theGuidelines varies from account to account depending upon the applicablepenalty Level involved. The Guidelines set forth four penalty Levels.

a. Level I Penalty. A Level I penalty applies if the maximumaggregate balances for all unreported foreign accounts that shouldhave been reported does not exceed $20,000. For Level I cases, thepenalty will be 5% of the maximum balance during the calender yearfor each of the foreign accounts that should have been reported.

b. Level II Penalty. A Level II penalty applies if the maximumbalance during the year for an unreported account that should havebeen reported is not more than $250,000 (and the Level 1 penalty isnot applicable). For Level II cases, the penalty will be 10% of themaximum balance during the calender year for each of the foreignaccounts that should have been reported.

c. A Level III Penalty. A Level III penalty applies if the maximumbalance during the year for an unreported account that should havebeen reported is greater than $250,000 but not more than $1 million. For Level III cases, the penalty will be the lesser of: a) 10% of themaximum balance during the calender year for each of the foreignaccounts that should have been reported; or b) the amount in theaccount as of the last day for filing the FBAR (unless this amount isless than $25,000, in which case the penalty is $25,000).

d. A Level IV Penalty. A Level IV penalty applies if the maximumbalance during the year that should have been reported exceeds $1million. For Level IV cases, the penalty will be the lesser of: a)$100,000; or b) the amount in the account as of the last day for filingthe FBAR (unless this amount is less than $25,000, in which case thepenalty is $25,000).

3. Guidelines For Violations Occurring After October 22, 2004



a. Four Conditions - If all four of the following conditions aresatisfied, the Penalty Mitigation Guidelines would subject a personto less than the maximum authorized FBAR penalty.

(1) The person has no history of past FBAR penalty assessmentsand no history of criminal tax or BSA convictions for thepreceding ten years.

(2) No money passing through any of the foreign accountsassociated with the person was from an illegal source or usedto further a criminal purpose;

(3) The person cooperated during the examination; and

(4) The IRS did not determine a civil fraud penalty against theperson for an underpayment for the year in question due to thefailure to report income related to any amount in a foreignaccount.

b. Mitigation Guidelines for Non-Willful Penalty The method ofcalculating the penalty under the Guidelines varies from account toaccount depending upon the applicable penalty Level involved. TheGuidelines set forth three penalty Levels for non-willful violations.

(1) A Level I Non-Willful Penalty. If the aggregate balance ofall accounts held during the year does not exceed $50,000,then the penalty for each violation is $500, not to exceed atotal of $5,000 in penalties.

(2) A Level II Non-Willful Penalty. If the aggregate balance ofthe accounts is over $50,000, but less than $250,000, thepenalty is, per violation, the lesser of $5,000 or 10 per cent ofthe highest balance in the account during the year for whichthe account should have been reported.

(3) A Level III Non-Willful Penalty. For violations regarding anaccount exceeding $250,000, the penalty per violation is thestatutory maximum of $10,000.



4. Mitigation Guideline for Willful Penalty. The method of calculating thepenalty under the Guidelines varies from account to account dependingupon the applicable penalty Level involved. The Guidelines set forth fourpenalty Levels for non-willful violations.

a. A Level I Willful Penalty. If the maximum aggregate balance for allaccounts to which the violations relate did not exceed $50,000, LevelI applies to all accounts . Determine the maximum balance during thecalendar year for each account. Add the various maximums to findthe maximum aggregate balance. The Level I penalty is the greaterof $1,000 per violation or 5% of the maximum account balanceduring the calendar year for each Level I account.

b. A Level II Willful Penalty. If Level I does not apply and if themaximum account balance to which the violations relate at any timeduring the calendar year did not exceed $250,000, Level II appliesto that account. The Level II penalty assessed for each account is thegreater of $5,000 per violation or 10% of the maximum accountbalance during the calendar year for each Level II account.

c. A Level III Willful Penalty. If the maximum account balance towhich the violations relate at any time during the calendar yearexceeded $250,000 but did not exceed $1,000,000, Level III appliesto that account. The Level III penalty assessed for each account is thegreater of 10% of the maximum account balance during the calendaryear for each Level III account or 50% of the closing balance in theaccount as of the last day for filing the FBAR .

d. A Level IV Willful Penalty. If the maximum account balance towhich the violations relate at any time during the calendar yearexceeded $1 million, Level IV, the statutory maximum, applies tothat account. The Level IV penalty is the statutory maximum appliedto each account. It is the greater of $100,000 or 50% of the closingbalance in the account as of the last day for filing the FBAR.

D. Criminal Penalties - The Jobs Act made no changes to criminal FBAR penaltiesunder IRC §5322. Criminal violations of the FBAR rules can still result in a fineof not more than $ 250,000 or 5 years in prison or both. Where the failure to filean FBAR is part of a pattern of illegal activity, the statute provides for a fine ofup to $500,000 and imprisonment of up to 10 years or both.



1. The statute states that the civil penalty can be imposed despite the fact thata criminal penalty is imposed with respect to the same violation.

E. Statute of Limitations to Assess Penalties - The Secretary has six years to assessa FBAR civil penalty, and once assessed, a limitation period of two years fromthe date of assessment to bring an action to recover an unpaid penalty. The statuteof limitations for criminal BSA violations is five years.

F. Penalty Summary - The following chart highlights the civil and criminalpenalties that may be asserted for not complying with the FBAR reporting andrecord keeping requirements for violations occurring after October 22, 2004:

VIOLATIONCIVIL PENALTIES

CRIMINALPENALTIES

COMMENTS

Non-WillfulViolation

Up to $10,000 foreach negligentviolation

N/A 31 U.S.C. §5321(a)(5)(B)

Willful-Failure tofile FBAR or retainrecords of account

Up to the greater of$100,000, or 50percent of the amountin the account at the time of the violation

Up to$250,000 or5 yearsor both

31 U.S.C. §5321(a)(5)(C)31 U.S.C. §5322(a)and 31 C.F.R. §103.59(b)for criminal. The penaltyapplies to all U.S.persons.

Willful - Failure tofile FBAR or retainrecords of accountwhile violatingcertain other laws

Up to the greater of$100,000, or 50percent of the amountin the account at thetime of the violation

Up to$500,000 or10 years orboth

31 U.S.C. §5322(b) and31 C.F.R. §103.59(c) forcriminal. The penaltyapplies to all U.S.persons.

Civil and Criminal Penalties may be imposed together. 31 U.S.C. §5321(d).

XVIII. TAXPAYER EDUCATION AND GUIDANCE

The rules and regulations governing the FBAR reporting requirements have been givenlittle attention over the years by both taxpayers, tax professionals, and even those in



Government charged with enforcing these requirements. Since the IRS took overenforcement responsibilities from FINCEN in 2003, much more attention is being paidto the reporting requirements. While many issues remain outstanding, the IRS has madesubstantial progress.

Historically, taxpayers and their advisors seeking to determine whether there was aFBAR filing obligation were limited to consulting the instructions attached to the form.That, however, is changing with the IRS establishing a unit where taxpayers and theirclients can seek guidance. While many questions remain, many have been answered –at least from the IRS’ viewpoint.

On June 20, 2007, the IRS held a National Phone Forum to disseminate information tothe public regarding the FBAR. The IRS provided an overview of the FBAR’spurpose, reporting requirements, penalties and compliance initiatives. As part of theprogram, the tax community was offered the opportunity to submit questions. In whatproved to be a valuable component to the Forum, the IRS disseminated in writing thequestions and answers from the Program. The FBAR Questions and Answers (FBARQ&A) indicate that they were approved by the SB/SE Counsel on October 22, 2007. TheFBAR Q&A provided a valuable source of information to guide tax professionals andtheir clients about FBAR compliance issues. Many previously unanswered questionswere addressed in the Q&A FBAR and some of the more significant issues are discussedbelow.

A. Aggregate Value - The FBAR reporting requirement is triggered if the aggregatevalue of the financial accounts exceeds $10,000 at any time during the calendaryear. The FBAR Q&A clarifies that the largest value during the year isdetermined separately for each account (including those that did not exceed$10,000) and then the accounts are added together. If the aggregate value of theboth accounts exceed $10,000, then all accounts must be included on the FBARform. The aggregate value is determined using the largest amount that appearson the bank statement, and not merely the ending balance. Thus, if a taxpayer hadtwo accounts during the year and at one point one account had $5,100 and $5,000of the account was transferred to another account during the year, the IRS expectsan FBAR to be filed–even though the taxpayer never had more than $5,100 duringthe year.

B. Due Diligence Regarding FBARs - Circular 230 requires that a practitionerexercise due diligence in preparing or assisting in the preparation or, approvingand filing of tax returns, documents or other papers relating to IRS matters. TheFBAR Q&A states that in most cases, if (1) the preparer asks if the taxpayer had



a foreign account and the answer is no, and (2) if the preparer has no reason tobelieve that the taxpayer has foreign investment account, that should be sufficientto demonstrate due diligence on the part of the tax preparer.

The FBAR Q & A would seem to require that all preparers ask the taxpayer thisquestion – which does not seem to have been the practice in the past – at least formost preparers. While the foreign bank account question is found in most taxorganizers sent to taxpayers, they are not used in all cases and in many cases, thetaxpayers never complete the organizer. Moreover, most tax return softwareprograms default to the answer “no” when it comes to this question. The IRSwould no doubt like to enlist tax preparers in their effort to increase FBARcompliance and given increased IRS enforcement focus on preparers and preparerpenalties, it is not too far afield to anticipate that if a taxpayer violation is found,the focus could turn to the preparer as to whether due diligence was exercisedunder Circular 230.

C. Fax Signatures - The FBAR requires a signature, but does not contain a penaltyof perjury statement. The FBAR Q&A states that the IRS does not accept a faxsignature on the FBAR. However, if the taxpayer is pressed for time, the FBARshould be filed with a fax signature. The taxpayer should follow up with anAmended FBAR with an original signature with an explanation of the why theoriginal signature was obtained late.

D. Foreign Branch of US Bank - The FBAR Q&A states that a bank account in abranch of a United States bank that is located in a foreign country is considereda foreign account requiring the FBAR disclosure requirements. However, anaccount with a US military banking facility that services US Governmentinstallations overseas need not be reported on an FBAR, even though the accountmay be located in foreign country. For FBAR reporting purposes, Puerto Rico,the Virgin Islands, Northern Mariana Islands and the Territories and Possessionof the United States are not considered to be foreign countries.

E. Foreign Life Insurance Policies & Other Assets - The term “financial accounts”for FBAR reporting purposes is broadly defined to include any bank, securities,savings, demand, checking, deposit, time deposit or any other account maintainedwith a financial institution. The FBAR Q&A states that if the cash surrendervalue insurance policy can be used to store cash that can be withdrawn at a latertime, it would be treated as a financial account for FBAR reporting purposes. Ifthe policy is located overseas, and the cash surrender value exceeds $10,000, thepolicy holder should report the policy on an FBAR. Policies acquired in the



United States from an insurance agent in the United States are not policies locatedoverseas.

According to the FBAR Q&A, an account holding gold bullion is considered areportable account. Whereas an investment in an interest bearing security issuedby a foreign government, such as savings bonds, acquired through a bank in theUnited States or mutual funds located in the United States that invest in securitieslocated in a foreign country, does not create a FBAR obligation. Lines of creditor an ownership interest in real estate are not interests in foreign financialaccounts.

F. Postmarks - Tax returns are considered timely on the day they are mailed. FBARs are not tax returns and according to the FBAR Q&A, are considered filedon the day they are received, not on the date they were mailed.

G. Delinquent FBARs, Penalties and Voluntary Disclosures - The IRS providedimportant insight how it will treat taxpayers with no previous knowledge of theFBAR requirement who would like to get into compliance. The FBAR Q&Astates that the taxpayer should file any FBAR that was required during the past sixyears and attach an explanation as to why the FBARs were delinquent. Nopenalty will assessed if there was reasonable cause for not filing the FBAR.

It was stated during the Forum that the IRS does not have a formal voluntarydisclosure policy specifically related to FBARS, but it was suggested that it wouldbe highly unlikely that the IRS would investigate and attempt to penalizetaxpayers who voluntarily come forward and file.

XIX. NEW IRS EXAMINATION PROCEDURES

On January 1, 2007, the IRS revised the Internal Revenue Manual (“IRM”) provisionsrelating to the Bank Secrecy Act Chapter (IRM 4.26.17) to set forth FBAR examinationprocedures not previously formalized in writing. On May 5, 2008, the IRS revised IRM4.26.17, modifying and superceding portions of IRM 4.26.17.

The new manual provisions set forth the procedures to be followed by IRS examiners inthe Small Business/Self Employed (SB/SE) division who are responsible for enforcingcompliance with the reporting and record keeping requirements of the FBAR. Theseprovisions also provide helpful guidance for tax professionals whose clients are underFBAR examination. The new IRM provisions sets forth procedures for initiating and



closing FBAR investigations, investigation procedures, and procedures for potentialreferrals of FBAR violations for criminal enforcement.

A. Section 6103 Privacy Issues - A FBAR examination can be initiatedindependently of a BSA or tax examination or can be initiated in the course of atax or other BSA examination. Internal Revenue Manual provisions are gearedto prevent the unauthorized use of information obtained by the IRS in a taxinvestigation for FBAR purposes. If the source of the FBAR information is a taxexamination, the information acquired is “return information” protected by IRCSection 6103. The examiner must obtain a “related statute determination,” signedby an IRS Territory Manager, before using the return information in the FBARcase. A related statute determination is necessary to allow the examiner to use theinformation obtained in the course of the tax investigation. As part of the relatedstatute determination, the Territory Manager should determine whether thepotential FBAR violation is in furtherance of tax violations. Without a relatedstatute determination, the “return information” cannot be used in the FBARexamination and such use could subject the examiner to civil and criminalpenalties for violating Section 6103. If the examiner is conducting an examinationsolely under the BSA, however, a related statute determination is not needed toexamine FBAR compliance, because no information from a tax examination orother Section 6103 protected information is involved.

B. Power of Attorney - A person may authorize a representative to receiveinformation with respect to the FBAR examination. In a case that involves bothtax matters and FBAR matters, an IRS Form 2848, power of attorney may beused. In an FBAR case that does not involve a related income tax case, a generalpower of attorney must be used.

C. The FBAR Examination - If it is determined that a taxpayer has an unreportedforeign bank account, there can be a number of different consequences –depending on whether the IRS determines there was a violation, a violation whichshould not be penalized, a violation subject to a penalty or a violation whichwarrants a referral to the Criminal Investigation Division.

1. No FBAR Violation. If no FBAR violation is found, the examiner willcomplete a summary memorandum and a FBAR Monitoring Document(FMD) and close the FBAR case to the group manager, who will review thecase for technical and procedural issues. The Detroit Computing Center(“DCC”) will record the information from the FMD into the FBAR



database and note in the FBAR database if and when a follow-up FBARexamination is needed.

2. FBAR Violation without Penalty. If a FBAR violation is found, but nopenalty is warranted in view of the facts and circumstances, the examinermay issue a FBAR warning letter, Letter 3800. In this situation, theexaminer will issue the Letter 3800 to the person in violation of the FBARrequirements and a copy will be retained in the file. The person inviolation will be asked to return any delinquent or corrected FBARs and acopy of the warning letter to the examiner. The examiner will retain theoriginal and a copy of the FBAR in the FBAR case file, and mark theFBAR as secured through examination and note in the FBAR database ifand when a follow-up FBAR examination is needed.

3. FBAR Violation With Penalty. If the examiner determines it isappropriate to assert an FBAR penalty and that a referral to the CriminalInvestigation Division is not appropriate or has been declined, the examinerwill assert penalties in accordance with the FBAR penalty guidelines. Theexaminer will submit the FBAR case file to a SB/SE Counsel Area FBARCoordinator (“Counsel”). Counsel will render advice within 45 days or willwork with the examiner to establish a shorter time frame if expeditedreview is needed. Counsel will prepare a written memorandum of reviewof the FBAR case. If counsel recommends imposition of the penalty, thereview will assist Appeals in the event the case is appealed. If Counseldoes not recommend imposition of the penalty, the review will state thereasons for disagreement. If disagreement is based upon inadequate factualdevelopment, the review should recommend areas for further examination.

a. Taxpayer’s counsel should carefully monitor the case and be activelyengaged if it is determined the examiner is considering assertingpenalties – including making appropriate submissions on whetherthere was a violation and, if so, whether there was reasonable causefor the violation. These submissions may not only convince theexaminer, but could be influential with the examining agent’s GroupManager and Area Counsel as to whether the penalty is warrantedand if warranted, the appropriate amount of the penalty.

b. Meetings with the Group Manager or Area Counsel should also berequested in appropriate circumstances – even if they might be



resisted by the IRS. The penalty for willful failures carries a highburden of proof which the government must meet to sustain thepenalty and the amount of the penalty may depend on the taxpayer’sdegree of culpability under the IRS’ penalty mitigation guidelines.There is substantial opportunity at the examination stage for counselto influence a more favorable outcome of the examination.

c. If the IRS determines the FBAR penalty is appropriate, the examinerwill issue Letter 3709, the FBAR 30 day letter, and transmit with thatletter, the Form 13449, FBAR Agreement to Assessment andCollection, which sets forth the basis for the FBAR penalty. Nointerest accrues on the FBAR penalty prior to assessment or ifpayment is made within 30 days after the date a notice of penaltyamount due is mailed to the taxpayer. In addition to interest, a sixpercent delinquency penalty applies to amounts remaining unpaidninety days from the date a notice of penalty amount due is firstmailed to the taxpayer.

4. Agreed Case - If the taxpayer agrees to assessment of penalties, thetaxpayer should return to the examiner the delinquent FBARs, along withthe signed and dated Form 13449. The examiner places the signedAgreement Form 13449 in the FBAR case file, and retains the original anda copy of the FBAR in the FBAR case file, and marks the FBAR assecured through examination. The examiner will complete a summarymemorandum and a FMD and close the FBAR case to the group manager,who will review the case for technical and procedural issues.

5. Unagreed Case - If the FBAR penalty is not agreed to, the taxpayer mustmail a written protest in duplicate to the examiner within 30 days. The caseis then transferred to the IRS Appeals Division. The appeal is entered onthe FBAR database at the DCC which has responsibility to monitor thestatute of limitations. The DCC is to notify Appeals when the statute oflimitations has less than a year to expire. Placing responsibility formonitoring the statute of limitations is the DCC seems to be at odds withestablished procedures in tax cases which place responsibility on theexamination and appeals personnel.

6. IRS Appeals - The new IRM provisions confirm that FBAR penaltydeterminations by the examination function will be subject to pre-collection



IRS Appeals review–like most other taxes and penalties administered bythe IRS.

7. Collection - It should be noted that unlike a tax or penalty which is subjectto collection under the Internal Revenue Code’s broad administrativecollection remedies of liens and levies, the FBAR penalty assessment is notsubject to these administrative collection remedies. Remedies available tocollect the penalty would be similar to any other creditor and enforcedcollection would require a lawsuit in federal court. This limitation on theIRS’ ability to administratively collect the FBAR penalty should providean inducement to the IRS to resolve FBAR penalty determinations in amanner which includes payment of the penalty.

8. FBAR Criminal Referrals - The IRS Criminal Investigation Division(“CI”) has authority to examine criminal FBAR violations. Acceptance byCI of an FBAR referral for criminal investigation depends on the evidenceestablishing willfulness. A Fraud Technical Advisor (FTA) can assist anexaminer in determining whether or not there is a willful violation andprovide the examiner with information concerning referrals to CI. If theexaminer considers that the case warrants referral for possible criminalinvestigation, the examiner will involve a FTA as soon as possible. If theFTA considers that criminal investigation is not appropriate, the FTA willso advise the examiner and provide a written explanation of the reason thatcriminal referral is not appropriate. The examiner may then proceed withthe FBAR case under FBAR civil procedures.

a. If there are “firm indications” of willful FBAR violations thatwarrant referral to CI, the FTA will advise the examiner. Theexaminer will prepare Form 2797, Referral Report of PotentialCriminal Fraud Cases, with a detailed explanation of the FBARviolations. If the referral of the FBAR case to CI is declined, theexaminer follows procedures where material violations exist andcivil penalties are asserted. If the referral is accepted, the examinerwill place a transmittal memorandum in file indicating acceptance,complete the FMD showing CI acceptance and forward the FMD toDCC, which will enter the information on the FBAR database andnote on the FBAR database that a follow-up FBAR civil examinationis needed and monitor the statute of limitations. After completion ofthe criminal case, the examiner will forward any delinquent or



corrected FBARs to DCC and commence any appropriate civilFBAR penalty action.

XX. CRIMINAL PROSECUTIONS

A. Background - Historically, criminal prosecutions for FBAR violations have beenrare, but we do not expect this trend to continue. Between 1996 and 1998, JusticeDepartment statistics reveal that only nine indictments were filed charging failureto comply with the FBAR disclosure requirements, and for 1999 and 2000, no onewas charged. During the period 1995 to 2002, there were only three convictions.Reasons stated by the Treasury for these low prosecutorial statistics are strictbanking secrecy laws making it difficult to obtain admissible evidence withrespect to undisclosed foreign bank accounts and prosecutorial selection ofviolations for criminal conduct associated with the concealment of foreignaccounts, such as tax evasion, fraud, money laundering, and for false statementson a tax return for failing to check the box on Schedule B (which have greater juryappeal), in lieu of failure to comply with the FBAR disclosure requirements.

B. Past Criminal Prosecutions - Most of the criminal prosecutions with respect toforeign bank accounts arose with respect to non-FBAR criminal statutes. Forexample, a taxpayer who provides a false answer to the foreign bank question onSchedule B of the for Form 1040 can be prosecuted pursuant to IRC §7206(1).That section criminally punishes a taxpayer who willfully makes and subscribesany return under penalties of perjury which he does not believe to be true andcorrect as to every material matter. A person who knowingly answers “no” on theSchedule B when the answer is “yes” runs the risk of facing prosecution under thisprovision. The Justice Department considers such conduct a basis for prosecution,as evident from its Criminal Tax Manual §12.08[6], and has brought prosecutionagainst taxpayers. Moreover, a person may not avoid criminal prosecution byfailing to provide an answer to the foreign bank account question -- failing toanswer “yes” or “no” could be considered knowingly signing a return that is nottrue and correct as to every material matter under IRC §7206(1). Also, ataxpayer’s omission from his income tax return of income from a foreign bankaccount in the form of interest, dividends or capital gains can result in criminalexposure under IRC §7201 and IRC §7206(1). Lastly, if multiple individuals areinvolved the government can also bring conspiracy charges under 18 USC §371.

C. Future Criminal Prosecutions - The criminal tax bar can expect to see a newtrend in criminal enforcement of the FBAR rules. Sections 5321 and 5322 remainviable and potent weapons that the IRS can use to reach its objective to seek out



and punish those with undisclosed foreign accounts. Any lawyer with UnitedStates clients with overseas financial accounts, including those who are beneficialowners, must consider a whole host matters in preparation for the June 30thdeadline, including determining the nature and extent of the overseas financialaccounts, who has a financial interest in the accounts, who has signatory authorityover the accounts, and what is the aggregate value of the accounts in dutifullyassessing the need to file comply with the FBAR requirements. The tax barshould be on notice that the failure to timely file the FBAR may now more thanever be the subject of a criminal prosecution in ways never previously consideredby the United States Government.

XXI. RECENT IRS INITIATIVES

A. While most IRS enforcement actions are not public because of taxpayer privacylaws, the government’s enforcement is becoming more public and seems to havean ongoing place in the pages of the New York Times and Wall Street Journal.There was a time when many U.S. taxpayers took comfort in foreign bank secrecylaws and other impediments to the IRS obtaining information on foreign incomegenerating activities. Not so any more. The “comfort” is proving to be false–especially for those taxpayers who are now in the cross-hairs of U.S. taxenforcement.

1. UBS and Liechtenstein Accounts. In February, 2008 the IRS announcedit was investigating more than 100 Americans with bank accounts inLiechtenstein. UBS AG, Switzerland’s largest bank, was investigated bythe United States into whether it helped clients evade taxes. As part of thisinvestigation, the Department of Justice is expected to seek to obtain thenames of high income United States citizens holding accounts UBS –estimated to be up to 50,000 taxpayers. Recently, the Department of Justicecharged a former UBS AG banker and a Liechtenstein consultant withhelping clients–U.S. taxpayers--avoid taxes.

2. IRS Penalty Framework Memoranda. On March 26, 2009, the IRS releasedseveral Memoranda dated March 23, 2009 announcing a “penaltyframework” for taxpayers who come forward as part of a voluntarydisclosure to address offshore tax-related issues. This penalty frameworkwas in place for about six months - from March 23, 2009 until October 15,2010. For taxpayers who have made a voluntary disclosure (likelyincluding those who began the voluntary disclosure process before theissuance of the IRS Memoranda dated March 23, 2009) the IRS has



announced it will enter into agreements to resolve tax liabilities relating tooffshore tax-related issues on the following terms:

a. The taxpayer will be required to file or amend income tax returns forsix years, including information returns and Form TD F 90-22.1Report of Foreign Bank and Financial Accounts (commonly knownas an “FBAR”), and tax and interest will be assessed for these sixyears. In cases where the offshore account was opened or theoffshore entity was formed within the past six years, the IRS willrequire filing and payment from the earliest year in issue.

b. The IRS will assess either a 20% accuracy-related or a 25%delinquency penalty on the income tax for each year. These penaltiesare based on the amount of tax determined to be due for each yearwith respect to the amended income tax returns. This is a lowerpenalty than the potentially applicable 75% civil fraud penalty.However, in many similar cases in the past, practitioners have beenable to avoid the 20% accuracy-related penalty. Participation in this“penalty framework” requires at present acceptance of thesepenalties.

c. In lieu of all other potential penalties, including the FBAR penaltyand information return penalties, the IRS will assess a additionalpenalty equal to 20% of the amount in the offshore account orforeign entity on any day during the year with the highest aggregateaccount and asset value. This penalty may be reduced to 5% underthe following very limited circumstances - if :

(1) The taxpayer did not open or cause any foreign accounts to beopened or foreign entities formed,

(2) There has been no activity in any offshore account or entity(no deposits, withdrawals, etc.) during the period theaccount/entity was controlled by the taxpayer, and

(3) All applicable U.S. taxes have been paid on the fundsdeposited in the foreign accounts/entities (where onlyaccount/entity earnings have escaped U.S. taxation).



d. IRS field personnel are authorized to enter into closing agreementswithin the foregoing guidelines. It is not clear whether there isdiscretion within the ranges between 5% and 20% for the FBARpenalty. These guidelines are new and it is not yet possible todetermine how they will ultimately be implemented by the IRS fieldpersonnel. However, in other similar situations, IRS field personnelhave interpreted such memoranda as their “marching orders” andhave moved forward without attempting to exercise any possiblediscretion.

e. These guidelines will apply only over the stated period. Theforegoing provide a degree of certainty regarding the civil penaltiesto be applied. Those not participating in the foregoing penaltyinitiative would retain the ability to argue against penalties based onreasonable cause, non-willfulness, etc. To protect the integrity of thepenalty initiative it could be difficult for the IRS to administrativelyagree to lesser penalties. However, the relevant statutes have notchanged. It is presently difficult to determine the potential resolutionof civil penalties for those who do not participate in the foregoingpenalty initiative. It is assumed that, thereafter, the IRS will requiremore significant civil penalties.

3. IRS Frequently Asked Questions Regarding Quiet Disclosures. On May 6,2009, the IRS issued Frequently Asked Questions (“FAQs”) regarding thePenalty Memoranda. Question No. 10 now seems to require an affirmativecontact of IRS criminal investigation to be deemed a “voluntary disclosure”in this context. Such a contact would require participation in their penaltyinitiative as described in Penalty Memoranda dated March 23, 2009.Importantly, with respect to “quiet” disclosures, the IRS FAQs state thatsuch disclosures run the “risk of being examined and potentially criminallyprosecuted for all applicable years. . . the IRS has identified, and willcontinue to identify, amended tax returns reporting increases and income.The IRS will be closely reviewing these returns to determine whetherenforcement action is appropriate.”

XXII. HIRE ACT OF 2010 & FACTA

A. On March 18, 2010, President Obama signed the Hiring Incentives to RestoreEmployment Act (Pub.L No. 111-14) (“HIRE Act”). The HIRE Act created taxbreaks for businesses hiring new workers through a payroll tax holiday and other



measures. To pay for these tax breaks, the HIRE Act set forth provisions thathave far reaching implications for foreign institutions that may have US clientsand broadens reporting requirements for foreign assets, through incorporation(with some modifications) of the Foreign Account Tax Compliance Act of 2009.(“FACTA”).

B. The FACTA provisions of the HIRE Act affects three areas: (1) Increasedreporting for individuals with foreign assets; (2) Substantive changes in U.S.federal income tax law; and (3) Disclosure and compliance issues for foreignfinancial institutions. This outline summaries some of the HIRE Act provisions.

C. Disclosures with Respect to Foreign Assets

1. Under existing law, every US person who has a financial interest in, orsignature authority over, bank, securities or financial accounts in a foreigncountry must file an FBAR for each calendar year in which the aggregatevalue of the accounts exceeds $10,000.

2. Foreign Asset Disclosure. Beginning with the 2011 tax year (that is, for taxyears beginning after March 18, 2010), in addition to the existing FBARreporting requirements, US individuals who hold any interest in a specifiedforeign financial asset during the tax year must attach to their tax returns forthe year certain information with respect to each asset if the aggregate valueof all assets exceed $50,000 (or a higher dollar amount prescribed by theSecretary of the Treasury). New §6038D(a).

a. Specified Foreign Financial Asset. Specified foreign financialassets, include:

(1) Depository, custodial accounts or other financial accountmaintained at a foreign financial institutions; OR

(2) To the extent not held in an account at a financial institution,

(a) Any foreign issued stock or securities

(b) Any interests in a foreign investment fund orderivatives with a foreign counterparty; OR

(c) Any interest in a foreign entity. New §6038D(b)



b. Disclosure. The information required to be disclosed must includethe maximum value of the asset during the tax year. (New§6038D(c))

(1) For financial accounts, the taxpayer must disclose the nameand address of the financial institution, and the accountnumber.

(2) For stock or security, the taxpayer must disclosure name andaddress of the issuer and such other information as isnecessary to identify the class or issue of stock

(3) In the case of any other instrument, contract or interest, ataxpayer must provide any information necessary to identifythe instrument, contract or interest, along with the names andaddresses of all issuers and counterparties.

3. Failure to Disclose Penalty. Individuals who fail to make the requireddisclosures are subject to a penalty of $10,000 for the tax year, which mayincrease to $50,000 if the failure continues for more than 90 days afternotification by the IRS. (New §6038D(d))

a. Reasonable Cause Exception. The Failure to Disclose Penalty maynot be imposed on any individual who can show that the failure isdue to reasonable cause and not willful neglect. (New §6038D(g)).The fact that a foreign jurisdiction would impose a civil or criminalpenalty on the taxpayer for disclosing is not reasonable cause.

b. In addition to the Failure to Disclose Penalty with respect to foreignassets, a 40-percent accuracy related penalty can be imposed on anyunderstatement of tax attributable to a transaction involving anundisclosed foreign financial asset (see below).

4. Comments. The new disclosure provisions of the HIRE Act not onlybroadens the reporting requirements, they also add duplication andcomplexity to an already complicated foreign financial accountingreporting regime. The FBAR reporting regime, once largely unenforced andhistorically with much regulatory or other official guidance has gainedmuch attention recently since civil enforcement was delegated to the IRS



in 2003. The new focus has shown gaps in the current reporting regimewhich the new legislation is attempting to fill. The HIRE Act, broadens thereporting requirements and extends the rules to ownership of foreign assets,such as foreign stocks or securities and interests in foreign entities, notcovered by the FBAR reporting regime. While the threshold reportingrequirement amount - $50,000 - exceeds the threshold relating to FBARs,the amount is low enough to affect many if not most taxpayers with foreignassets. Other significant differences exist. While the FBAR reportingregime covers those having signatory or other authority, the new reportingregime focuses on ownership. Unfortunately the different reportingregimes will likely create confusion among taxpayers and professionalssuggesting that the Congress will need to look at these different regimesand consolidate them in a single foreign asset reporting regime.

D. Underpayment Penalty Attributable to Undisclosed Foreign Financial Assets

1. A 40-percent accuracy-related penalty (double the otherwise applicablepenalty) is imposed for the underpayment of tax that is attributable to anundisclosed foreign financial asset understatement. New §6662(b)(7) and(j). a. For this purpose, an undisclosed foreign financial asset

understatement for any tax year is the portion of the understatementfor the year that is attributable to any transaction involvingundisclosed foreign financial asset.

b. Thus, if a taxpayer fails to disclose amounts held in a foreignfinancial account, any underpayment of tax related to the transactionthat gave rise to income would be subject to the penalty provision,as would any underpayment related to interest, dividends or otherincome accrued on such undisclosed amounts. The new 40-percentpenalty is subject to the same defenses that are otherwise availablefor §6662 penalties.

c. The penalty applies starting with tax year 2011 (i.e, tax yearsbeginning after March 18, 2010)

2. Comment The new penalty provisions of the HIRE Act are in manyrespects less draconian than the FBAR penalties and gives the IRSassessment and collection remedies unavailable with respect to the FBARpenalty. These additional Code penalties will likely create a bias within the



IRS to impose these new penalties, rather than the FBAR penalties. Itwould seem the existing FBAR penalties were more than sufficient to serveas a deterrent to the non-compliant in the wake of the current attentionforeign compliance has been afforded by the IRS. Nevertheless, thelegislation adds a new layer of penalties under the Code.

3. Comment. Unlike with a typical Internal Revenue Code tax or penaltywhich is subject to collection under the Internal Revenue Code’s broadadministrative collection remedies of liens and levies, the FBAR penalty isnot subject to these administrative collection remedies. Remedies availableto collect the FBAR penalty are limited to collection through the FinancialManagement System, which collects non-tax debts for the government andin appropriate cases, by law suits filed in federal district court. The HIREAct penalties will give the IRS the ability to assess and collect these newpenalties through its broad administrative powers, including levy and lien.

4. Comment. The new penalties under the Hire Act are more calibratedtoward the understatement of tax and impose a lesser burden of proof andthreshold for imposition of the penalty than the willful FBAR penalty. Onthe other hand the new penalties are less draconian than the willful FBARpenalty and are not as vulnerable to challenges of excessiveness under theEight Amendment Excessive Fine Clause.

E. Six Year Statute of Limitations for Omission of Income Relating to ForeignAssets

1. The statute of limitations for assessment of tax is extended to six years ifthere is an omission of gross income in excess of $5,000 attributable to aforeign financial asset with respect to which:

a. Information reporting is required under New §6038D, or

b. Information would be required if §6038D were applied withoutregard to the $50,000 aggregate asset value threshold amount andany other exceptions provided by the IRS regulations in the case ofduplicative disclosure of certain classes of assets. (New§6501(e)(1)(A))



2. The statute of limitations period will be suspended if a taxpayer fails totimely provide information with respect to foreign financial assets requiredto be reported under New §6038D. Thus, the limitations period will notbegin to run until the information required by these provision has beenfurnished to the IRS.

3. The new six year statute of limitations applies not only to returns filed afterMarch 18, 2010 on which the taxpayer fails to report income in excess of$5,000 attributable to foreign financial assets, but also to returns filed onor before that date for which the statute of limitations (determined withoutreference to the change) is still open on that date.

a. For example, a 2006 return filed in 2007, on which the taxpayerfailed to report more than $5,000 of income attributable to a foreignfinancial asset, will be subject to the new six year statute oflimitations, instead.



4. Comment. The new six year statute of limitations for omission of incomegives the IRS a new tool even in situations where only a smaller amount ofincome (more than $5,000) from foreign assets has been omitted by thetaxpayer. Historically, the extended statute of limitations was reserved forthe most egregious situations, such as omissions of income exceeding 25%of reported income. Congress has made a policy decision that foreigncompliance presents enforcement obstacles for the IRS justifying increasedtime to detect non-compliance. The suspension of the statute of limitationsindefinitely where the taxpayer has failed to disclose the foreign assets isconsistent with legislative changes over the years of indefinitely suspendingthe statute of limitations where the taxpayer fails to comply with disclosurerequirements.

F. New Trust Rules

1. The Hire Act amends several provisions relating to foreign trusts.

a. Foreign Trusts Treated as Having a US Beneficiary. The HIRE Actcontains a broad interpretation of who is deemed to be a USbeneficiary of a foreign trust, which may result in more individualsbeing treated as the grantors (i.e., owners for income tax purposes)of foreign trusts. Specifically, the presumption that a foreign trusthas a US beneficiary contained in the regulations has been added tothe Internal Revenue Code.

(1) Generally, for any US person who directly or indirectlytransfers property to a foreign trust, the IRS may treat the trustas having a US beneficiary for purposes of applying theserules to the transfer, unless the US persons:

(a) Submits to the IRS any information that the IRS mayrequire regarding the transfer, and

(b) Demonstrates to the IRS’s satisfaction that

i) No part of the trust’s income or corpus maybenefit a US person under the terms of the trust,AND



ii) No part of the trust’s income or corpus maybenefit a US person if the trust were terminated.New §679(d)

(2) The provision creating the rebuttable presumption allowingthe IRS to treat foreign trusts as having a US beneficiaryapplies to transfers of property after March 18, 2010.

b. Use of Foreign Trust Property

(1) The distribution treatment of foreign trust transactions hasbeen expanded to include the uncompensated use of propertyby certain US persons.

(2) The uncompensated use of foreign trust property by a USgrantor, US beneficiary, or a US person related to either ofthem is treated as a distribution by the trust for non-grantortrust purposes. The loan of cash or marketable securities bya foreign trust, or the use of any other property of the trust, toor by any US person is also treated as paid or accumulated forthe benefit of a US person, for purposes of applying thegrantor income tax rules. New §643(i).

(a) As such, US individuals who have been enjoying rent-free use of real estate owned by a foreign non-grantortrust may no longer be able to use such property freefrom rent without tax consequences.

(3) This provisions apply to loans made, and uses of property,after March 18, 2010.

c. Failure to Satisfy Trust Reporting Requirements

(1) The Hire Act increases the minimum penalty for the failure tosatisfy the reporting obligations for foreign trusts under§6048. New §6677(a). The maximum penalty has beenmodified so that the aggregate of all penalties respect to suchfailure cannot exceed the gross reportable amount. New §6677(a).



(2) If any notice required to be filed under §6048 is not filed onor before the due date or does not include all the informationthat is required or includes incorrect information, then theperson required to file such notice or return must pay apenalty equal to the greater of:(a) $10,000

(b) 35% of the gross reportable amount (or 5% for USpersons treated as owners of the trust)

(3) Prior to the change, the penalty for failure to provide therequired information or failure to file was simply equal to35% of the gross reportable amount (5% for US personstreated as owners of the trust). With the new minimumamount, the IRS will be able to impose a $10,000 penalty evenwhen there is not enough information to determine the grossreportable amount.

(4) This provision applies to notices and returns required to befiled after December 31, 2009.

G. Withholding on Payments to Foreign Financial Institutions

1. In General. For payments made after December 31, 2012, the HIRE Actprovides for withholding taxes to enforce reporting requirements on certainforeign accounts owned by specified US persons or US-owned foreignentities. The HIRE Act requires withholding agents to withhold 30% ofwithholdable payments from sources within the US made to a foreignfinancial institution or non-financial foreign entity, unless specific reportingrequirements are met. New §§1471(a) and 1472(a)

a. Comment. This provision should result in increased disclosure ofUS accounts by foreign financial institutions. However, the FACTAobligations may cause institutions to carefully consider the costs andbenefits of doing business in the United States or with US Persons.

2. Withholdable payments. Withholdable payments are any payments ofinterest, dividends, rents, salaries, wages or other fixed or determinableannual periodic gains or income from sources within the United States.New §1473(1)(A).



3. Withholding Agent. A withholding agent includes any person in whatevercapacity having control, receipt, custody, disposal or payment of anywithholdable payment. New §1473(4)

4. Foreign Financial Instiution. A foreign financial institution means anyfinancial institution that is a foreign entity, but excludes any financialinstitution organized under the laws of any US possession. New§1471(d)(4)

5. Exception. No withholding is required if an agreement is in effect betweenthe foreign financial institution and the IRS where the institution agrees to:

a. Obtain information regarding account holders that is necessary todetermine which accounts are US accounts;

b. Comply with verification and due diligence procedures as the IRSrequires with regard to identification of US accounts;

c. Report annually certain information on any US account;

d. Deduct and withhold a 30-percent tax with respect to certainrecalcitrant account holders;

e. Comply with any requests by the IRS for additional informationregarding any US accounts maintained at the institution; AND

f. Attempt to obtain a waiver in any case where any foreign law wouldprevent the reporting of information required by this provision withrespect to any US account. New §1471(b)(1)

6. Reporting Requirement. A foreign financial institution that is a party to anagreement with the IRS must report the following information regardingeach US account maintained by the institution:

a. The name, address and TIN of each US person account holder;

b. The name, address and TIN of each substantial U.S. owner (i.e.,generally more than 10% owner) of any account holder that is a USowned foreign entity;



c. The account number;

d. The account balance as of the time prescribed by the IRS; and

e. The gross receipts and gross withdrawals form the account in themanner prescribed by the IRS. New §1471(c)(1).

7. Every person required to deduct and withhold any tax to enforce reportingon certain foreign accounts is liable for the tax and will be indemnifiedagainst claims and demands of anyone for the amount of payment.

8. The provisions generally apply to payments made after December 31, 2012.

APPENDIX

4 I.R.S. SPECIFICATIONS TO BE REMOVED BEFORE PRINTING

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

TLS, have youtransmitted all R text files for this cycle update?

Date

Action

Revised proofsrequested

Date

Signature

O.K. to print

INSTRUCTIONS TO PRINTERSFORM TD F 90-22.1, PAGE 1 of 10MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES. PRINTS: HEAD TO HEADPAPER: WHITE WRITING, SUB. 20. INK: BLACKFLAT SIZE: 406mm (16") 3 279mm (11"), FOLD TO 203mm (8") 3 279mm (11")PERFORATE: ON FOLD

OMB No. 1545-2038 REPORT OF FOREIGN BANK

AND FINANCIAL ACCOUNTS

TD F 90-22.1

Department of the Treasury

Do NOT file with your Federal Tax Return

Type of Filer

Filer Information

Form TD F 90-22.1 (Rev. 10-2008)

Information on Financial Account(s) Owned Separately

This form should be used to report a financial interest in, signature authority, or other authority over one or more financial accounts in foreigncountries, as required by the Department of the Treasury Regulations (31 CFR 103). No report is required if the aggregate value of the accountsdid not exceed $10,000. See Instructions For Definitions.

Cat. No. 12996D

Part I

Part II

1 This Report is for CalendarYear Ended 12/31

a

Individual

b

Partnership

c

Corporation

d

Consolidated

U.S. Taxpayer Identification Number

Last Name or Organization Name

Address (Number, Street, and Apt. or Suite No.)

City

Does the filer have a financial interest in 25 or more financial accounts?

(Rev. October 2008)

Foreign identification (Complete only if item 3 is not applicable.)

Maximum value of account during calendar year reported

Name of Financial Institution in which account is held

Account number or other designation

City

2

3

6

9

10

14

15

17

18

20

4

Individual’s Date of BirthMM/DD/YYYY

5

a

Number

c

Country of Issue

b

Type:

Passport

Other

Middle Initial

8

First Name

7

(If “Yes” is checked, do not complete Part II or Part III, but retain records of this information)

Yes

No

If “Yes” enter total number of accounts

State

11

Zip/Postal Code

12

Country

13

State, if known

21

Zip/Postal Code, if known

22

Country

23

Mailing Address (Number, Street, Suite Number) of financial institution in which account is held

19

Filer Signature

Filer Title, if not reporting a personal account

Date (MM/DD/YYYY)

Pursuant to the requirements of Public Law 93-579 (Privacy Act of 1974), notice is hereby given that the authority to collect information on TD F90-22.1 in accordance with 5 USC 552a (e) is Public Law 91-508; 31 USC 5314; 5 USC 301; 31 CFR 103.

The principal purpose for collecting the information is to assure maintenance of reports where such reports or records have a high degree ofusefulness in criminal, tax, or regulatory investigations or proceedings. The information collected may be provided to those officers andemployees of any constituent unit of the Department of the Treasury who have a need for the records in the performance of their duties. Therecords may be referred to any other department or agency of the United States upon the request of the head of such department or agency foruse in a criminal, tax, or regulatory investigation or proceeding. The information collected may also be provided to appropriate state, local, andforeign law enforcement and regulatory personnel in the performance of their official duties. Disclosure of this information is mandatory. Civil andcriminal penalties, including in certain circumstances a fine of not more than $500,000 and imprisonment of not more than five years, areprovided for failure to file a report, supply information, and for filing a false or fraudulent report. Disclosure of the Social Security number ismandatory. The authority to collect is 31 CFR 103. The Social Security number will be used as a means to identify the individual who files thereport.

Type of account

16

Bank

Other—Enter type below

a

Securities

b

c

If filer has no U.S. IdentificationNumber complete Item 4.

PRIVACY ACT AND PAPERWORK REDUCTION ACT NOTICE

File this form with: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621

The estimated average burden associated with this collection of information is 20 minutes per respondent or record keeper, depending onindividual circumstances. Comments regarding the accuracy of this burden estimate, and suggestions for reducing the burden should bedirected to the Internal Revenue Service, Bank Secrecy Act Policy, 5000 Ellin Road C-3-242, Lanham MD 20706.

e

Fiduciary or Other—Enter type

Do not use previous editions ofthis form after

December 31, 2008

Signature 44

45

46

Amended

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INSTRUCTIONS TO PRINTERSFORM TD F 90-22.1, PAGE 2 OF 10MARGINS; TOP 13mm (1⁄ 2 "), CENTER SIDES. PRINTS: HEAD TO HEADPAPER: WHITE WRITING, SUB. 20. INK: BLACKFLAT SIZE: 216mm (81⁄ 2 ") x 279mm (11")PERFORATE: ON FOLD




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c




City

15

17

18

20

State, if known

21

22

Country

23


19

Type of account

16

Bank


a

Securities

b

c



City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c

Continued—Information on Financial Account(s) Owned Separately

This side can be copied as many times as necessary in order to provide information on all accounts.

Filing for calendaryear

1

Taxpayer Identification Number

3–4


6

Form TD F 90-22.1

Foreign Identification Number

Page Number of

Check appropriate Identification Number

Enter identification number here:

Form TD F 90-22.1 (Rev. 10-2008)

Complete a Separate Block for Each Account Owned Separately

Part II

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City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c

Number of joint owners for this account

Last Name or Organization Name of principal joint owner

Address (Number, Street, Suite or Apartment) of principal joint owner, if known

City, if known

24

26

29

30

State, if known

31


32

Country, if known

33

Information on Financial Account(s) Owned Jointly


Taxpayer Identification Number of principal joint owner, if known. See instructions

25

First Name of principal joint owner, if known

27

Middle initial, ifknown

28

Part III




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


City, if known

24

26

29

30

State, if known

31


32

Country, if known

33


25


27


28




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


City, if known

24

26

29

30

State, if known

31


32

Country, if known

33


25


27


28






1


3–4


6

Form TD F 90-22.1


Page Number of



Form TD F 90-22.1 (Rev. 10-2008)

Complete a Separate Block for Each Account Owned Jointly

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City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c

Last Name or Organization Name of Account Owner

First Name

Filer’s Title with this Owner

City

34

36

43

39

State

Zip/Postal Code

41

Country

42

Information on Financial Account(s) Where Filer has Signature or OtherAuthority but No Financial Interest in the Account(s)



38

Middle initial

37

Part IV

Taxpayer Identification Number of Account Owner

35




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


First Name


City

State

Zip/Postal Code

Country


Middle initial





City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


First Name


City

State

Zip/Postal Code

Country


Middle initial


40

34

36

43

39

41

42

38

37

35

40

34

36

43

39

41

42

38

37

35

40


1


3–4


6

Form TD F 90-22.1


Page Number of



Form TD F 90-22.1 (Rev. 10-2008)

Complete a Separate Block for Each Account

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City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c

Corporate Name of Account Owner

City

34

39

State

40

Zip/Postal Code

41

Country

42

Information on Financial Account(s) Where Corporate Filer Is Filing aConsolidated Report



38


35

Part V




City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


City

State

Zip/Postal Code

Country






City

15

17

18

20

State, if known

21


22

Country

23


19

Type of account

16

Bank


a

Securities

b

c


City

State

Zip/Postal Code

Country



34

39

40

41

42

38

35

34

39

40

41

42

38

35


1


3–4


6

Form TD F 90-22.1


Page Number of



Form TD F 90-22.1 (Rev. 10-2008)

Complete a Separate Block for Each Account

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An officer or employee of a domestic corporation whoseequity securities are listed upon any United States nationalsecurities exchange or which has assets exceeding $10million and has 500 or more shareholders of record need notfile such a report concerning signature or other authority overa foreign financial account of the corporation, if he has NOpersonal financial interest in the account and he has beenadvised in writing by the chief financial officer or similarresponsible officer of the corporation that the corporation hasfiled a current report, which includes that account. An officeror employee of a domestic subsidiary of such a domesticcorporation need not file this report concerning signature orother authority over the foreign financial account if thedomestic parent meets the above requirements, he has nopersonal financial interest in the account, and he has beenadvised in writing by the responsible officer of the parent thatthe subsidiary has filed a current report which includes thataccount. If a United States subsidiary is named in aconsolidated FBAR of the parent, the subsidiary will bedeemed to have filed a report for purposes of this exception.An officer or employee of a foreign subsidiary more than50% owned by such a domestic corporation need not filethis report concerning signature or other authority over theforeign financial account if the employee or officer has nopersonal financial interest in the account, and he has beenadvised in writing by the responsible officer of the parent thatthe parent has filed a current report which includes thataccount. General Definitions United States Person. The term “United States person” means a citizen or resident of the United States, or a personin and doing business in the United States. See 31 C.F.R.103.11(z) for a complete definition of “person.” The UnitedStates includes the states, territories and possessions of theUnited States. See the definition of United States at 31C.F.R. 103.11(nn) for a complete definition of United States.A foreign subsidiary of a United States person is not requiredto file this report, although its United States parentcorporation may be required to do so. A branch of a foreignentity that is doing business in the United States is requiredto file this report even if not separately incorporated underU.S. law.

Account in a Foreign Country. A “foreign country” includesall geographical areas located outside the United States. See“United States Person” above 31 C.F.R. 103.11(nn) for adefinition of United States. The geographical location of theaccount, not the nationality of the financial entity institution inwhich the account is found determines whether it is in anaccount in a foreign country. Report any financial account(except a military banking facility) that is located in a foreigncountry, even if it is held at an affiliate of a United Statesbank or other financial institution. Do not report any accountmaintained with a branch, agency, or other office of a foreignbank of other institution that is located in the United States. Military Banking Facility. Do not consider as an account ina foreign country, an account in an institution known as a“United States military banking facility” (or “United Statesmilitary finance facility”) operated by a United States financialinstitution designated by the United States Government toserve U.S. Government installations abroad, even if theUnited States military banking facility is located in a foreignCountry, is not an account in a foreign country. Financial Interest. A financial interest in a bank, securities,or other financial account in a foreign country means aninterest described in one of the following three paragraphs: 1. A United States person has a financial interest in eachaccount for which such person is the owner of record or haslegal title, whether the account is maintained for his or herown benefit or for the benefit of others including non–UnitedStates persons. 2. A United States person has a financial interest in eachbank, securities, or other financial account in a foreigncountry for which the owner of record or holder of legal titleis: (a) a person acting as an agent, nominee, attorney, or insome other capacity on behalf of the U.S. person; (b) acorporation in which the United States person owns directlyor indirectly more than 50 percent of the total value of sharesof stock or more than 50 percent of the voting power for allshares of stock; (c) a partnership in which the United Statesperson owns an interest in more than 50 percent of theprofits (distributive share of income, taking into account anyspecial allocation agreement) or more than 50 percent of thecapital of the partnership; or (d) a trust in which the UnitedStates person either has a present beneficial interest, eitherdirectly or indirectly, in more than 50 percent of the assets orfrom which such person receives more than 50 percent ofthe current income.

Form TD F 90-22.1 (Rev. 10-2008)

Page 6

3. A United States person has a financial interest in eachbank, securities, or other financial account in a foreigncountry for which the owner of record or holder of legal titleis a trust, or a person acting on behalf of a trust, that wasestablished by such United States person and for which atrust protector has been appointed. A trust protector is aperson who is responsible for monitoring the activities of atrustee, with the authority to influence the decisions of thetrustee or to replace, or recommend the replacement of, thetrustee. Correspondent or “nostro” accounts (internationalinterbank transfer accounts) maintained by banks that areused solely for the purpose of bank-to-bank settlement need

General Instructions Who Must File this Report. Each United States person whohas a financial interest in or signature or other authority overany foreign financial accounts, including bank, securities, orother types of financial accounts, in a foreign country, if theaggregate value of these financial accounts exceeds $10,000at any time during the calendar year, must report thatrelationship each calendar year by filing this report with theDepartment of the Treasury on or before June 30, of thesucceeding year. Exceptions An officer or employee of a bank which is currently examinedby Federal bank supervisory agencies for soundness andsafety need not report that he has signature or otherauthority over a foreign bank, securities or other financialaccount maintained by the bank, if the officer or employeehas NO personal financial interest in the account.

checking, deposit, time deposit, or any other account(including debit card and prepaid credit card accounts)maintained with a financial institution or other personengaged in the business of a financial institution. Individualbonds, notes, or stock certificates held by the filer are not afinancial account nor is an unsecured loan to a foreign tradeor business that is not a financial institution.

Financial Account. This term includes any bank, securities,securities derivatives or other financial instruments accounts.Such accounts generally also encompass any accounts inwhich the assets are held in a commingled fund, and theaccount owner holds an equity interest in the fund (includingmutual funds). The term also means any savings, demand,

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Form TD F 90-22.1 (Rev. 10-2008)

Page 7

When and where to file. This report must be filed on orbefore June 30 of the year following the calendar yearreported. The report is required annually. File by mailing thisreport to the Department of the Treasury, Post Office Box32621, Detroit, MI 48232-0621, or by hand-carrying it to anylocal office of the Internal Revenue Service for forwarding tothe Department of the Treasury, Detroit, MI. Tax attaches arelocated in the U.S. embassies in some countries. A filer canreceive instructions for verifying that a report has been filedby calling the Detroit Computing Center Hotline at1-800-800-2877. Extensions of time to file federal tax returns do not extendthe time for filing this report. There is no extension of timeavailable for filing this report. If a delinquent FBAR is filed,also attach a statement explaining the reason for the latefiling. See “When and where to file” (above) for filinginstructions.

Filing Information—Do NOT file with yourFederal Income Tax Return

An amendment of a previously filed FBAR is accomplishedby checking the “Amended” box in the upper right handcorner of the first page of the form, making the neededadditions or corrections, and then stapling it to a copy of theoriginal form. Please also attach a statement explaining thechanges. See “When and where to file” (above) for filinginstructions.

Explanations for Specific Items Part I

Check box “d” in Item 2 and complete Part V.Consolidated reports should be signed by an authorizedofficial of the parent corporation. Trusts and other entities,including tax-exempt organizations, should check box “e” and describe the filer on the line following box “e.”

Item 5. Enter the date of birth of the filer using the month,day, and year convention. Items 6, 7 and 8. Enter the name of the filer. An organizationshould enter its name in the Last Name space. Items 9, 10, 11, 12 and 13. Enter the address of the filer. Anindividual filer residing in the United States should enter thestreet address of filer’s United States residence, not a postoffice box. An individual filer residing outside the UnitedStates should enter the filer’s United States mailing address.If the filer has no U.S. mailing address the filer may provide aforeign address. An organization should enter its UnitedStates mailing address. Item 14. If the filer has a financial interest in 25 or moreforeign financial accounts, the filer should check the yes box,sign and date the report (Items 44, 45 and 46) and leaveblank Part II (Continuation of Separate Accounts) or Part III(Joint Accounts) of the report. If the group of entities coveredby a consolidated report has a financial interest in 25 ormore foreign financial accounts, the reporting parentcorporation need only complete Part V (for consolidatedreporting) Items 34 through 42, for the identity information ofthe account owners, but need not complete the accountinformation. Detailed information about each account,including all information called for on this report, must berecorded and retained for five years from June 30 of the yearfollowing the calendar year reported. Any person who reports25 or more foreign financial accounts must provide all theinformation omitted from Part II, III or V as appropriate.

Item 1. The Report of Foreign Bank and Financial Accounts(FBAR) is an annual report. Enter the calendar year beingreported.

Item 3. A filer should provide the filer’s taxpayer identificationnumber. Generally this is the filer’s U.S. social securitynumber (SSN) or employer identification number (EIN).Numbers should be entered with no spaces, dashes, or otherpunctuation throughout this report. If the filer does notpossess such U.S. identification, the filer should completeItem 4. Item 4. Complete Item 4 only if the filer has no U.S. taxpayeridentification number. Item 4 requires the filer to provide theinformation about an official foreign government documentevidencing the filer’s nationality or residence. The filer shouldwrite in the document number followed by the country ofissuance. The filer may check off the type of document. If“other”’ is checked, the filer should write in the type ofdocument. For example, an individual who is not a U.S.citizen would provide a passport number, the name of thecountry of issuance, and check off “passport.”

Part II

Record Keeping Requirements. If this Report is required,certain records must be retained. Such records must containthe name in which each such account is maintained, thenumber or other designation of such account, the name andaddress of the foreign bank or other person with whom suchaccount is maintained, the type of such account, and themaximum value of each account during the reporting period.Retaining filed copies of this report will help to meet theserequirements. The records must be retained for a period offive years and must kept at all times available for inspectionas provided by law.

not be reported on this form, but are subject to other BankSecrecy Act filing requirements. This exception is intended toencompass those accounts utilized for bank-to-banksettlement purposes only. Signature or Other Authority Over an Account. A personhas signature authority over an account if such person cancontrol the disposition of money or other property in it bydelivery of a document containing his or her signature (or hisor her signature and that of one or more other persons) tothe bank or other person with whom the account ismaintained. Other authority exists in a person who canexercise comparable power over an account bycommunication with the bank or other person with whom theaccount is maintained, either directly or through an agent,nominee, attorney, or in some other capacity on behalf of theU.S. person, either orally or by some other means.

Amendment of a previously filed FBAR is accomplished bychecking the “Amended” box in the upper right hand cornerof the first page of the form, making the needed additonsand corrections, and then stapling it to a copy of the originalreport. See “When and where to file” (above) for filinginstructions.

Item 2. Check the appropriate box describing the filer. Acorporation which owns directly or indirectly more than a 50percent interest in one or more other entities required to filethis Report will be permitted to file a consolidated report onTD F 90-22.1, on behalf of itself and such other entities.

Item 15. Provide the maximum value of the account duringthe calendar year being reported. The maximum value of anaccount is the largest amount of currency or non-monetaryassets that appear on any quarterly or more frequent accountstatement issued for the applicable year. If periodic accountstatements are not issued, the maximum account asset valueis the largest amount of currency and non-monetary assets inthe account at any time during the year. Convert foreigncurrency by using the official exchange rate at the end of theyear. In valuing currency of a country that uses multiple

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APPENDIX PAGE A-7



INSTRUCTIONS TO PRINTERSFORM TD F 90-22.1, PAGE 8 OF 10 (PAGES 9 & 10 ARE BLANK)MARGINS; TOP 13mm (1⁄ 2 "), CENTER SIDES. PRINTS: HEAD TO HEADPAPER: WHITE WRITING, SUB. 20. INK: BLACKFLAT SIZE: 216mm (81⁄ 2 ") x 279mm (11")PERFORATE: ON FOLD

Form TD F 90-22.1 (Rev. 10-2008)

Page 8

Items 25—33. Enter this identity information about the jointowner. If there is more than one joint owner, enter theidentity information about the principal joint owner. The filermay leave blank items for which no information is available.A spouse having a joint financial interest in an account withthe filing spouse should be included as a joint account ownerin Part III of this report. The filer should write (spouse) onLine 26 after the last name of the joint spousal owner. If theonly reportable accounts of the filer’s spouse are thosereported as joint accounts, the filer’s spouse need not file aseparate report. If the accounts are owned jointly by bothspouses, the filer’s spouse should also sign the report. Seethe instructions for Item 44. If the filer’s spouse has afinancial interest in other accounts that are not jointly ownedwith the filer or has signature or other authority over otheraccounts, the filer’s spouse should file a separate report forall accounts including those owned jointly with the otherspouse.

Item 43. Enter filer’s title for the position which gives himauthority over the account.

A corporation which owns directly or indirectly more than a50 percent interest in one or more other entities required tofile this report will be permitted to file a consolidated reporton TD F 90-22.1, on behalf of itself and such other entities.Check box “d” in Item 2 in Part I and complete Part V.

Signatures This report must be signed by the person named in Part I. Ifthe report is being filed on behalf of a partnership,corporation, fiduciary or other legal entity, it must be signedby an authorized individual. Consolidated reports should besigned by an authorized official of the parent corporation.Enter the title of the individual signing for a legal entity, suchas a corporation, which is shown as the filer. A spouseincluded as a joint owner, who elects not to file a separatereport in accordance with the instructions in Part III, mustalso sign this report. See the instructions for Part III.

Printed on Recycled Paper

Part IV—No Financial Interest in Account Items 34-42. You must provide the name, address, andidentifying number of the owner of a foreign financial accountover which you had signature or other authority but no

Part V—Consolidated Report for CorporateParent & Subsidiary Corporations

Items 34—42. You must provide the corporate name,identifying number and address of the owner of the foreignfinancial account as shown on the books of the financialinstitution. If you complete the account information for more than oneaccount of the same owner you need identify the owner onlyonce. Write “Same Owner” in Item 34 for the succeedingaccounts of the same owner.

Item 16. Indicate the type of account. If “Other” is selecteddescribe the account. Item 17. Provide the name of the financial institution withwhich the account is held. Item 18. Provide the account number which the financialinstitution uses to designate the account. Item 19—23. Provide the complete mailing address of thefinancial institution where the account is located. If theforeign state or postal code is not known leave them blank. Part III Item 24. Enter the number of joint owners for the account. Ifthe exact number is not known, provide an estimate. Indetermining the number of joint owners, the filer is notcounted.

exchange rates, use the rate which would apply if thecurrency in the account were converted into United Statesdollars at the close of the calendar year. The value of stock,other securities, or other non-monetary assets in an accountreported on TD F 90-22.1 is the fair market value at the endof the calendar year or, if withdrawn from the account, at thetime of the withdrawal. For purposes of Item 15, if the filerhad a financial interest in more than one account, eachaccount is to be valued separately in accordance with theforegoing two paragraphs. If the filer had a financial interestin one or more but fewer than 25 accounts, and is unable todetermine whether the maximum value of these accountsexceeded $10,000 at any time during the year, complete PartII, III, or V for each of these accounts and enter “valueunknown” in Item 15 for these accounts.

financial interest in the account. If there is more than oneowner of the account over which you have authority,providethe information in Items 34-43 for the primary ownerfor which you have authority. If you complete the accountinformation for more than one account of the same owner,you need identify the owner only once. Write “Same Owner” in Item 34 for the succeeding accounts of the same owner.

Enter the title of the individual signing for a legal entity,such as a corporation, which is shown as the filer. Leave“Filer’s Title” blank if the filer is only reporting as anindividual. An individual filing because of a financial interestin his individual accounts is filing as an individual. Anindividual filing because of signature or other authority over aforeign financial account is filing as an individual. If the fileronly has signature authority over the account, he shouldenter his title in Part IV Item 43, Filer’s Title with this Owner,to show his relationship to the account. Enter the actual datesigned.

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APPENDIX PAGE A-8

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WK iRS Rulfngs Other Documents 2C02~CufTent Intemal Revenue Sentice Financial Crrmes Enforcement Network Proposed Rule RfN 1506·A80S TD RfN-1506-ABpdf

Financial Crimes Enforcement Network Proposed Rule, RIN 1506-AB08, T.D. RIN-1506-AB08, Internal Revenue Service, (Feb. 26, 2010)

Financial Crimes Enforcement Network Proposed Rule. RIN 1506-AB08, published in the Federal Register on February 26.2010.

[31 USC 5318]

Foreign financial accounts: Reporting requirements: FBAR: Revisions.-Amendments of Reg. §103.24, which will revise the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts, are proposed. The text is at

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN, a bureau of the Department of the Treasury (Treasury), is proposing to revise the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts. The proposed rule would clarify which persons will be required to file reports of foreign financial accounts and which accounts will be reportable. In addition, the proposed rule would exempt certain persons with signature or other authority over foreign financial accounts from filing reports and would include provisions intended to prevent United States persons from avoiding this reporting requirement.

DATES: Written comments on the notice of proposed rulemaking may be submitted on or before [INSERT DATE 60 DAYS FOLLOWING PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].

ADDRESSES: You may submit comments. identified by RIN 1506- AB08, by any of the following methods:

Federal e-rulemaking portal: http://www.regulations.gov. Refer to Docket Number Fincen-2009-0008 and follow the instructions for submitting comments. Mail: FinCEN.P.O.Box39.Vienna.VA 22183. Include RIN 1506- AB08 in the body of the text.

Inspection of comments: Comments may be inspected. between 10 a.m. and 4 p.m .. in the FinCEN reading room in Vienna, VA. Persons wishing to inspect the comments submitted must request an appointment with the Disclosure Officer by telephoning (703) 905-5034 (not a toll free call).

FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs Division. FinCEN (800) 949-2732 and select option 1.

SUPPLEMENTARY INFORMATION:

I. Introduction

The provision of the BSA authorizing reports of foreign financial accounts reflects congressional concern that foreign financial institutions were being used to evade domestic criminal, tax, and regulatory laws. The House report on the bill leading to the enactment of the BSA described the use of undisclosed foreign

financial accounts for a wide range of abuses. 1 Nearly four decades after the enactment of the BSA, foreign financial accounts continue to be used for many of the abuses cataloged by Congress when it was originally considering the enactment of the BSA. For example, the Senate Permanent Subcommittee on Investigations has found that Americans have continued to use complex schemes to try to conceal their

foreign financial accounts in attempts to circumvent United States law.

Considerable effort has been made to address these abuses. The Internal Revenue Service p1(;.rniniP has several focused on the use offshore accounts to evade federal income taxes.

Background

A. Statutory and Regulatory Background

authorizes the """"<>1<",,,, records and file reports that are

WK_ iRS Rulings Other Documents 20()2~Current Internal Revenue Service Financiai Cnmes Enforcement Network Propo$fJ(j Rute RfN 1506~ABrJ8 TD RfN-15()6~ABpdf

determined to have a high degree of usefulness in criminal, tax, regulatory, and counter-terrorism matters. The regulations implementing the BSA appear at 31 CFR Part 103. The Secretary's authority to administer the BSA has been delegated to the Director of FinCEN.

Under 31 U .S.C. 5314 the Secretary is authorized to require any "resident or citizen of the United States, or a person in, and doing business in, the United States, to .. , keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency." For this purpose, foreign financial agency means "a person acting for a person as a financial institution bailee, depository trustee or agent, or acting in a similar way related to money, credit, securities, gold, or in a

transaction in money, credit, securities or gOld." The Secretary is also authorized to prescribe exemptions to the reporting requirement and to prescribe other matters the Secretary considers necessary to carry out section 5314.

B. Overview of Current Regulations and Form

The regulations implementing 31 U.S.C. 5314 appear at 31 CFR 103.24, 103.27, and 103.32. Section 103.24 generally requires each person subject to the jurisdiction of the United States having a financial interest in or signature or other authority over a bank, securities, or other financial account in a foreign country to "report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists, and ... provide such information as shall be specified in a reporting form prescribed by the Secretary to be filed by such persons." Section 103.27 requires the form to be filed with respect to foreign financial accounts exceeding $10,000. The form must be filed on or before June 30 of each calendar year for accounts maintained during the previous calendar year. Section 103.32 requires records of accounts to be maintained for each person having a financial interest in or signature or other authority over such

account. The records must be maintained for a period of five years. 4

The form used to file the report required by section 103.24 is the Report of Foreign Bank and Financial

Accounts - Form TO F 90-22.1 (the FBAR). The instructions to the FBAR specify which persons must file as well as the types of accounts that must be reported. The instructions also provide exemptions from reporting for certain persons with Signature or other authority over the accounts.

The authority to enforce the provisions of 31 U.S.C. 5314 and sections 103.24 and 103.32 has been redelegated from FinCEN to the Commissioner of Internal Revenue by means of a Memorandum of Agreement

between FinCEN and the IRS dated April 2, 2003. 6 With this delegation, FinCEN conferred upon the IRS the authority to enforce the FBAR provisions of the BSA and its implementing regulations, investigate possible violations, and assess and collect civil penalties in connection therewith. The delegation also conferred upon the IRS the authority to: (1) respond to public inquiries and requests for advice; (2) issue administrative rulings; and (3) provide related assistance to the public with respect to compliance with FBAR requirements. Finally, the delegation conferred upon the IRS the authority to revise the FBAR form and instructions, and to propose to FinCEN revisions of the applicable regulations for the purpose of enhancing FBAR compliance and enforcement.

A revised Form TO F 90-22.1 that modified several aspects of the FBAR form instructions was issued in October 2008. Most notably, the revised FBAR form instructions broadened the definition of "United States

person" to conform more closely to the FBAR's authorizing statute, and sought to clarify the scope of foreign financial accounts that trigger FBAR filing requirements. In the ensuing months, the IRS received a number of questions and comments seeking guidance on compliance with the revised FBAR instructions. In response to these comments, the IRS published guidance indicating that until further notice, all persons may

on the definition of "United States found in the prior version of the FBAR instructions from 2000. The IRS also extended the FBAR deadline for the 2008 and earlier calendar to

2009 certain

regarding: (1 when a person with signature or other authority over, but no financial interest in, a foreign financial account should be relieved of filing an FBAR for the account; whether to the

WK~ IRS Ruflngs Other Documents 2002·Current fntemaf Revenue SeNtee Financ/a! Cnmes Enforcement Network Proposed Rule RIN 1506-AB08 TO RIN-1506-AB.pdf

exemption currently available to officers and employees of banks and certain publicly traded domestic companies, where such officers and employees have signature or other authority over their employer's

accounts; and (3) when an interest in a foreign entity should trigger an FBAR filing requirement.

III. Section-by-Section Analysis

The proposed rule would include a definition of United States persons and definitions of bank, securities, and other financial accounts in a foreign country. FinCEN believes that inclusion of these definitions will more clearly delineate both the scope of individuals and entities that would be required to file the FBAR and the types of accounts for which such reports should be made, so that determining a person's filing obligations will be more straightforward and predictable. In addition, the proposed rule would exempt certain persons with signature or other authority from filing the FBAR. Finally, the proposed rule would include provisions intended to prevent United States persons required to file the FBAR from avoiding this reporting requirement.

A. § 103.24(a)-ln general

FinCEN proposes to amend 31 CFR 103.24 by using a new term "United States person" to indicate persons that would be required to file an FBAR.

B. § 103. 24(b)-United States person

FinCEN proposes to define a United States person as a citizen or resident of the United States, or an entity, including but not limited to a corporation, partnership, trust or limited liability company, created, organized, or formed under the laws of the United States, any state, the District of Columbia, the Territories and Insular Possessions of the United States or the Indian Tribes. This definition applies to an entity regardless of whether an election has been made under 26 CFR 301.7701-2 or 301.7701-3 to disregard the entity for federal income tax purposes. The determination of whether an individual is a resident of the United States would be made under the rules of the Internal Revenue Code, specifically 26 U.S.C. 7701 (b) and the regulations thereunder except that the definition of the term "United States" provided in 31 CFR 103.11 (nn) will be used instead of the definition of "United States" in 26 CFR 301.7701 (b)-1(c)(2)(ii). FinCEN believes that this approach is appropriate because it provides for uniformity regardless of where in the United States an individual may be. In addition, FinCEN believes this approach takes into account that individuals may

seek to hide their residency in an effort to obscure the source of their income or location of their assets. 10

C. § 103.24(c)-Types of reportable accounts

FinCEN proposes to amend 31 CFR 103.24 by adding definitions of the accounts subject to reporting. Section 5314 authorizes the Secretary to require records or reports when a person "makes a transaction or maintains a relation for any person with a foreign financial agency." Although section 5314 authorizes the Secretary to address both transactions and relations, FinCEN is focusing in this rulemaking on relations. FinCEN believes that when a person maintains an account with a foreign financial institution, the person is maintaining a relation with a foreign financial agency. For this purpose, an account means a formal relationship with such person to provide regular services, dealings and other financial transactions. The length of the time for which service is being provided does not affect the fact that a formal account relationship has been established. For example, in the case of an escrow account, an individual may establish a relationship with a financial institution to service and maintain that account, albeit for a short period of time. However, an account is not established simply by conducting transactions such as wiring money or a money order where no relationship has otherwise been established.

other financial accounts with reference

WK IRS Rulmgs Other Documents 2002~Curref1t Intema! Revenue Service Flfisncia! Crimes Enforcement NetworK Proposed Rule RIN 1506-AB08 TD RfN-1506-AB.pdf

D. §10J.24(c)(1)-Bank account

The term "bank account" means a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking. This definition includes time deposits such as certificates of deposit accounts that allow individuals to deposit funds with a banking institution and redeem the initial amount, along with interest earned after a prescribed period of time.

E. 10J.24(c)(2)-Securities account

The term "securities account" means an account maintained with a person in the business of buying, selling, holding, or trading stock or other securities.

F. § 10J.24(c)(J)-Other financial account

The term "other financial account" appears in current section 103.24. While FinCEN understands that the term "other financial account" is broad enough to cover a range of relationships with foreign financial agencies, FinCEN believes that compliance will be enhanced by more clearly delineating the types of relationships that must be reported.

Thus, the proposal would define "other financial account" to mean

an account with a person that is in the business of accepting deposits as a financial agency; an account that is an insurance policy with a cash value or an annuity policy; an account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or an account with a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions.

The proposed definition includes an account with a person that accepts deposits as a financial agency. FinCEN believes that it is necessary to include this provision to ensure that deposit accounts and similar relationships will be covered despite differences in terminology, operations of financial institutions, and legal frameworks in other countries.

The definition of other financial account also includes an account that is an insurance policy with a cash value or an annuity policy. Life insurance policies that have a cash surrender value are potential money laundering vehicles because cash value can be redeemed by a money launderer. Similarly, annuity contracts pose a money laundering risk because they allow a money launderer to exchange illicit funds for an immediate or deferred income stream or to purchase a deferred annuity and obtain clean funds upon redemption.

The definition of other financial account specifically includes an account with a mutual fund or similar pooled fund, or other investment fund. FinCEN believes that these types of companies fall within the definition of

"investment company," which is a financial institution under the BSA.

Mutual funds and similar pooled funds are offered to the general public and typically are identifiable by the ability of the account holder to redeem shares on a daily or otherwise regular basis. FinCEN believes that these types of accounts present risks for money laundering. As with other types of financial accounts, money launderers may use mutual fund accounts to layer their funds by sending and receiving money and wiring it quickly through several accounts and multiple institutions. Layering could also involve purchasing funds in the name of a fictitious corporation or an entity designed to conceal the true owner. Most importantly, mutual funds can also be used for integrating illegal income into legitimate assets, allowing illegal "r""o,:>,.", to appear to have a legitimate source when the shares of the fund are redeemed and into account

that would apply additional regulation and oversight over the operations of some of these investment companies.

WK IRS Rulings Other Documents 2002-Currfmt Internal Revenue Servtt::e Financla! Cnmes Enforcement Network Proposed Rule RfN 1506-AB08 TO RfN-1506-AB.pdf

Accordingly, FinCEN has determined that, at this time, the proposal should reserve the treatment of investment companies other than mutual funds or similar pooled funds. Treasury remains concerned about

the use of, for example, hedge funds to evade taxes and FinCEN will continue to study this issue.

G. § 103.24(c)(4)-Exceptions for certain accounts

Paragraph (c)(4) includes exceptions for certain accounts for which reporting will not be required by persons with a financial interest in or signature or other authority over the accounts. The fol/owing accounts are proposed to be excepted from reporting.

An account of a department or agency of the United States; an Indian Tribe; or any State or any political subdivision of a State; or a whollyowned entity, agency, or instrumentality of any of the foregoing is not required to be reported. In addition, reporting is not required with respect to an account of an entity established under the laws of the United States; of an Indian Tribe; of any State; or of any political subdivision of any State; or under an intergovernmental compact between two or more States or Indian Tribes that exercises governmental authority on behalf of the United States, an Indian Tribe, or any such State or political subdivision. For this purpose, an entity generally exercises governmental authority on behalf of the United States, an Indian Tribe, a State, or a political subdivision only if its authorities include one or more of the powers to tax, to exercise the power of eminent domain, or to exercise police powers with respect to matters within its jurisdiction. An account of an international financial institution of which the United States government is a member is not required to be reported. An account in an institution known as a "United States military banking facility" (or "United States military finance facility") operated by a United States financial institution designated by the United States Government to serve United States government instal/ations abroad is not required to be reported even though the United States military banking facility is located in a foreign country. Correspondent or nostro accounts that are maintained by banks and used solely for bank-to-bank settlements are not required to be reported.

The first three exceptions take into account the governmental status and functions of the entities and agencies. The last exception for nostro accounts takes into account the limited access to the account.

H. §103.24(d)-Foreign country

Foreign country includes all geographical areas located outside of the United States as defined in 31 CFR 103.11(nn).

I. §103.24(e)-Financial interest

Financial interest when the United States person is the owner of record or holder of legal title

A United States person has a financial interest in each bank, securities, or other financial account in a foreign country for which he is the owner of record or holds legal title regardless of whether the account is maintained for his own benefit or for the benefit of others. If an account is maintained in the name of more than one person, each United States person in whose name the account is maintained has a financial interest in that account.

Financial interest when another is acting on behalf of the United States person

United States person also has a financial interest each bank, securities, other financial account foreign for which the owner of record or holder of on behalf of that United States person such an or

Other situations giving rise to a financial interest.

WK iRS Rulings Other Documents 2002-Cummt Internal Revenue Service Fmanc!8i Cnmes Enforcement Network Proposed Rule RfN 1506-AB08 TD RfN-1506-AB.pdf

A corporation in which the United States person owns directly or indirectly more than 50 percent of the voting power or the total value of the shares, a partnership in which the United States person owns directly or indirectly more than 50 percent of the interest in profits or capital, or any other entity (other than a trust) in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of the equity interest or assets, or interest in profits. A trust, if the United States person is the trust settlor and has an ownership interest in the account for United States federal tax purposes. See 26 U.S.C. 671-679 to determine if a settlor has an ownership interest in a trust's financial account for a year. A trust in which the United States person either has a beneficial interest in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income. A trust that was established by the United States person and for which the United States person

has appointed a trust protector that is subject to such person's direct or indirect instruction. 14

Finally, a United States person that causes an entity to be created for a purpose of evading the reporting requirement shall have a financial interest in any bank, securities, or other financial account in a foreign country for which the entity is the owner of record or holder of legal title. The term "evading" as used in the anti-avoidance rule is not intended to apply to persons who make a good faith effort to comply with the regulations implementing section 5314.

The definition of financial interest includes certain instances where a United States person's ownership or control over the owner of record or holder of legal title rises to such a level that the person should be deemed to have a financial interest in the account. FinCEN believes that these rules are necessary to ensure that these financial interests of United States persons are reported on the FBAR regardless of how the interest is held or structured. Lastly, FinCEN has included an anti-avoidance rule to capture reporting in instances where persons seek to evade the requirement to file an FBAR through the use of devices such as transfer companies. Such devices have been documented in reports by the Senate Permanent Subcommittee on Investigations as methods by which United States persons have tried to hide ownership of

foreign financial accounts.

J. § 103.24(fJ-Signature or other authority

FinCEN has included in proposed section 103.24 provisions that would address signature or other authority over a bank, securities, or other financial account in a foreign country.

Signature or other authority in general

Current section 103.24 requires reporting by United States persons with signature or other authority over bank, securities, or other financial accounts in a foreign country. The proposal would continue this requirement and would define signature or other authority. Signature or other authority means authority of an individual (alone or in conjunction with another) to control the disposition of money, funds, or other assets held in a financial account by delivery of instructions (whether communicated in writing or otherwise) directly to the person with whom the financial account is maintained.

Exceptions for signature or other authority.

FinCEN is including in the proposed rule certain exceptions for United States persons with signature or other authority over reportable accounts. These exceptions generally apply to officers and employees of financial institutions that have a federal functional regulator, and certain entities that are publicly traded on a United States national securities exchange, or that are otherwise required to register their securities with the Securities and Commission. FinCEN believes that such relief is of the federal

these entities. These has no

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report that he has signature or other authority over a foreign financial account owned or maintained by the bank if the officer or employee has no financial interest in the account.

This exception is available to officers or employees of banks examined by the federal banking agencies. Officers or employees can avail themselves of this exemption without receiving notice from the bank that the bank has filed an FBAR with respect to the reportable accounts over which it has a financial interest.

An officer or employee of a financial institution that is registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission need not report that he has signature or other authority over a foreign financial account owned or maintained by such financial institution if the officer or employee has no financial interest in the account.

This exception is available to officers or employees of financial institutions such as securities broker dealers or futures commission merchants which are registered with and examined by, the Securities and Exchange Commission or Commodity Futures Trading Commission. Again, officers or employees of such financial institutions can avail themselves of this exemption without receiving a notice from the employer.

An officer or employee of an Authorized Service Provider need not report that he has signature or other authority over a foreign financial account owned or maintained by an investment company that is registered with the Securities and Exchange Commission if the officer or employee has no financial interest in the account. "Authorized Service Provider" means an entity that is registered with and examined by the Securities and Exchange Commission and provides services to an investment company registered under the Investment Company Act of 1940.

This exception has been included to address the fact that mutual funds do not have employees of their own. Instead, the day-to-day operations of such a fund are performed by individuals who are employed by fund service providers, such as investment advisors. Officers or employees of an Authorized Service Provider which is registered with and examined by the Securities and Exchange Commission may avail themselves of this exemption without receiving notice from the employer provided that the fund they service is also registered with the Securities and Exchange Commission. FinCEN believes that this exception is appropriate in light of the requirement that both the service provider and the fund are registered with the Securities and Exchange Commission.

An officer or employee of an entity with a class of equity securities listed on any United States national securities exchange need not report that he has signature or other authority over a foreign financial account of such entity if the officer or employee has no financial interest in the account. An officer or employee of a United States subsidiary of such entity need not file a report concerning signature or other authority over a foreign financial account of the subsidiary if he has no financial interest in the account and the United States subsidiary is named in a consolidated FBAR report of the parent filed under proposed paragraph (g)(3) of 31 CFR 103.24.

This exception is available to officers and employees of entities which are listed upon a United States national securities exchange, regardless of whether the entity is domestic or foreign. Officers and employees of a United States subsidiary of such listed entities are also covered by this exception if the United States subsidiary is named in a consolidated FBAR report of the parent.

An officer or employee of a United States corporation that has a class of equity securities registered under section 12(g) of the Securities Exchange Act need not report that he has signature or other authority over the foreign financial accounts of such corporation if he has no financial interest in the accounts.

United States corporations whose size terms assets

their stock with the Securities and I-Y,rn~mf"1'" Commission and ror,,,rtinn under the Securities Act

K. 103.24(g)-Special rules

25 or more foreign financial accounts. A United States person financial interest in 25 or financial accounts need the number of financial accounts and certain

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other basic information on the report, but will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate. Similarly, a United States person having signature or other authority over 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report, but will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate. Consolidated reports. An entity that is a United States person and owns directly or indirectly more than a 50 percent interest in an entity required to report under this section will be permitted to file a consolidated report on behalf of itself and such other entity. Participants and beneficiaries in certain retirement plans. Participants and beneficiaries in retirement plans under 401 403(a) or 403(b) of the Internal Revenue Code as well as owners and beneficiaries of individual retirement accounts under of the Internal Revenue Code or Roth IRAs under section 408A of the Internal Revenue Code will not be required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement

'7 plan or IRA. ' Certain trust beneficiaries. A beneficiary of a trust described in proposed paragraph (e)(2)(iv) is not required to report the trust's foreign financial accounts if the trust, trustee of the trust, or agent of the trust is a United States person that files an FBAR disclosing the trust's foreign financial

accounts and provides any additional information as required by the report. 18

In addition, FinCEN anticipates that in the case of United States persons who are employed in a foreign country and who have signature or other authority over foreign financial accounts owned or maintained by their employer, the instructions to the FBAR form will prescribe a modified form of reporting for such persons.

IV. Proposed changes to the FBAR instructions

The changes proposed by this notice of proposed rulemaking, if adopted as a final rule, would also require changes to the instructions to the FBAR. A draft of revised changes to the FBAR instructions appears as an attachment at the end of this notice of proposed rulemaking.

V. Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. § 601 et seq.), FinCEN certifies that these proposed regulation revisions will not have a significant economic impact on a substantial number of small entities. The proposed rule revises an existing rule that requires reports to be made to Treasury with respect to certain foreign financial accounts. Because this proposal clarifies the existing rules and narrows the scope of individuals and entities subject to reporting and record keeping requirements, we will reduce regulatory obligations overall.

The proposed rule will not affect a substantial number of small entities. The proposed rule applies to United States persons} a term \lvhich includes entities of all sizes! if they haVe reportable accounts under this rule. However, we expect that small entities will be less likely to have reportable foreign financial accounts or to have many such accounts unlike larger entities, which have a broader base of business operations.

In any event, the proposed rule will not have a significant economic impact on small entities. As explained above, the proposed rule revises an existing rule that requires reports to be made to Treasury with respect to certain foreign financial accounts. Filing the reports will require entities to transfer basic information that they will have received on account statements from the foreign financial institution at which the account is and maintained. Those statements will the with the information about the account needed to file the FBAR. No or skills would be necessary to transfer the basic information

to be such as the name of the financial institution, the of account, and the account number, to the FBAR. Furthermore, the continues a method

persons with a financial interest in 25 or more foreign financial accounts and extends the relief of this method to persons with 25 or financial

,,..,n,,,,''>''> economic impact on a substantial number of small entities.

VI. Paperwork Reduction Act Notices

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The reporting requirement contained in this proposed rule (31 CFR 103.24) is being submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. § 3507(d». This proposed rulemaking seeks to clarify the scope of existing definitions and related rules. By making requirements clearer for reporting persons, there is a potential that certain reporting persons may see an increase in the collection and reporting of information, but any such potential increase may likely be offset by the corresponding exceptions and clarifications in the proposal. Moreover, to the extent that we have clarified the existing rules and narrowed the scope of individuals or entities subject to reporting or

record keeping requirements, we will have reduced regulatory obligations overall.

Comments concerning the estimated burden and other questions should be sent to the Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget, Paperwork Reduction Project (1506), Washington, D.C. 20503 with a copy to FinCEN and the IRS SBSE by mail or comments may also be submitted bye-mail to [email protected]. Please submit comments by one method only. Comments are welcome and must be received by

[INSERT DATE 60 DAYS FOLLOWING PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].

Amendment to the Bank Secrecy Act Regulations - Reports of Foreign Bank and Financial Accounts

In accordance with requirements of the Paperwork Reduction Act of 1995, 44 U.S.C. § 3506(c)(2)(A), and its implementing regulations, 5 CFR § 1320, the following information concerning the collection of information of the Amendment to the Bank Secrecy Act Regulations - Reports of Foreign Bank and Financial Accounts is presented to assist those persons wishing to comment on the information collection.

Description of Affected Filers: Individuals and certain entities that maintain foreign financial accounts reportable under 31 CFR § 103.24.

Estimated Number of Affected Filing Individuals and Entities: 400,000.

Estimated Average Annual Burden Hours Per Affected Filer: The estimated average burden associated with the recordkeeping requirement in this proposed rule will vary depending on the number of reportable accounts. We estimate that the record keeping burden will range from five minutes to sixty minutes, and that the average burden will be thirty minutes. The estimated average burden associated with the reporting requirement (FBAR form completion) will also vary depending on the number of reportable accounts and whether the filer will be able to take advantage of the exceptions provided in this proposed rule. We estimate that the average reporting burden will range from approximately twenty minutes to one hour and that the average reporting burden will be approximately 45 minutes. The reporting burden is reflected in the burden listed for completing TD F 90-22.1 (See OMB Control Number 1506-0009/1545-2038). The burden associated with reporting a financial interest in or Signature or other authority over a foreign financial account to the Commissioner of Internal Revenue is reflected in the burden for the appropriate income tax return or schedule.

Estimated Total Annual Burden: 500,000 hours.

VII. Unfunded Mandates Act of 1995 Statement

Section 202 of the Unfunded Mandates Reform Act of 1995 ("Unfunded Mandates Act"), Public Law 104-4 (March 22, 1995), requires that an agency prepare a budgetary impact statement before promulgating a rule that may result in expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in anyone year. If a budgetary impact statement is required. section 202 of the Unfunded Mandates Act also an agency to identify and consider a reasonable number of

FinCEN has determined that it is not to that on balance the in the Notice of

achieve the

of Subjects

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Administrative practice and procedure, Banks, banking, Brokers, Currency, Foreign banking, Foreign currencies, Gambling, Investigations, Penalties, Reporting and record keeping requirements, Securities, Terrorism.

Amendment

For the reasons set forth above in the preamble, 31 CFR Part 103 is proposed to be amended as follows:

PART 103-FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND FOREIGN TRANSACTIONS

1. The authority citation for part 103 is revised to read as follows:

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332; title III, sec. 314, Pub. L 107-56,115 Stat. 307.

2. Section 103.24 is revised to read as follows:

§ 103.24 Reports of foreign financial accounts.

(a) In general. 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 Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314 to be filed by such persons. The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD-F 90-22.1), or any successor form. See paragraphs (g)(1) and (g)(2) of this section for a special rule for persons with a financial interest in 25 or more accounts, or signature or other authority over 25 or more accounts.

(b) United States person. For purposes of this section, the term "United States person" means

(1) A citizen of the United States;

(2) A resident of the United States. A resident of the United States is an individual who is a resident alien under 26 U.S.C. 7701(b) and the regulations thereunder but using the definition of "United States" provided in 31 CFR 103.11 (nn) rather than the definition of "United States" in 26 CFR 301.7701 (b)-1 (c)(2)(ii); and

(3) An entity, including but not limited to a corporation, partnership, trust, or limited liability company created, organized, or formed under the laws of the United States, any State, the District of Columbia, the Territories and Insular Possessions of the United States, or the Indian Tribes.

(c) Types of reportable accounts-(1) Bank account. The term "bank account" means a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking.

(2) Securities account. The term "securities account" means an account with a person engaged in the business of buying, seiling, holding or trading stock or other securities.

(3) Other financial account. The term "other financial account" means-

(i) An account with a person that is in the business of accepting deposits as a financial agency;

(ii) An account that is an insurance policy with a cash value or an annuity;

(iii) An account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or or

An account with-

fund which issues shares available nol,onni"<:>ti,-,,, and

Other investment fund.

an

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entity established under the laws of the United States, of an Indian Tribe, of any State, or of any political subdivision of any State, or under an intergovernmental compact between two or more States or Indian Tribes that exercises governmental authority on behalf of the United States, an Indian Tribe, or any such State or political subdivision. For this purpose, an entity generally exercises governmental authority on behalf of the United States, an Indian Tribe, a State, or a political subdivision only if its authorities include one or more of the powers to tax, to exercise the power of eminent domain, or to exercise police powers with respect to matters within its jurisdiction.

(ii) An account of an international financial institution of which the United States government is a member is not required to be reported.

(iii) An account in an institution known as a "United States military banking facility" (or "United States military finance facility") operated by a United States financial institution designated by the United States Government to serve United States government installations abroad is not required to be reported even though the United States military banking facility is located in a foreign country.

(iv) Correspondent or nostro accounts that are maintained by banks and used solely for bank-to-bank settlements are not required to be reported.

(d) Foreign country. A foreign country includes all geographical areas located outside of the United States as defined in 31 CFR 103.11 (nn).

(e) Financial interest. A financial interest in a bank, securities or other financial account in a foreign country means an interest described in this paragraph (e):

(1) Owner of record or holder of legal title. A United States person has a financial interest in each bank, securities or other financial account in a foreign country for which he is the owner of record or has legal title whether the account is maintained for his own benefit or for the benefit of others. If an account is maintained in the name of more than one person, each United States person in whose name the account is maintained has a financial interest in that account.

(2) Other financial interest. A United States person has a financial interest in each bank, securities or other financial account in a foreign country for which the owner of record or holder of legal title is-

(i) A person acting as an agent, nominee, attorney or in some other capacity on behalf of the United States person with respect to the account;

(ii) A corporation in which the United States person owns directly or indirectly more than 50 percent of the voting power or the total value of the shares, a partnership in which the United States person owns directly or indirectly more than 50 percent of the interest in profits or capital, or any other entity (other than an entity in paragraphs (e)(2)(iii) through (v) of this section) in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of the equity interest or assets, or interest in profits;

(iii) A trust, if the United States person is the trust settlor and has an ownership interest in the account for United States federal tax purposes. See 26 U.S.C. 671-679 and the regulations thereunder to determine if a settlor has an ownership interest in a trust's financial account for a year;

(iv) A trust in which the United States person either has a beneficial interest in more than 50 percent of the assets or from which such person receives more than 50 percent of the income; or

(v) A trust that was established by the United States person and for which the United States person has appointed a trust protector that is subject to such person's direct or indirect instruction.

Anti-avoidance rule. A United States person that causes an entity, including but not limited to a corporation, partnership, or trust, to be created for purpose of evading this section shall have a financial interest in any bank, securities, or other financial account in for which the is owner or holder title.

of an individual

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(2) Exceptions-(i) An officer or employee of a bank that is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration need not report that he has signature or other authority over a foreign financial account owned or maintained by the bank if the officer or employee has no financial interest in the account.

(ii) An officer or employee of a financial institution that is registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission need not report that he has signature or other authority over a foreign financial account owned or maintained by such financial institution if the officer or employee has no financial interest in the account.

(iii) An officer or employee of an Authorized Service Provider need not report that he has signature or other authority over a foreign financial account owned or maintained by an investment company that is registered with the Securities and Exchange Commission if the officer or employee has no financial interest in the account. "Authorized Service Provider" means an entity that is registered with and examined by the Securities and Exchange Commission and that provides services to an investment company registered under the Investment Company Act of 1940.

(iv) An officer or employee of an entity with a class of equity securities listed on any United States national securities exchange need not report that he has signature or other authority over a foreign financial account of such entity if the officer or employee has no financial interest in the account. An officer or employee of a United States subsidiary of such entity need not file a report concerning signature or other authority over a foreign financial account of the subsidiary if he has no financial interest in the account and the United States subsidiary is included in a consolidated report of the parent filed under this section.

(v) An officer or employee of a United States entity that has a class of equity securities registered under section 12(g) of the Securities Exchange Act need not report that he has signature or other authority over the foreign financial accounts of such entity if he has no financial interest in the accounts.

(g) Special rules-(1) Financial interest in 25 or more foreign financial accounts. A United States person having a financial interest in 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report, but will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate.

(2) Signature or other authority over 25 or more foreign financial accounts. A United States person having signature or other authority over 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report, but will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate.

(3) Consolidated reports. An entity that is a United States person and which owns directly or indirectly more than a 50 percent interest in one or more other entities required to report under this section will be permitted to file a consolidated report on behalf of itself and such other entities.

(4) Participants and beneficiaries in certain retirement plans. Participants and beneficiaries in retirement plans under 403(a) or 403(b) of the Internal Revenue Code as well as owners and beneficiaries of individual retirement accounts under of the Internal Revenue Code or Roth IRAs under of the Internal Revenue Code are not required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement plan or IRA.

(5) Certain trust beneficiaries. A beneficiary of a trust described in paragraph (e)(2)(iv) of this section is not required to report the trust's foreign financial accounts if the trust, trustee of the trust, or agent of the trust is United States person that files under this section the trust's financial accounts.

Dated: 23,

James H.

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Note: The following attachment will not appear in the Code of Federal Regulations. Attachment: Draft instructions to the Report of Foreign Bank and Financial Accounts - Form TDF90-22.1 (FBAR)

General Instructions

Form TO F 90-22.1 (the "FBAR") is used to report a financial interest in or signature authority over a foreign financial account. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. Unlike the filing date for an income tax return, the June 30th filing date for the FBAR may not be extended.

Who Must File an FBAR.

The following persons are required to file an FBAR:

A United States citizen;

A United States resident;

An entity, including but not limited to, a corporation, partnership, or limited liability company created or organized in the United States or under the laws of the United States; and A trust or estate formed under the laws of the United States. See definition of United States below. If the person has:

A financial interest in or signature authority over any foreign financial account and the aggregate value of the financial account(s) exceeds $10,000 at any time during the calendar year. See Part II, Item 15, regarding the $10,000 threshold.

The tax treatment of an entity does not determine whether the entity has an FBAR filing requirement. For example, an entity that is disregarded for purposes of Title 26 of the United States Code must still file an FBAR, if otherwise required to do so. Similarly, a trust for which the trust income, deductions, or credits are taken into account by another person for purposes of Title 26 of the United States Code must file an FBAR, if otherwise required to do so.

See Exceptions below.

General Definitions

Financial Account. A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash surrender value (such as a variable annuity or a whole life insurance policy), an annuity, and shares in a mutual fund or similar pooled fund (Le., a fund with a regular net asset value determination and redemptions).

Foreign Financial Account. A foreign financial account is a financial account that is located outside of the United States. For example, an account maintained with a foreign branch of a United States bank is a foreign financial account. An account maintained with a United States branch of a foreign bank is not a foreign financial account. An insurance or annuity policy that is purchased outside of the United States, as defined in 31 CFR §103.11 (nn), from a non-United States issuer is a foreign financial account.

Financial Interest. A person has a financial interest in each financial account for which

(1) the person is the owner of record or holder of legal title, regardless of whether the account is maintained for that person's benefit or for the benefit of another person; or

the owner of record or holder of title one of the

An nominee, <OI",,,roe,,, or person authorized to act on behalf the person account;

A corporation value of shares

account any allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital;

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(d) A trust, if the person: (i) is the trust settlor; and (ii) has an ownership interest in the trust for United States federal tax purposes. See 26 U.S.C. through 679 to determine if a person has an ownership interest in a trust for a year for United States federal tax purposes;

(e) A trust, if the person has more than a 50 percent beneficial interest in the assets or income of the trust for the calendar year, as determined under all of the facts and circumstances, including the terms of the trust and any accompanying documents;

(f) A trust that was established by the person and for which the person has appointed a trust protector that is subject to such person's direct or indirect instruction; or

(g) Any other entity, if the person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

Person. A person includes an individual and all legal entities including, but not limited to, limited liability companies, corporations, partnerships, trusts, and estates.

Signature Authority. Signature authority is the authority (alone or in conjunction with any other individual) to control the disposition of money, funds, or other assets held in a financial account by delivery of instructions (whether communicated in writing or otherwise) directly to the financial institution (or other person performing the services of a financial institution), with which the financial account is maintained. See Exception for Signature Authority.

United States. For FBAR purposes, the United States includes the States, the District of Columbia, all territories and possessions (for example American Samoa, the Commonwealth of the Northern Marianas Islands, the Commonwealth of Puerto Rico, Guam, and the United States Virgin Islands), and the Indian lands as defined in the Indian Gaming Regulatory Act. References to the laws of the United States include the laws of the United States federal government and the laws of all places listed in this definition.

United States Resident. A United States resident is an alien residing in the United States. To determine if the filer is a resident of any place listed in the definition of United States, apply the residency tests in 26 U.S.C. 7701

Exceptions

Certain Accounts Jointly Owned by Spouses. The spouse of an individual who files an FBAR is not required to file a separate FBAR if the following conditions are met: (1) all the financial accounts that the spouse is required to report are jointly owned with the filing spouse; (2) the filing spouse reports the jointly owned accounts on a timely filed FBAR; and (3) both spouses sign the FBAR in Item 44. See Explanations for Specific Items, Part III, Items 25-33. If the filer's spouse is required to file an FBAR for any account that is not jointly owned with the filer, the filer's spouse must file a separate FBAR for all accounts, including those owned jointly with the filing spouse.

Consolidated FBAR. If a person is named in a consolidated FBAR filed by a more than 50 percent owner, the person is not required to file a separate FBAR. See Explanations for Specific Items, Part V.

CorrespondentiNostro Account. Correspondent or nostro accounts (which are maintained by banks and used solely for bank-to-bank settlements) are not required to be reported on an FBAR.

Governmental Entity. 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.

International Financial Institution. A financial account of any international financial institution which the United States is member is not to be reported on an FBAR any person.

IRA Owners and Beneficiaries. IRA is not an with to

Participants in and Beneficiaries of Tax-Qualified Retirement Plans. A n",.'tlr,,,,,,,nt

retirement described in Internal Revenue

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Signature Authority. Signature authority over a foreign financial account need not be reported on an FBAR by an individual with no financial interest in the foreign financial account in the following situations:

(1) An officer or employee of a bank that is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration need not report signature authority over a foreign financial account owned or maintained by the bank.

(2) An officer or employee of a financial institution that is registered with and regulated or examined by the Securities and Exchange Commission or Commodity Futures Trading Commission need not report signature authority over a foreign financial account owned or maintained by the financial institution.

(3) An officer or employee of an Authorized Service Provider need not report signature authority over a foreign financial account that is owned or maintained by an investment company that is registered with the Securities and Exchange Commission. Authorized Service Provider means an entity that is registered with and examined by the Securities and Exchange Commission and provides services to an investment company registered under the Investment Company Act of 1940.

(4) An officer or employee of an entity whose class of equity securities is listed on any United States national securities exchange need not report signature authority over a foreign financial account in which the entity has a financial interest. An officer or employee of a United States subsidiary of such entity need not report signature authority over a foreign financial account of the subsidiary.

(5) An officer or employee of a United States entity that has a class of securities registered under section 12(g) of the Securities and Exchange Act need not report signature authority over a foreign financial account of such corporation.

Trust Beneficiaries. A trust beneficiary with a financial interest described in section (2)(f) is not required to report the trust's foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust: (1) is a United States citizen, a United States resident, an entity created or organized in the United States or under the laws of the United States, or a trust formed under the laws of the United States; and (2) files an FBAR disclosing the trust's foreign financial accounts.

United States Military Banking Facility. An FBAR need not be filed for a financial account maintained with a financial institution located on a United States military installation, even if that military installation is outside of the United States.

Filing Information-Do NOT file with Federal Income Tax Return

When and Where to File. The FBAR is an annual report and must be received by the Department of the Treasury on or before June 30th of the year following the calendar year being reported.

File by mailing the FBAR to:

Department of the Treasury

Post Office Box 32621

Detroit, M148232-0621

If an express delivery service is used, file by mailing to:

IRS Enterprise Computing Center

ATTN: eTR Operations Mailroom, 4th Floor

985 Avenue

Detroit, MI 48226

any local office of Service for Detroit, MI. The FBAR may also be delivered to the Internal Revenue United States embassies and for to

Treasury in Detroit, MI.

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No Extension of Time to File. There is no extension of time available for filing an FBAR. Extensions of time to file federal tax returns do NOT extend the time for filing an FBAR. If a delinquent FBAR is filed, attach a statement explaining the reason for the late filing.

Verification of Filing. Ninety days after the date of filing, the filer can request verification that the FBAR was received. An FBAR filing verification request may be made by calling 1-800-800-2877 and selecting option 2. Up to five documents may be verified over the phone. There is no fee for this verification. Alternatively, an FBAR filing verification request may be made in writing and must include the filer's name, taxpayer identification number, and the filing period. There is a $5.00 fee for verifying five or fewer FBARs and a $1.00 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury.

The request and payment should be mailed to:

IRS Enterprise Computing CenterlDetroit

ATTN: Verification

P.O. Box 32063

Detroit, MI 48232

Record Keeping Requirements. Persons required to file an FBAR must retain records that contain the name in which each account is maintained, the number or other designation of the account, the name and address of the foreign financial institution that maintains the account, the type of account, and the maximum account value of each account during the reporting period. The records must be retained for a period of five years from June 30th of the year following the calendar year reported and must be available for inspection as provided by law. Persons filing an FBAR should retain a copy for their records.

Explanations for Specific Items

Part I

Item 1. The FBAR is an annual report. Enter the calendar year being reported.

To amend a filed FBAR, check the "Amended" box in the upper right hand corner of the first page of the FBAR, make the needed additions or corrections, attach a statement explaining the additions or corrections, and staple a copy of the original FBAR to the amendment. An amendment should not be made until at least 90 calendar days after the FBAR is filed. Follow the instructions in "When and Where to File" to file an amendment.

Item 2. Check the appropriate box describing the filer. Check only one box. Individuals filing based on signature authority, check box "a." If filing a consolidated FBAR, check box "d." To determine if a consolidated FBAR can be filed, see Part V. If the type of filer is not listed in boxes "a" through "c," check box "e" and enter type of filer. Persons that should check box "e" include, but are not limited to, trusts, estates, limited liability companies, and tax-exempt entities (even if the entity is organized as a corporation). A disregarded entity must check box "e" and enter its type of person and the term "(D.E.)." For example, a limited liability company that is disregarded for United States federal tax purposes would enter "limited liability company (D.E.)."

Item 3. Provide the filer's taxpayer identification number. Generally, this is the filer's United States social security number (SSN), United States individual taxpayer identification number (ITIN), or employer identification number (EIN). Numbers should be entered with no spaces, dashes, or other

the FBAR. the filer does NOT have United States identification number, '''''lYnnl'''!'''

Item 4.

of issuance, check the

Item 5. the filer is an individual, enter the filer's date the month, year convention.

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Items 9,10,11,12 and 13. Enter the filer's address. An individual residing in the United States must enter the street address of the individual's United States residence, not a post office box. An individual residing outside the United States must enter the individual's United States mailing address. If the individual does not have a United States mailing address, the individual must enter a foreign residence address.

An entity must enter its United States mailing address. If the entity does not have a United States mailing address, the entity must enter its foreign mailing address.

Item 14. If the filer has a financial interest in 25 or more foreign financial accounts, check "Yes" and enter the number of accounts. Do not complete Part II (Continuation of Separate Accounts) or Part III (Joint Accounts) of the Report.

If filing a consolidated FBAR, only complete Part V, Items 34 through 42, for each person included in the consolidated FBAR

Note: If the filer has signature authority over 25 or more foreign financial accounts, only complete Part IV (for signature authority), Items 34-43, for each person for which the filer has signature authority, and check "No" in Part I, Item 14.

The filer must retain the detailed account information otherwise required by the FBAR for five years from June 30th of the year following the calendar year reported. The information must be available for inspection. See Filing Information, Record Keeping Requirements.

Part II

Enter information in the applicable pans of the form only. If there is not enough space to provide al/ account information, copy and complete additional pages of the required Pan as necessary. Do not use any attachments unless otherwise specified in the instructions.

Item 15.

Determining Maximum Account Value.Step 1. Determine the maximum value of each account (in the currency of that account) during the calendar year being reported. The maximum value of an account is a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year. Periodic account statements may be relied on to determine the maximum value of the account provided that the statements fairly reflect the maximum account value during the calendar year. For Item 15, if the filer had a financial interest in more than one account, each account is to be valued separately.

Step 2. In the case of non-United States currency, convert the maximum account value for each account into United States dollars. Convert foreign currency by using the Treasury's Financial Management Service rate (this rate may be found at www.fms.treas.gov) from the last day of the calendar year. If no Treasury Financial Management Service rate is available, use another verifiable exchange rate and provide the source of that rate. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into United States do!!ars on the last day of the calendar year.

If the aggregate of the maximum account values exceeds $10,000, an FBAR must be filed. An FBAR is not required to be filed if the person did not have $10,000 of aggregate value in foreign financial accounts at any time during the calendar year.

For persons with a financial interest in or signature authority over fewer than 25 accounts that are unable to determine if the aggregate maximum account values of the accounts exceeded $10,000 at any time during the calendar year, complete Part II, III, IV, or as appropriate, for each of these accounts and enter "value unknown" in Item 5.

a foreign financial account is of the account.

owned two or persons, each person the entire

Item 16. Indicate the type of account. Check one box. If "Other" is selected, describe the account.

Item Provide the name of held.

Item 18. uses

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Item 19-23. Provide the complete mailing address of the financial institution where the account is located. If the foreign address does not include a state (e.g., province) or postal code, leave the box(es) blank.

Part III

Enter information in the applicable parts of the form only. If there is not enough space to provide a/l account information, copy and complete additional pages of the required Part as necessary. Do not use any attachments unless otherwise specified in the instructions.

For Items 15-23, see Part II.

Item 24. Enter the number of joint owners for the account. If the exact number is not known, provide an estimate. Do not count the filer when determining the number of joint owners.

Items 25-33. Use the identity information of the principal joint owner (excluding the filer) to complete Items 25-33. Leave blank items for which no information is available. A spouse having an interest in a jointly owned account with the filing spouse is the principal joint owner. Enter the term "(spouse)" on Line 26 after the last name of the joint spousal owner.

If the filer's spouse is required to report only jointly owned financial accounts that are reported on the filer's FBAR, the filer's spouse need not file a separate FBAR but must also sign the filer spouse's FBAR to fulfill his or her reporting obligation. See Items 44-46 on page one. If the filer's spouse is required to file an FBAR for any account that is not jointly owned with the filer, the filer's spouse must file a separate FBAR for all of the accounts, including those owned jointly with the other spouse.

Part IV-5ignature Authority

Enter information in the applicable parts of the form only. If there is not enough space to provide a/l account information, copy and complete additional pages of the required Part as necessary. Do not use any attachments unless otherwise specified in the instructions.

25 or More Foreign Financial Accounts. Filers with signature authority over 25 or more financial accounts must complete only Items 34-43 for each person on whose behalf the filer has signature authority.


Items 34-42. Provide the name, address, and identifying number of the owner of a foreign financial account for which the individual has signature authority but no financial interest. If there is more than one owner of the account for which the individual has signature authority, provide the information in Items 34-42 for the principal joint owner (excluding the filer). If account information is completed for more than one account of the same owner, identify the owner only once and write "Same Owner" in Item 34 for the succeeding accounts of the same owner.

Item 43. Enter filer's title for the position that provides signature authority (e.g., treasurer), A United States person who is employed in a foreign country and who has signature authority over a foreign financial account that is owned or maintained by the individual's employer should only complete Part 1 and Part IV, Items 34-43 of the FBAR. Part IV, Items 34-43 should only be completed one time with information about the individual's employer.

Part V-Consolidated FBAR

Enter information in the applicable parts of the form information, copy additional pages of the attachments.


If there is not Part

space to all account necessary. Do not use any

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Items 34-42. Provide the name, taxpayer identification number, and address of the owner of the foreign financial account as shown on the books of the financial institution. If account information is completed for more than one account of the same owner, identify the owner only once and write "Same Owner" in Item 34 for the succeeding accounts of the same owner.

Signatures

Items 44-46. The FBAR must be signed by the filer named in Part I. If the FBAR is being filed on behalf of a partnership, corporation, limited liability company, trust, estate, or other legal entity, it must be signed by an authorized individual. The authorized individual's title is entered in Item 45. An authorized official of the person filing the consolidated FBAR must sign the FBAR.

An individual must leave "Filer's Title" blank, unless the individual is filing an FBAR due to the individual's signature authority. If an individual is filing because the individual has signature authority over a foreign financial account, the individual should enter the title upon which his or her authority is based in Item 45.

A spouse included as a jOint owner, who does not file a separate FBAR in accordance with the instructions in Part III, must also sign the FBAR (in Item 44) for the jointly owned accounts. See the instructions for Part III.

Penalties

A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. § 5321 (a)(5). Willful violations may also be subject to criminal penalties under 31 U.S.C. § 5322(a), 31 U.S.C. § 5322(b), or 18 U.S.C. § 1001.

Footnotes

The House report states:

Considerable testimony was received by the Committee from the Justice Department, the United States Attorney for the Southern District of New York, the Treasury Department, the Internal Revenue Service, the Securities and Exchange Commission, the Defense Department and the Agency for International Development about serious and widespread use of foreign financial facilities located in secrecy jurisdictions for the purpose of violating American law. Secret foreign bank accounts and secret foreign financial institutions have permitted proliferation of 'white collar' crime; have served as the financial underpinning of organized criminal operations in the United States; have been utilized by Americans to evade income taxes, conceal assets illegally and purchase gold; have allowed Americans and others to avoid the law and regulations governing securities and exchanges; have served as essential ingredients in frauds including schemes to defraud the United States; have served as the ultimate depository of black market proceeds from Vietnam; have served as a source of questionable financing for conglomerate and other corporate stock acquisitions, mergers and takeovers; have covered conspiracies to steal from the U.S. defense and foreign aid funds; and have served as the cleansing agent for 'hot' or illegally obtained monies. H.R. Rep. No 975 91st Congo 2d Sess. 12 (1970).

See Tax Haven Banks and U.S. Tax Compliance, Staff Report, Permanent Subcommittee on Investigations, Senate Camm. On Homeland and Governmental Affairs, 7. Tax Haven Abuses: The Enablers, the Tools and Staff Permanent Subcommittee on

Senate Homeland Governmental Affairs, 1,

ex(;epts from the definition of financial agency as a or financial

member.

This notice

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The FBAR form currently available on both the FinCEN and IRS websites allows users to complete the form electronically and then print a PDF document that can be mailed to the address on the form.

See 31 CFR 103.56(g).

31 U.S.C. §5314.

me'.ornont ~~"",~,,,'C,; I 2009-25 I.R.B. 1005.

In crafting the proposed rule, FinCEN reviewed the public comments received in response to

o See Tax Haven Banks and U.S. Tax Compliance, Staff Report, Permanent Subcommittee on Investigations, Senate Comm. On Homeland Security and Governmental Affairs at 8 (July 17, 2008).

See 31 U.S.C. 5312(a)(2)A.

2 See 31 U.S.C. 5312(a)(2)1.

13 Concerns about the use of hedge funds to evade taxes is discussed in The Report of the President's Working Group on Financial Market, Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management (April 1999). In the tax area, the fact that a significant number of hedge funds are established in offshore financial centers that are tax havens has focused attention on whether offshore hedge funds are associated with illegal tax avoidance and are taking advantage of their offshore situs for other inappropriate purposes. Id. at 4. FinCEN is also aware of pending legislative proposals that would require United States individuals to annually report to the IRS with respect to foreign hedge funds and private equity funds, for example.

14 As described by the Senate Permanent Subcommittee on Investigations (PSI), Committee on Homeland Security and Governmental Affairs, in its 2006 report, Tax Haven Abuses: the Enablers, the

Tools and Secrecy, Senate Hearing 109-797, 109 th Cong., 2d Sess. (August 1, 2006), arrangements such as trust protectors have been employed by United States taxpayers to achieve substantial control over assets held in offshore trusts. In some cases trust protectors serve to safeguard trust assets from misappropriation. However, many offshore trusts are established with the intention of maintaining client control. In such cases trust protectors can serve as conduits of the client's instructions to the trustees, with the trustees merely rubber stamping the protectors' directions. Such an arrangement permits greater client control while maintaining the appearance of trustee independence.

The PSI reported the use of transfer companies, single purpose companies used solely to disguise the transfer of funds from an entity controlled by a taxpayer to the account of another entity controlled by the taxpayer. See Tax Haven Banks and U.S. Tax Compliance, Staff Report, Permanent Subcommittee on Investigations, Senate Comm. On Homeland Security and Governmental Affairs, at 4,65 (July 17, 2008).

Currently, these are corporations which have more than $10 million in assets and more than 500 shareholders of record. See 15 U.S.C. § 781(g) (2006) and the regulations thereunder.

This proposed exemption is not intended to affect the fiiing requirements with respect to qualified pension plans or individual retirement accounts. FinCEN believes that, in most cases, such entities (which are subject to a number of statutory requirements and limitations) are in a better position to be aware of the presence of a foreign financial account). An IRA is an individual retirement account described in of the Internal Revenue Code (i.e., a traditional IRA, IRA annuity, SEP IRA, SIMPLE IRA, or deemed IRA) or a Roth IRA (including a Roth IRA annuity or a deemed Roth IRA) described in of the Internal Revenue Code.

FinCEN believes that, in most cases, the trust or its trustees are better than the beneficiaries to be aware the presence of financial account and the information

the FBAR as well as whether individual beneficiaries exceed 50 threshold,

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Announcement 2010-16, Internal Revenue Service, (Mar. 15, 2010)

Announcement 2010-16, I.R.B. 2010-11, March 15,2010.

[31 USC 53181

Foreign banks: Foreign financial accounts: FBAR: United States person.-The IRS has continued its suspension for foreign persons of the requirement to file Form TO F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), implemented in

, I.R.B. 2009-25, 1105, which suspended the FBAR filing requirement for persons who were not U.S. citizens, U.S. residents, or domestic entities. The new guidance suspends the FBAR filing requirement for FBARs due on June 30, 2010, as well as for FBARs for 2009 and earlier calendar years, for those same persons and entities. Armoum::emeflt 2009·51 is supplemented and superseded. Back reference: l!"_'h,,_;J~>!y_>!~".

This Announcement suspends, for persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts, or estates), the requirement to file Form TO F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), for the 2009 and earlier calendar years.

In October 2008, the Internal Revenue Service published a revised FBAR form together with accompanying instructions that changed the definition of "United States person." The IRS received numerous questions and comments from the public concerning the changed definition. In response, and to reduce the burden on the public, the IRS issued AnnouncemeI]t2009-51, 2009-25 I.R.B. 1105, which directed people to refer to the definition of "United States person" in the July 2000 version of the FBAR instructions to determine if they had a filing obligation. This effectively suspended the filing of FBARs due on June 30, 2009, by persons who were not United States citizens, United States residents, or domestic entities. Announcement 2QQ9-51 stated that additional FBAR guidance would be issued for subsequent filing years and invited public comments concerning the FBAR form and instructions.

Since the issuance of and receipt of a significant number of public comments, the Treasury Department has published proposed FBAR regulations under 31 CFR Part 103, as well as proposed revisions that clarify instructions for the FBAR (Form TO F 90-22.1). To provide taxpayers with guidance on who is required to file FBARs due on June 30,2010, and in particular to provide immediate guidance to taxpayers on how to answer FBAR-related 2009 federal income tax return questions (e.g., Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120), the IRS and Treasury Department believe it is appropriate to provide the following administrative relief:

The requirement to file an FBAR due on June 30, 2010, is suspended for persons who are not United States citizens, United States residents, or domestic entities. Additionally, all persons may rely on the definition of "United States person" found in the July 2000 version of the FBAR instructions to determine if they have an FBAR filing obligation for the 2009 and earlier calendar years. The definition of "United States person" from the July 2000 version of the FBAR is:

United States Person The term "United States person" means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.

This substitution of the definition of "United States person" applies only with respect to FBARs for the 2009 calendar year and, as originally provided in , to earlier calendar years_

All other requirements the 2008 version of the FBAR form and instructions, as modified remain in effect until issued the IRS.

EFFECT ON OTHER

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Notice 2010-23, Internal Revenue Service, (Feb. 26, 2010)

Notice 2010-23, I.R.B. 2010-11, February 26,2010.

[31 USC 5318]

Foreign banks: Foreign financial accounts: FBAR: Signature authority.-The IRS has extended its administrative relief for certain persons required to file Form TO F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), implemented in I.R.B. 2009-35, 260. Persons with signature authority over a foreign financial account, but no financial interest in the account, for which an FBAR would otherwise be due on June 30, 2010, have until June 30,2011, to report those accounts. Persons with a financial interest in, or signature authority over, a foreign commingled fund must file an FBAR only if the fund is a mutual fund. Those who qualify for this relief can answer no to the FBAR-related questions on tax forms (2009 or earlier) that ask about the existence of a financial interest in, or signature authority over, a foreign financial account.Notic~ 2()1)9~62 is modified and supplemented. Back reference: .. ".",""~,,.,..,....

This Notice provides administrative relief to certain persons who may be required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), for calendar year 2009 and earlier calendar years.

On August 31, 2009, the Internal Revenue Service published 2009-35 I.R.B. 260, which extended the filing deadline for (i) persons with no financial interest in a foreign financial account but with signature or other authority over that account (hereinafter referred to as "signature authority"); and (ii) persons with a financial interest in, or signature authority over, a foreign financial account in which the assets are held in a commingled fund (hereinafter referred to as "foreign commingled funds"). This extension was provided in order for the Treasury Department to have the time necessary to develop comprehensive FBAR guidance.

To assist in the development of comprehensive FBAR guidance, Notice2009:o2 also requested public comments regarding a person's FBAR filing obligation, including (i) when a person with signature authority over, but no financial interest in, a foreign financial account should be relieved of filing an FBAR for that account; (ii) whether the exception from FBAR filing available for officers and employees of banks and certain publicly-traded domestic companies should be expanded; (iii) when an interest in a foreign entity should be subject to FBAR reporting; and (iv) whether a United States person should be relieved from an FBAR filing requirement with respect to a foreign commingled fund in other circumstances, such as when filing would be duplicative of other reporting.

Since the issuance of and receipt of a significant number of public comments, the Treasury Department has published proposed FBAR regulations under 31 CFR Part 103, as well as proposed revisions that clarify instructions for the FBAR (Form TD F 90-22.1). To provide taxpayers with guidance on who is required to file FBARs due on June 30, 2010, and in particular to provide immediate guidance to taxpayers on hovi to ansvver FB,1\R-related 2009 federal income tax return questions (e.g., Schedu!e B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120), the IRS and Treasury Department believe it is appropriate to provide the following administrative relief:

1. Signature Authority.

Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those

financial accounts, deadline of June 30, 201 to FBARs financial accounts over which the person has no financial interest, for the 2010 and

years. When an FBAR to extension adhere to FBAR FBAR is

~rlrf'ml,nf'l"""i Funds.

fund are as in the FBAR instructions or other relevant guidance, applies, The IRS will not interpret the term "commingled fund" as applying to funds

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other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, the IRS has determined that it will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund with respect to that account for calendar year 2009 and earlier calendar years. A financial interest in, or signature authority over, a foreign hedge fund or private equity fund is included in the administrative relief provided in the preceding sentence.

3. FBAR-Related Questions on Federal Tax Forms.

Provided the taxpayer has no other reportable foreign financial accounts for the year in question, a taxpayer who qualifies for the filing relief provided in this Notice should check the "no" box in response to FBARrelated questions found on federal tax forms for 2009 and earlier years that ask about the existence of a financial interest in, or signature authority over, a foreign financial account.

EFFECT ON OTHER DOCUMENTS

is modified and supplemented.

The principal author of this Notice is Mark E. Cottrell of the Office of Associate Chief Counsel (Procedure and Administration). For further information regarding this Notice, contact Emily M. Lesniak at (202) 622-4940 (not a toll-free call).

19

December 2009–January 2010

JOURNAL OF TAX PRACTICE & PROCEDURE

Charles P. Rettig is a Principal with Hochman, Salkin, Rettig, Toscher & Perez, P.C. in Beverly Hills, California. Mr. Rettig is a Member of the IRS Advi-sory Council (IRSAC—SB/SE Subgroup); the Advisory Board for the California Franchise Tax Board; and a Regent and Elected Fellow of the American College of Tax Counsel.

Kathryn Keneally is a Partner at Fulbright & Jaworski, LLP, in New York, New York. Ms. Keneally is the immediate past chair of the ABA Section of Taxa-tion Civil and Criminal Tax Penalties Committee and is a member of the U.S. Sentencing Commission Practitioner’s Advisory Group.

PracticeBy Charles P. Rettig and Kathryn Keneally

Epilog: The IRS Penalty Memos and the Voluntary Disclosure of Offshore Accounts

IRS Commissioner Doug Shulman has continually attempted to encourage taxpayers, particularly those with undisclosed interests in foreign fi -

nancial accounts, to get back into compliance. On or about July 21, 2008, the IRS served a John Doe Summons on a noted Swiss Bank1 for information re-garding accounts of certain U.S. persons that became the subject of a matter pending in the United States District Court for the Southern District of Florida.2 (the John Doe Action).

On August 19, 2009, the United States and the Swiss Confederation entered into an agreement providing for an information exchange mechanism intended to achieve the U.S. tax compliance goals of the John Doe Action while also respecting Swiss sovereignty (the US-Switzerland Agreement). Specifi -cally, under the US-Switzerland Agreement, the IRS received authority to deliver to the Swiss Federal Tax Administration (the SFTA) a request for administrative assistance, pursuant to Article 26 of the 1996 Con-vention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income (the 1996 Convention), seeking information with regard to ac-counts of certain U.S. persons maintained at the Swiss Bank in Switzerland (the Treaty Request).

Also on August 19, 2009, the United States, the IRS and the Swiss Bank entered into a Settlement Agreement (the Settlement) providing that the Swiss Bank would provide account information, on a roll-ing basis, to the SFTA on the following schedule: (i) within 60 days after it receives notice from the SFTA that the Treaty Request has been received by the SFTA, the Swiss Bank w as required to submit and has submitted to the SFTA the fi rst 500 cases described in paragraphs 2.A.b and 2.B.b of the Annex to the US-Switzerland Agreement (the Disclosure Criteria); (ii)

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within 180 days after it receives notice from the SFTA that the Treaty Request has been received by the SFTA, the Swiss Bank is required to submit to the SFTA the remaining cases described in the Disclosure Criteria; and (iii) within 270 days after it receives notice from the SFTA that the Treaty Request has been received by the SFTA, the Swiss Bank is required to submit to the SFTA all the remaining cases subject to the Treaty Request. As a result, the Swiss Bank is to complete the production to the SFTA of all cases potentially responsive to the Treaty Request no later than 270 days after it received notice that the Treaty Request has been received by the SFTA. Based on an analysis conducted by the Swiss Bank, it has been estimated that information concerning approximately 4,450 accounts will be provided to the SFTA in response to the Treaty Request.

IRS Penalty Memos and the Voluntary Disclosure of Offshore Accounts

In several recent columns, we have discussed the IRS Penalty Memos of March 23, 2009 setting forth “a penalty framework” initially in effect until September 23, 2009—but later extended October 15, 2009—for taxpayers to make a voluntary disclosure of “offshore issues” to the IRS. In the most signifi cant of the March 23, 2009 Penalty Memos, the IRS announced their “penalty framework” for those taxpayers who decided to come forward as part of a voluntary disclosure to address offshore issues. For the taxpayers who have made a timely voluntary disclosure before October 15, 2009, including those who began the voluntary disclosure process before the issuance of the Penalty Memorandum, the IRS agreed to enter into agree-ments to resolve tax liabilities relating to offshore issues on the following terms:

The taxpayer is required to fi le or amend income tax returns for tax years 2003-2008 including in-formation returns and Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (com-monly known as an “FBAR”), and tax and interest will be assessed for these six years. In cases where the offshore account was opened or the offshore entity was formed between 2003-2008, the IRS requires the fi ling and payment from the earliest year in issue.The IRS will assess either a 20 percent accuracy-related or a 25 percent delinquency penalty on

the income tax for each year. These penalties are based on the amount of tax determined to be due for each year with respect to the amended income tax returns. This is a lower penalty than the potentially applicable 75 percent civil fraud penalty.In lieu of all other potential penalties, including the FBAR penalty and other information return penalties, the IRS will assess an additional “Misc.” penalty equal to 20 percent of the amount in the offshore account or foreign entity on any day dur-ing the year with the highest aggregate account and asset value. This 20 percent penalty may be reduced to 5 percent under the following limited circumstances—if (a) the taxpayer did not open or cause any foreign accounts to be opened or foreign entities formed, (b) there has been no activity in any offshore account or entity (no deposits, withdrawals, etc.) during the period the account/entity was controlled by the taxpayer, and, (c) all applicable U.S. taxes have been paid on the funds deposited in the foreign accounts/entities (where only account/entity earnings have escaped U.S. taxation). (Many have referred to the potential fi ve percent taxpayer as the “mythical 5 percent taxpayer” since few, if any, taxpayers will actually be able to demonstrate entitlement to the reduced FBAR penalty).

On May 6, 2009 the IRS issued Frequently Asked Questions (FAQs) intended to clarify various provi-sions within the foregoing Penalty Memos regarding the voluntary disclosure of offshore accounts. There were initially 30 Q&As which were updated on June 24, 2009 to modify A26 and to add Q&A 31-51; on July 31, 2009 to modify A6, A21 and A22; and fi nally on August 25, 2009 to add Q&A 52. The FAQs remain available at http://www.irs.gov/newsroom/article/0,,id=210027,00.html. The guidance set forth within the FAQs remains instructional for those who entered the program on or before October 15, 2009 regarding penalty application and the processing of their voluntary disclosures.

Together with the efforts to obtain information from the Swiss regarding U.S. account holders, the Penalty Memos formed the backbone of the govern-ment’s search for U.S. account holders of previously undisclosed interests in foreign accounts throughout the world. The uncertainty surrounding the Disclosure Criteria set forth in the attachment to the Settlement caused many foreign account holders to enter the voluntary disclosure program described in the Penalty

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JOURNAL OF TAX PRACTICE & PROCEDURE 21


Memos. Most generally viewed the Penalty Memos as an opportunity to come into compliance with a high degree of certainty in the ultimate resolution.

The Penalty Memos provided a degree of certainty regarding the civil penalties to be applied to the speci-fi ed tax years. IRS fi eld personnel are authorized to enter into closing agreements within the guidelines of the Penalty Memos and can be expected to inter-pret the Penalty Memos as their “marching orders”. Those who failed, for whatever reason, to participate in the voluntary disclosure process afforded by the Penalty Memos but later decide to make a voluntary disclosure retain the ability to argue against penal-ties based on reasonable cause, non-willfulness, etc. To protect the integrity of the penalty initiative it will likely be diffi cult for the IRS to administratively agree to penalties which are less than those set forth within the Penalty Memos. However, a lower FBAR penalty could statutorily apply where there was no willfulness and/or where there was reasonable cause and the other information penalties could be excused where there was reasonable cause. On October 26, 2009, IRS Commissioner Doug Shulman made the following remarks at an AICPA conference in Wash-ington, DC:

Now, for individuals with overseas income and assets, it’s straightforward. If you are a U.S. indi-vidual holding overseas assets, you must report and pay your taxes or we will be increasingly focused on fi nding you.

A key aspect of our future international offshore work will be mining the voluntary disclosure in-formation from people who have come forward. We will be scouring this information to identify fi nancial institutions, advisors, and others who promoted or otherwise helped U.S. taxpayers hide assets and income offshore and skirt their tax responsibilities at home.

In addition, we’re increasing our scrutiny of an-nual FBARs or foreign bank and fi nancial account reports. Current law requires that U.S. taxpayers fi le an FBAR if their foreign fi nancial accounts total more than $10,000. But current rules make it diffi cult to catch all of those who do not. Tough, anti-international tax abuse legislation proposed by the President would tighten these rules and impose tougher penalties on undisclosed foreign accounts.

Aside from the legislation, there is an active project working to update defi nitions and instruc-tions under the current FBAR rules. We’re also working with Treasury and Congress in following up on other related Administration Green Book proposals.

Our future offshore efforts will also be focused on multiple points around the globe, including funds fl owing out from Europe to Asia, Central America and the Caribbean. To this end, the IRS is open-ing international Criminal Investigation offi ces in several new locations around the world—in Beijing, Panama City and Sydney, in addition to existing offi ces, such as Hong Kong and Barba-dos. The new locations will put the IRS closer to key locations around the globe for international tax administration purposes.

On November 17, 2009, the IRS and the Depart-ment of Justice jointly announced that more than 14,700 taxpayers disclosed foreign bank accounts via the foregoing voluntary disclosure program. Many others are believed to have opted for a “quiet” dis-closure by simply fi ling amended income tax returns and FBARs. It has been rumored that the IRS has cre-ated various fi lters—including reviewing delinquent FBAR fi lings—specifi cally designed to locate those who attempted “quiet” disclosures. The examination outcome for those who pursued a quiet voluntary disclosure remains uncertain.

The overall compliance impact of the Penalty Memos and the Settlement is uncertain but, under any standard, there has been a signifi cant step forward and a substantial “crack” in bank secrecy within Switzerland. Other perceived “tax havens” are sure to take notice and may well attempt to negotiate a similar soft landing for their fi nancial institutions. Lastly, fi nancial mercenaries (a.k.a., whistleblow-ers) within Switzerland are likely rejoicing that the Settlement left a few scraps of client information to possibly be disclosed under Code Sec. 7623 for a hefty 30 percent reward.

Disclosure Criteria RevealedOn November 17, 2009 the Department and the IRS revealed the Disclosure Criteria set forth in the attach-ment to the Settlement, which governed the selection of approximately 4,450 U.S. account holders at the Swiss Bank to be identifi ed. The Disclosure Criteria

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included accounts at the Swiss Bank between 2001 and 2008 with a balance of more than 1 million Swiss francs together with various types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an indi-vidual indirectly held benefi cial ownership.

The Disclosure Criteria also included (i) accounts where there is evidence of ‘’fraudulent conduct,’’ such as false documents or use of calling cards to disguise the source of trading, the threshold for disclosure is 250,000 francs, and (ii) accounts that generated revenues of an average of more than 100,000 francs a year for at least three years includ-ing any year between 2001-2008. For purposes of the foregoing, revenues are defi ned to include gross income (interest and dividends) and capital gains (which are calculated as 50 percent of the gross sales proceeds generated by the accounts during the relevant period).

Under the Disclosure Criteria, ‘’fraudulent con-duct’’ is deemed to exist for “offshore company accounts” where the foreign account records refl ect that benefi cial owners continued to direct and con-trol, in full or in part, the management and disposition of the assets held in the offshore company account or otherwise disregarded the formalities or substance of the purported corporate ownership (i.e., the offshore corporation functioned as nominee, sham entity or alter ego of the US benefi cial owner) by: (i) made investment decisions contrary to the representations made in the account documentation or in respect to the tax forms submitted to the IRS and the Swiss Bank; (ii) used calling cards / special mobile phones to disguise the source of trading; (iii) used debit or credit cards to enable them to deceptively repatri-ate or otherwise transfer funds for the payment of personal expenses or for making routine payments of credit card invoices for personal expenses using assets in the offshore company account; (iv) con-ducted wire transfer activity or other payments from the offshore company’s account to accounts in the U.S. or elsewhere that were held or controlled by the U.S. benefi cial owner or a related party with a view to disguising the true source of the person originating such wire transfer payments; (v) used related entities or persons as conduits or nominees to repatriate or otherwise transfer funds in the offshore company’s ac-count; or (vi) obtained “loans” to the U.S. benefi cial owner or a related party directly from, secured by, or paid by assets in the offshore company’s account.

Overview of Historical IRS and Department Voluntary Disclosure PoliciesThe IRS policy concerning voluntary disclosure set forth in Internal Revenue Manual (IRM) 9.5.11.9 (06-26-2009) provides that a taxpayer’s voluntary dis-closure is a factor that “may result in prosecution not being recommended.” To obtain this qualifi ed benefi t, the disclosure must be “truthful, timely, complete,” and must demonstrate a willingness by the taxpayer to cooperate, and actual cooperation, in determining the tax liability, and must include “good faith arrange-ments” by the taxpayer to pay the tax, interest, and any penalties in full. For a disclosure to be “timely,” it must be received by the IRS before:

The IRS has initiated a civil examination or crimi-nal investigation of the taxpayer, or has notifi ed the taxpayer that it intends to commence such an examination or investigation;The IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specifi c tax-payer’s noncompliance;The IRS has initiated a civil examination or crimi-nal investigation which is directly related to the specifi c liability of the taxpayer; orThe IRS has acquired information directly related to the specifi c liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).

In a related policy statement, the Department has stated that it will “give consideration to a ‘voluntary disclosure’ on a case-by-case basis in determining whether to prosecute but such disclosure is not con-clusive of the issue.” The Department states that “there are two elements to voluntary disclosure (1) it must be made timely and (2) the taxpayer must thereafter fully cooperate with the government.” The Depart-ment requires the timeliness element satisfy an “all events’ test” such that disclosure will not be viewed as timely if (1) the IRS “has already initiated an inquiry that is likely to lead to the taxpayer and the taxpayer is reasonably thought to be aware of that activity”; or (2) “[s]ome event occurred before the disclosure which the taxpayer probably knew about and which event is likely to cause an audit into the taxpayer’s liabilities.” Regarding the cooperation element, “[i]f taxes are not paid because of a claim of inability to pay, then full and accurate disclosure must be made by the taxpayer of his fi nancial position.”

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In past experience, a voluntary disclosure may be done by directly contacting the IRS. Depending on the circumstances, a taxpayer’s representative may make a proffer of the facts, without disclosing the identity of the taxpayer. The IRS will then inform the representative as to whether, assuming that the proffered facts bear out and that the taxpayer is not already the subject of a disqualifying inquiry, the tax-payer will be accepted into the voluntary disclosure program. The representative then may disclose the taxpayer’s identity (a “noisy” disclosure), and the IRS will make its fi nal determination.

In some circumstances, IRS agents have agreed that the taxpayer’s representative may fi rst disclose the taxpayer’s identity to determine whether there is a disqualifying inquiry under way. As a third op-tion, under appropriate circumstances, the IRS may consider the late fi ling of a tax return (a “quiet” dis-closure) to meet its voluntary disclosure standards, and may exercise its discretion not to proceed with criminal charges.

Voluntary Disclosures Around the WorldIn the United Kingdom, under the “New Disclosure Opportunity” which began in September 2009 and will continue until March 2010, participants are re-quired to pay their taxes associated with previously undisclosed foreign accounts together with a 10 percent penalty (the penalty increases to 20 percent if the account holder was previously contacted by the U.K. tax authorities during a previous 2007 amnesty). French tax authorities opened a dedicated offi ce for the voluntary disclosure of previously undeclared foreign accounts providing reduced penalties and a degree of anonymity.

The Italian tax amnesty (September 15 to December 15, 2009) expected to cause the repatriation of 100 billion Euros, offered anonymity, payment of 5 per-cent of the total funds disclosed and no requirement to disclose how the funds were earned. Canada did not create a special amnesty program because Ca-nadians have 10 years to report undeclared income and pay the taxes, plus interest, to avoid prosecu-tion. However, according to Revenue Canada, more than 50 Canadian clients of the Swiss Bank have reportedly come forward to disclose unpaid taxes and investigations have so far found $6.4 million in unreported income.

Prosecution of Attempted Voluntary Disclosures?On or about February 18, 2009 the U.S. government received information regarding approximately 250 U.S. account holders having interests in a single for-eign fi nancial institution. Without knowledge of the foregoing, many of these account holders contacted the IRS—encouraged by the ongoing remarks of IRS Commissioner Doug Shulman to “get right” with the government—and attempted a voluntary disclosure in accordance with the voluntary disclosure framework set forth within the Penalty Memos. These taxpayers have generally been advised that their attempted voluntary disclosure is “untimely and incomplete.”

Does the prosecution of an account holder who attempted a historical voluntary disclosure before any government contact somehow promote future voluntary compliance? Should the government continue to execute the volunteers knowing that the vast majority of the mattees involving the 4,450 ac-count holders will be resolved civilly? Why freeze the efforts of others who may desire to come into compliance but are concerned about the potential criminal investigation/prosecution? Practitioners are presently unable to provide any degree of certainty to their clients who have yet to step forward. Does the government already have information regard-ing the foreign account? Knowing that some have been prosecuted and others are being subjected to intensive criminal investigations by the IRS, who could possibly step forward now? Will the desire to increase prosecution numbers overcome any sense of historical restraint on what is, at most, a slightly defi cient voluntary disclosure? Feel lucky?

Account holders were ineligible to participate in the voluntary disclosure framework set forth within the Penalty Memos if they or a related entity were under IRS examination at any time on or after March 23, 2009. Although some of these account holders attempted to come into the program, many others stayed away and their audits were concluded without discovery of the undisclosed interest in the foreign account. If the audit was generated for a reason other than unreported income, does the exclusion of these account holders promote future voluntary compliance?

The government will not be able to criminally prosecute thousands of individuals with previously undisclosed foreign fi nancial accounts. The high-est value in any criminal prosecution is deterrence

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24

of other similarly situated taxpayers. The threat of potential prosecutions for those who are technically defi cient and somewhat confused will have a signifi -cant negative effect on the future of our voluntary compliance system for years into the future.

The Road AheadThe IRS has long encouraged participation in the voluntary disclosure process for all taxpayers, those with interests in offshore accounts and otherwise. The Department has a somewhat similar policy regarding the non-prosecution of taxpayers who have made a timely voluntary disclosure. It is a valuable tool for enhancing compliance in our system of taxation while preserving the limited enforcement resources of the IRS.

Those with interests in foreign accounts that have not previously been disclosed should immediately consult competent counsel. They likely remain eli-gible for the benefi ts of the longstanding IRS voluntary disclosure program mitigating the possibility of a future criminal prosecution. The IRS is expected to at least temporarily continue its current procedures for a criminal pre-clearance and for disclosures made according to the “three-page letter” (available at

www.irs.gov). However, it is diffi cult to determine the potential administrative resolution of civil penalties for those who did not participate in the framework set forth in the Penalty Memos.

This is a target rich environment for the government. The IRS is committed to enforcement concerning off-shore accounts, and can be expected to continue to enhance these efforts. Recent enforcement efforts and the changing environment concerning bank secrecy may lead the government to many taxpayers with undisclosed interests in foreign fi nancial accounts. However, the IRS simply will not be able to locate the vast majority of foreign account holders through enforcement efforts alone. The government should reconsider and broaden the eligibility guidelines for future voluntary disclosures. Enhancing overall future compliance is an extremely worthwhile endeavor, even if a few volunteers are allowed to survive in the process.

1 UBS, AG is the Swiss Bank. However, we specifi cally decline to refer to UBS, AG in order to highlight the fact that the scenario referred to in our Column can be expected to be repeated with respect to foreign fi nancial institutions throughout the world.

2 United States of America v. UBS AG, Case No. 09-20423-Civ-Gold/MCALILEY (SD-FLA, Miami Division).

ENDNOTES

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WK ADVANCE RELEASE Documents IRS Smaff Bus,nessSeff-Employed DivIsion Large and Mid Size Business OMs/on Cnmmai InvestrgatiOn DIVIs/or: Memor£mdu,pdf

IRS Small Business/Self-Employed Division, Large and Mid Size Business Division, Criminal Investigation Division Memorandum on Routing of Voluntary Disclosure Cases

2009ARD 060-2

Tax crimes: Voluntary disclosure: Updated practices

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

Washington, D.C. 20224

Small Business/Self-Employed Division

Large and Mid-Size Business Division

Criminal Investigation Division

March 23, 2009

MEMORANDUM FOR SBSE EXAMINATION AREA DIRECTORS

LMSB INDUSTRY DIRECTORS

CI DIRECTORS OF FIELD OPERATIONS

FROM: Faris R. Fink

Deputy Commissioner, SBSE

Barry B. Shott

Deputy Commissioner, LMSB International

Victor Song

Deputy Chief, Criminal Investigation

SUBJECT: Routing of Voluntary Disclosure Cases

The purpose of this memorandum is to alert you to a change in the processing of voluntary disclosure requests containing offshore issues. All voluntary disclosure requests are mandatory work.

All incoming voluntary disclosure requests will continue to initially be screened by Criminal Investigation (CI) to determine if the taxpayer is eligible to make a voluntary disclosure. Refer to IRM 9.5.11.9 for questions pertaining to taxpayer eligibility. For voluntary disclosure requests containing only domestic issues, where CI has preliminarily determined taxpayer eligibility, CI will continue to forward those requests to the appropriate Area/Industry PSP for civil processing.

Effective as of the date of this memorandum, voluntary disclosure requests containing offshore issues, where CI has preliminarily determined taxpayer eligibility, will now be forwarded by CI to the Philadelphia Offshore Identification Unit (POIU) for civil processing. Additionally, any voluntary disclosures with offshore issues that are currently in Area/Industry case inventories (whether or not there has been prior taxpayer contact by SBSE or LMSB) should also be forwarded to the POIU.

The address for the POtU follows:

Internal Revenue Service

South Room 2002

Philadelphia, PA 19154

WK~ ADVANCE RELEASE Documents iRS Smaff BU$iTle$sSeff~Emp!oyed DIVi8FcTI Large ana Mid Srze Busiftess DivIsion Cnmms! Investigation DIVIsion Memorondu,pdf

Attn: Charlie Judge, Offshore Unit, DP 8-611

If you have questions, members of your staff may contact Karen Warfel, SBSE Offshore Program Manager ***** Frank Bucci, SBSE Offshore Technical Advisor ***.* or Lon Nichols, LMSB Director, International Compliance Strategy and Policy.

WK ADVANCE RELEASE Documents iRS Large and Mid-Size Business Divt:Sfon Memorandum for IRS Smaif BusinessSeff~Empfoyed DiviSIOn Commissioner Large and<pdf

IRS Large and Mid-Size Business Division Memorandum for IRS Small Business/Self-Employed Division Commissioner, Large and Mid Size Business Division Commissioner from Deputy Commissioner for Services and Enforcement on Authorization to Apply Penalty Framework to Voluntary Disclosure Requests Regarding Unreported Offshore Accounts and Entities

2009ARD 060-3

Tax crimes: Voluntary disclosure: Updated practices



WASHINGTON. D.C. 20224

DEPUTY COMMISSIONER

March 23, 2009

MEMORANDUM FOR COMMISSIONER, LARGE AND MID-SIZE BUSINESS DIVISION

COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION

FROM: Linda E. Stiff

Deputy Commissioner for Services and Enforcement

SUBJECT: Authorization to Apply Penalty Framework to Voluntary Disclosure Requests Regarding Unreported Offshore Accounts and Entities

The purpose of this memorandum is to set forth a penalty framework to be applied to voluntary disclosure requests containing offshore issues. The outlined framework will be applied to all such requests that have been submitted to the IRS and are not yet resolved, and will remain in effect for six months from the date of this memorandum. All voluntary disclosure requests are mandatory work.

As Criminal Investigation (CI) makes preliminary determinations that taxpayers are eligible to make voluntary disclosures, it will forward voluntary disclosure requests with offshore implications to the Philadelphia Offshore Identification Unit (POIU) for civil processing. Those requests will be distributed to and worked by examiners who specialize in offshore examinations. All resulting closing agreements will be reviewed and executed as prescribed by existing delegation orders.

Effective as of the date of this memorandum, you are authorized to execute agreements to resolve the tax liabilities related to offshore issues of taxpayers who make voluntary disclosure requests in the following manner:

(1) Assess all taxes and interest due going back six years (exception: where an account/entity was formed or acquired within the six year look back period, taxes and interest will be assessed starting with the earliest year in which an account was opened/acquired or entity formed). Require the taxpayer to file or amend all returns, including information returns and Form TO F 90-22.1, Report of Foreign Bank and Financial Accounts. commonly known as an "FBAR" Assess either an accuracy or on all years reasonable cause may be and

lieu of all other

WK ADVANCE RELEASE Documents rRS Large and Mid-Size Busm&ss Division Memorandum far IRS Sma!! BusmessSeif-Empfoyed Division CommiSSioner Large and.pdf

entities (where only account/entity earnings have escaped U.S. taxation). then the penalty in (3) is reduced to 5%.

The terms outlined herein are only applicable to taxpayers that make voluntary disclosure requests, and who fully cooperate with the IRS. both civilly and criminally.

cc: Acting Chief Counsel

Senior Advisor to the Commissioner

Commissioner, Tax Exempt and Govemment Entities

Chief, Criminal Investigation

WK_ ADVANCE RELEASE Documents IRS Small BusmessSeff-Empfoyed DMsfon Lsrge and Mid Size BUSiness DiVISion Memorandum en EmphaSiS on and Proper Deve.pdf

IRS Small Business/Self-Employed Division, Large and Mid Size Business Division Memorandum on Emphasis on and Proper Development of Offshore Examination Cases, Managerial Review, and Revocation of Last Chance Compliance Initiative

2009ARD 060-4

Examination of offshore transactions: Updated practices: Revocation of Last Chance Compliance Initiative



Washington, D.C. 20224

Small Business/Self-Employed Division

Large and Mid-Size Business Division

March 23, 2009

MEMORANDUM FOR SBSE EXAMINATION AREA DIRECTORS LMSB INDUSTRY DIRECTORS

FROM: Faris R. Fink

Deputy Commissioner, SBSE

Barry B. Shott

Deputy Commissioner, LMSB International

SUBJECT: Emphasis on and Proper Development of Offshore Examination

Cases, Managerial Review, and Revocation of Last Chance Compliance Initiative

The purpose of this memorandum is to ensure examinations with offshore transactions and/or entities continue to be emphasized and receive priority treatment during the examination process. This memorandum also provides for managerial oversight of offshore cases, and revokes the Last Chance Compliance Initiative.

Offshore Case Development

The IRS Strategic Plan for 2009-2013 outlines the Service's commitment to meet the challenges of international tax administration and of allocating compliance resources to target existing and emerging high-risk areas. Similarly, both the SBSE Examination Program Letter and the Servicewide Approach to International Tax Administration documents address our continuing commitment to prioritize and investigate abusive offshore transactions designed to defeat our tax system.

Offshore cases sent to the field are work of the highest priority. Examiners should utilize the full range of information gathering tools in properly developing offshore issues, with special emphasis on detecting unreported income. This includes interviewing taxpayers, making third party contacts, and timely issuing summonses to taxpayers and third parties. Inparticular, examiners should request foreign-based information through exchange of information under applicable treaties and tax information exchange agreements (TIEAs) in any cases where the taxpayers have accounts or transactions in countries with such ,... """"",0 ni'" Examiners should alert to the badges of fraud and consult with Fraud Technical Advisors in rtc>,/olrm

circumstances.

.ofc"",I" or the assertion of civil fraud Counsel is available to assist SBSE of

facts and

WK_ ADVANCE RELEASE Documents IRS Smai! BU$mfJs$SfJif~Empf()y(jd DlVtsfon Large and Mid SIZe Busmoss DiVision Memorandum on EmphasIs on and Proper Deve.pdf

Managers should ensure that income and penalty considerations are sufficiently developed and documented during both unagreed and Embedded Quality reviews. Cases should be discussed with employees regarding the need for additional income probes, use of indirect methods of proof to reconstruct income, penalty development and/or other considerations as necessary.

Revocation of Last Chance Compliance Initiative

Effective as of the date of this memorandum, the Service will no longer afford taxpayers the opportunity to minimize their exposure to penalties through the terms of the Last Chance Compliance Initiative (LCCI). All notices and letters with respect to the LCCI and relevant portions of IRM sections 4.26.16, 4.26.17 and 25.6.23 are in the process of being obsoleted. On any currently open examinations where the LCCI terms have already been offered, taxpayers will be afforded the opportunity to resolve their cases under LCCI if they respond to the examiner within 15 days of their prior notification.

If you have questions, members of your staff may contact Karen Warfel, SBSE Offshore Program Manager at *****, Frank Bucci, SBSE Offshore Technical Advisor ***** or Lori Nichols, LMSB Director, International Compliance Strategy and Policy at

Attachment

Attachment 1

The following summary of potential reporting requirements and civil penalties is not necessarily all encompassing, and it is unlikely that anyone taxpayer would be subject to all of the reporting obligations or penalties listed below.

(1) Penalties for failure to comply with the Bank Secrecy Act requirement that United States persons report their financial interest in, or authority over, financial accounts located in a foreign country.

U.S. citizens, residents, and certain other persons, must annually report their financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account (such as a bank or investment account) that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. This reporting requirement is met by filing Form TO F 90-22. 1 (Report of Foreign Bank and Financial Accounts, commonly known as an "FBAR"). FBARs are filed with a Department of the Treasury facility located in Detroit and are not to be filed with tax returns; the filing date for FBARs is June 30th. The requirement to file FBARs is in the regulations under 31 U.S.C. § 5314 (which is a provision of the Bank Secrecy Act). Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account. Criminal penalties may also apply. Refer to IRM 4.26.16.4 for additional FBAR penalty considerations.

(2) Fraud Penalties (Sections 6651(f) and 6663):

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

(3) Failure to File Tax Return (Section 6651):

When a taxpayer is required to file a tax return and does not do so on or before the due date of the return, Section 6651 (a){1) imposes a penalty of 5 percent of the net tax amount required to be shown on the tax return for each month fraction of a that the return is The maximum is 25

is increased with 75%, if the failure to file

Failure to Pay Tax Penalties (Sections 6651 (a)(3)):

ldAljdV<:' fails to timely pay the amount of tax shown on the return, Section 6651 to late for each month of

WK~ ADVANCE RELEASE Documents IRS SmaH BusmessSeif~Empfoyed DIvisiOn Large and Mid SiZf3 Business DivISIon Memorandum on Emohasis on and Proper o&ve.pdf

When a taxpayer fails to pay a tax that is required to be (but was not) shown on a return within 21 days after the date of the Service's notice and demand for that tax, Section 6651 (a)(3) imposes a penalty of .5 percent for each month (or part thereof) that the assessment remains unpaid. The maximum penalty is 25 percent.

(5) Accuracy- Related Penalty (Section 6662):

The accuracy-related penalty for underpayments is imposed at the rate of 20 percent on the portion of any underpayment of tax required to be shown on a return attributable to negligence, a substantial understatement of tax, a substantial overstatement of pension liabilities or a substantial estate or gift tax valuation understatement. The accuracy-related penalty with respect to a substantial valuation misstatement can be as high as 40 percent.

(6) Penalties for failure to file certain information returns (Sections 6035, 6038, 6038A, 6038B, 6038C, 6039F, 6046, 6046A, and 6048):

Form 5471 , Information Return of U.S. Persons With Respect To Certain Foreign Corporations. U.S. persons who are officers, directors, or shareholders in certain foreign corporations (including, for example, an International Business Corporation used in an offshore scheme) report information required by Sections 6035, 6038, and 6046 , and compute income from controlled foreign corporations under Sections 951-964. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

Form 5472 , Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Reports transactions between a 25% foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by Sections 6038A and 6038C . The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

Form 926 , Return by a U.S. Transferor of Property to a Foreign Corporation. Reports transfers of property to a foreign corporation and to report information under Section 60388 . The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

Form 3520 , Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Reports various transactions involving foreign trusts, including creation of a foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust, and receipt of distributions from foreign trusts under Section 6048 . This return also reports the receipt of gifts from foreign entities under Section 6039F . The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts. where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

Form 3520-A , Annual Information Return of Foreign Trust with a U.S. Owner. Reports ownership interests in foreign trusts, by U.S. persons with various interests in and powers over such trusts under Section 6048(b) . The penalty for failing to file each one of these information returns, or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the U.S. person.

Form 8865 , Return of U.S. Persons With Respect to Certain Foreign Partnerships, U.S. persons with certain interests in use this form to interests in and transactions of the

any

to the and and 0.000 for

90


June–July 2008

© 2008 S. Toscher and M.R. Stein

Steven Toscher is a Principal of Hochman, Salkin, Rettig, Toscher & Perez, P.C., in Beverly Hills, California.

Michel R. Stein is an Attorney with Hochman, Salkin, Rettig, Toscher & Perez, P.C., in Beverly Hills, California.

FBAR Enforcement—Five Years Later

By Steven Toscher and Michel R. Stein

Steven Toscher and Michel Stein continue their discussion of FBAR reporting requirements and the IRS’s initiatives to

enforce compliance.

In 2003, we cautioned that the Internal Revenue Ser-vice was embarking upon a large-scale initiative to seek out taxpayers with undisclosed overseas bank

accounts.1 At the time, the IRS had recently been del-egated authority by the Treasury Department to enforce rules against U.S. taxpayers for failing to disclose for-eign bank accounts.2 Criminal and civil prosecution of those failing to comply with the Foreign Bank Account Reports (FBAR) reporting requirements had been rare, but following the enactment of the USA PATRIOT Act (requiring the Treasury to study and report to Congress methods to improve FBAR compliance)3 and the expi-ration of the Offshore Voluntary Compliance Initiative (that provided, inter alia, amnesty to qualifying FBAR nonfi lers), the IRS appeared ready, willing and able to crack down on the noncompliant.

Since that time, Congress, the Treasury Department and the IRS have taken steps to increase compliance—refl ecting a serious effort to curb abuse in the use of offshore accounts. The Department of Justice Tax Divi-sion has also added its resources to the enforcement effort. A signifi cant step—adding some institutional continuity—was the establishment of a new IRS organi-zation, the Offi ce of Fraud/BSA, to lead the IRS efforts in fraud development and not simply Bank Secrecy Act en-forcement. The Offi ce of Fraud/BSA consists of fi ve BSA territories, each with a Territory Manager having seven Group Managers under his or her direction, with about 375 fi eld examiners reporting to managers located in 35 fi eld offi ces nationwide. The offi ce of Fraud/BSA

has primary jurisdiction for civil FBAR enforcement.4 Congress also expanded the civil penalties for violations of FBAR reporting requirements, adding a new penalty for non-willful failures and increasing the penalty for willful violations to potentially draconian levels.5 Most recently, the IRS issued new Delegation Order 4-35,6 which establishes responsibility in the IRS for the vari-ous FBAR enforcement functions within the IRS, and has updated the Internal Revenue Manual (IRM) to provide guidance to IRS personnel involved in the new enforcement initiative. The IRS has also made serious efforts to educate tax professionals and the public about the FBAR reporting requirements including hosting an IRS National Phone Forum on FBARs in 2007.

It appears that FBAR compliance has improved. In 2001, the number of FBAR forms fi led with the Treasury was 177,151.7 At the time, it was believed that there may have been as many as one million U.S. taxpayers required to fi le an FBAR in any given year.8 The recent data for 2007 shows that there were more than 322,000 fi lings, almost twice the 2001 number.9 This represents a compliance rate of around 30 per-cent (assuming there are one million U.S. taxpayers required to fi le) leaving room for improvement and fertile ground for IRS enforcement.10

While most IRS enforcement actions are not public because of taxpayer privacy laws,11 the IRS’s enforce-ment is becoming more public and seems to have an ongoing place in the pages of the NEW YORK TIMES and WALL STREET JOURNAL. There was a time when many U.S. taxpayers took comfort in foreign bank secrecy laws and other impediments to the IRS obtaining information on foreign income generating activities. Just like Las Vegas, the belief was “what happened overseas stayed overseas.” Not so any more. The “comfort” is proving

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to be a false—especially for those taxpayers who are now in the cross-hairs of U.S. tax enforcement.

In February, 2008 the IRS announced it was investi-gating more than 100 Americans with bank accounts in Liechtenstein.12 UBS AG, Switzerland’s largest bank, is also under investigation by the United States into whether it helped clients evade taxes.13 As part of this investigation, the Department of Justice is expected to seek to obtain the names of high income United States citizens holding UBS AG accounts–estimated to be up to 20,000 taxpayers.14 Recently, the Department of Justice charged a former UBS AG banker and a Liechtenstein consultant with helping clients (U.S. taxpayers) avoid taxes.15 The banker pled guilty to helping an American evade millions of dollars in federal income taxes.16 It is likely that the many taxpayers who hold foreign bank accounts and who have not properly reported them are starting to feel just a bit uncomfortable.

FBAR Reporting Requirements—In General17The FBAR is not a tax return, but a report fi led with the Treasury stating that the person fi ling has a fi nancial in-terest in, or signatory authority over, fi nancial accounts in a foreign country with an aggregate value exceeding $10,000 at any time during the tax year. As part of the FBAR reporting requirement, persons are instructed to indicate on their Form 1040, Schedule B, Part III, whether the individual has an interest in a fi nancial account in a foreign country by checking “Yes or “No” in the appropriate box. The Schedule B then directs the taxpayer to fi le the FBAR, which is used to report a fi nancial interest in or signatory authority over bank accounts in a foreign country. The deadline for fi ling an FBAR for each calendar year is on or before June 30th the following year and this date cannot be extended.

The prescribed Department of Treasury form is TD F 90-22.1, Report of Foreign Bank and Financial Accounts18 (otherwise referred to as “FBAR”) and is available on the IRS website. The instructions to the FBAR explain how compliance with the statute is achieved and sets forth in detail the required infor-mation and those persons obligated to comply with the FBAR reporting requirements.

American Jobs Creation Act of 2004 ChangesIn further effort to improve FBAR compliance and en-forcement, Congress, in Section 821 of the American Jobs

Creation Act of 2004, reorganized Title 31 USC §5321(a)(5), and enacted a new civil penalty for non-willful vio-lations of FBAR reporting requirements and increased the penalty for willful violators.19 Under these changes, the new civil penalty for non-willful violations is up to $10,000 and the existing penalty for willful violations was increased to an amount up to the greater of: (1) $100,000 or (2) 50 percent of the amount of the transaction or the balance in the account at the time of the violation. The American Jobs Creation Act of 2004 made no changes to criminal FBAR penalties under Title 31 USC §5322. Criminal violations of the FBAR rules can result in a fi ne of not more than $ 250,000 or fi ve years in prison or both, and if the failure to fi le an FBAR is part of a pattern of illegal activity, the statute provides for a fi ne of up to $500,000 and imprisonment of up to 10 years.

The statute states that the civil penalty can be imposed despite the fact that a criminal penalty is imposed with respect to the same violation.20 The IRS has six years to assess a FBAR civil penalty,21 and once assessed, the IRS has two years from the date of assessment to bring an action to recover an unpaid penalty.22 The statute of limitations for criminal viola-tions is fi ve years.23

Taxpayer Education and GuidanceThe rules and regulations governing the FBAR report-ing requirements have been given little attention over the years by both taxpayers, tax professionals, and even those in Government charged with enforcing these requirements. Since the IRS took over enforce-ment responsibilities from FinCEN in 2003, much more attention is being paid to the reporting require-ments. While many issues remain outstanding, the IRS has made substantial progress.

Historically, taxpayers and their advisors seeking to determine whether there was a FBAR fi ling obligation were limited to consulting the instructions attached to the form. That, however, is changing with the IRS estab-lishing a unit where taxpayers and their clients can seek guidance.24 While many questions remain, many have been answered—at least from the IRS’ viewpoint.

On June 20, 2007, the IRS held a National Phone Forum to disseminate information to the public regarding the FBAR. The IRS provided an overview of the FBAR’s pur-pose, reporting requirements, penalties and compliance initiatives. As part of the program, the tax community was offered the opportunity to submit questions. In what proved to be a valuable component to the Forum, the IRS


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disseminated in writing the questions and answers from the Program (see Exhibit 1, infra). The FBAR Questions and Answers (FBAR Q&A) indicate that they were ap-proved by the SB/SE Counsel on October 22, 2007. The FBAR Q&A provides a valuable source of information to guide tax professionals and their clients about FBAR compliance issues. Many previously unan-swered questions were addressed in the Q&A FBAR and some of the more significant issues are discussed below.

Aggregate ValueThe FBAR reporting requirement is triggered if the ag-gregate value of the fi nancial accounts exceeds $10,000 at any time during the calendar year.25 The FBAR Q&A clarifi es that the largest value during the year is deter-mined separately for each account (including those that did not exceed $10,000) and then the accounts are added together. If the value of both accounts exceed $10,000, then all accounts must be included on the FBAR form. The aggregate value is determined using the largest amount that appears on the bank statement, and not merely the ending balance. Thus, it would seem that if a taxpayer had two accounts during the year and at one point one account had $5,100 and $5,000 of the account was transferred to another account during the year, the IRS expects a FBAR to be fi led–even though the taxpayer never had more than $5,100 during the year.

Community Property RightsIf both husband and wife are joint owners of an account or both have signatory authority over an account otherwise triggering the FBAR require-ments, then each spouse must fi le a separate FBAR. However, the FBAR Q&A clarifi es that a person would not have an independent FBAR requirement by virtue of his or her community property law in-terest in the account. That is, under this guidance, a community property interest in funds in a foreign account is not a “fi nancial interest” in an account which would require separate reporting.

Due Diligence Regarding FBARsCircular 230 requires that a practitioner exercise due diligence in preparing or assisting in the

preparation or, approving and filing of tax returns, documents or other papers relating to IRS mat-ters.26 The FBAR Q&A states that in most cases, if (1) the preparer asks if the taxpayer had a foreign account and the answer is no, and (2) if the pre-

parer has no reason to believe that the taxpayer has a foreign investment account, that should be sufficient to demonstrate due diligence on the part of the tax preparer.

The FBAR Q&A would seem to require that all preparers ask the taxpayer this question—which does

not seem to have been the practice in the past—at least for most preparers. While the foreign bank account question is found in tax organizers sent to taxpayers, they are not used in all cases, and in many cases, the taxpayers never complete the organizer. Moreover, most tax return software programs default to the answer “no” when it comes to this question. The IRS would no doubt like to enlist tax preparers in their effort to increase FBAR compliance and given increased IRS enforcement focus on preparers and preparer penalties, it is not too far a fi eld to anticipate that if a taxpayer violation is found, the focus could turn to the preparer as to whether due diligence was exercised under Circular 230. Attached as Ex-hibit 2 are the Offi ce of Professional Responsibility Comments on Professional Responsibility and the Report of Foreign Bank and Financial Accounts.

Fax SignaturesThe FBAR requires a signature, but does not contain a penalty of perjury statement. The FBAR Q&A states that the IRS does not accept a fax signature on the FBAR. However, if the taxpayer is pressed for time, the FBAR should be fi led with a fax signature. The taxpayer should follow up with an Amended FBAR with an original signature with an explanation of the why the original signature was obtained late.

Foreign Branch of US BankThe FBAR Q&A states that a bank account in a branch of a United States bank that is located in a foreign coun-try is considered a foreign account requiring the FBAR disclosure requirements. However, an account with a

As time goes on and the education and enforcement effort grows, one should anticipate the IRS will insist on better compliance and we will see penalties asserted more often

than in the past.

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US military banking facility that services US Govern-ment installations overseas need not be reported on an FBAR, even though the account may be located in foreign country. For FBAR reporting purposes, Puerto Rico, the Virgin Islands, Northern Mariana Islands and the Territories and Possessions of the United States are not considered to be foreign countries.

Foreign Life Insurance Policies & Other AssetsThe term “fi nancial accounts” for FBAR reporting pur-poses is broadly defi ned to include any bank, securities, savings, demand, checking, deposit, time deposit or any other account maintained with a fi nancial institu-tion.27 The FBAR Q&A states that if the cash surrender value insurance policy can be used to store cash that can be withdrawn at a later time, it would be treated as a fi nancial account for FBAR reporting purposes. If the policy is located overseas, and the cash surrender value exceeds $10,000, the policy holder should report the policy on an FBAR. Policies acquired in the United States from an insurance agent in the United States are not policies located overseas.

According to the FBAR Q&A, an account hold-ing gold bullion is considered a reportable account. Whereas an investment in an interest bearing security issued by a foreign government, such as savings bonds, acquired through a bank in the United States or mu-tual funds located in the United States that invest in securities located in a foreign country, does not create a FBAR obligation. Lines of credit or an ownership in-terest in real estate are not interests in foreign fi nancial accounts.

PostmarksTax returns are considered timely on the day they are mailed. FBARs are not tax returns, and according to the FBAR Q&A, are considered fi led on the day they are received, not on the date they were mailed. 28

Delinquent FBARs, Penalties and Voluntary DisclosuresThe IRS provided important insight how it will treat taxpayers with no previous knowledge of the FBAR requirement who would like to get into compliance. The FBAR Q&A states that the taxpayer should fi le any FBAR that was required during the past six years and attach an explanation as to why the FBARs were

delinquent. No penalty will be assessed if there was reasonable cause for not fi ling the FBAR

It was stated during the Forum that the IRS does not have a formal voluntary disclosure policy specifi cally related to FBARS,29 but it was suggested that it would be highly unlikely that the IRS would investigate and attempt to penalize taxpayers who voluntarily come forward and fi le.

New IRS Examination ProceduresOn January 1, 2007, the IRS issued the Internal Revenue Manual (“IRM”) provisions relating to the Bank Secrecy Act Chapter (IRM 4.26.17) to set forth FBAR examination procedures not previously for-malized in writing. On May 5, 2008, the IRS revised IRM 4.26.17, modifying and superseding portions of IRM 4.26.17.

The new manual provisions set forth the proce-dures to be followed by IRS examiners in the Small Business/Self Employed (SB/SE) division who are responsible for enforcing compliance with the report-ing and record keeping requirements of the FBAR. These provisions also provide helpful guidance for tax professionals whose clients are under FBAR examina-tion. The new IRM provisions sets forth procedures for initiating and closing FBAR investigations, inves-tigation procedures, and procedures for referrals of FBAR violations for criminal enforcement.

The increased attention which the IRS now affords to FBAR matters can be seen from the manual provi-sion which requires that a separate FBAR fi le be set up if there appears to be a FBAR violation, regardless of whether a penalty is asserted.30 This should help ad-dress the historical defi ciencies when case fi les failed to contain suffi cient documentation necessary to assess civil penalties.31 If the examiner determines that a FBAR should have been fi led during a tax year, the examiner will determine whether the FBAR was fi led and whether the records required by the FBAR instructions and the regulations were retained.32

Code Sec. 6103 Privacy IssuesA FBAR examination can be initiated independently of a BSA or tax examination or can be initiated in the course of a tax or other BSA examination. Internal Revenue Manual provisions are geared to prevent the unauthorized use of information obtained by the IRS in a tax investigation for FBAR purposes.33 If the


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source of the FBAR information is a tax examination, the information acquired is “return information” protected by Code Sec. 6103. 34 The examiner must obtain a “related statute determination,” signed by an IRS Territory Manager, before using the return information in the FBAR case.35A related statute determination is necessary to allow the examiner to use the information obtained in the course of the tax investigation.36 As part of the related statute de-termination, the Territory Manager should determine whether the potential FBAR violation is in further-ance of tax violations.37 Without a related statute determination, the “return information” cannot be used in the FBAR examination and such use could subject the examiner to civil and criminal penalties for violating Code Sec. 6103.38

If the examiner is conducting an examination solely under the BSA, however, a related statute determination is not needed to examine FBAR compliance, because no information from a tax examination or other Code Sec. 6103 protected information is involved.39

Power of AttorneyA person may authorize a representative to receive information with respect to the FBAR examination. In a case that involves both tax matters and FBAR matters, an IRS Form 2848, power of attorney may be used.40 In an FBAR case that does not involve a related income tax case; a general power of attorney should be used.441

The FBAR ExaminationIf it is determined that a taxpayer has an unreported foreign bank account, there can be a number of dif-ferent consequences depending on whether the IRS determines there was a violation, a violation which should not be penalized, a violation subject to a penalty or a violation which warrants a referral to the Criminal Investigation Division.

No FBAR ViolationIf no FBAR violation is found, the examiner will complete a summary memorandum and a FBAR Monitoring Document (“FMD“) and close the FBAR case to the group manager, who will review the case for technical and procedural issues.42 The Detroit Computing Center (“DCC”) will record the informa-tion from the FMD into the FBAR database and note

in the FBAR database if and when a follow-up FBAR examination is needed.43

FBAR Violation Without PenaltyIf a FBAR violation is found, but no penalty is war-ranted in view of the facts and circumstances, the examiner may issue a FBAR warning letter, Letter 3800.44 In this situation, the examiner will issue the Letter 3800 to the person in violation of the FBAR requirements and a copy will be retained in the fi le.45 The person in violation will be asked to return any de-linquent or corrected FBARs and a copy of the warning letter to the examiner.46 The examiner will retain the original and a copy of the FBAR in the FBAR case fi le, and mark the FBAR as secured through examination. 47 DCC will note in the FBAR database if and when a follow-up FBAR examination is needed.

FBAR Violation With PenaltyIf the examiner determines it is appropriate to assert an FBAR penalty and that a referral to the Criminal Investigation Division is not appropriate or has been declined, the examiner will assert penalties in ac-cordance with the FBAR penalty guidelines.48 The examiner will submit the FBAR case fi le to a SB/SE Counsel Area FBAR Coordinator (“Counsel”).49 Coun-sel will render advice within 45 days or will work with the examiner to establish a shorter time frame if expedited review is needed.50 Counsel will prepare a written memorandum of review of the FBAR case.51 If counsel recommends imposition of the penalty, the review will assist Appeals in the event the case is appealed.52 If Counsel does not recommend imposi-tion of the penalty, the review will state the reasons for disagreement.53 If disagreement is based upon inadequate factual development, the review should recommend areas for further examination.54

Taxpayer’s counsel should carefully monitor the case and be actively engaged if it is determined the examiner is considering asserting penalties. This includes making appropriate submissions on whether there was a violation and, if so, whether there was reasonable cause for and a lack of will-fulness regarding the violation. These submissions may not only convince the examiner, but could be influential with the examining agent’s Group Manager and Area Counsel as to whether the pen-alty is warranted and if warranted, the appropriate amount of the penalty.

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Meetings with the Group Manager or Area Counsel should also be requested in appropriate circumstanc-es—even if they might be resisted by the IRS. The penalty for willful failures carries a high burden of proof which the government must meet to sustain the pen-alty55 and the amount of the penalty may depend on the taxpayer’s degree of culpability under the IRS’ penalty mitigation guidelines. There is substantial opportunity at the examination stage for counsel to infl uence a more favorable outcome of the examination.

If the IRS determines the FBAR penalty is appropri-ate, the examiner will issue Letter 3709, the FBAR 30 day letter, and transmit with that letter, the Form 13449, FBAR Agreement to Assessment and Collec-tion, which sets forth the basis for the FBAR penalty.56 No interest accrues on the FBAR penalty prior to as-sessment or if payment is made within 30 days after the date a notice of penalty amount due is mailed to the taxpayer.57 In addition to interest, a six percent delinquency penalty applies to amounts remaining unpaid ninety days from the date a notice of penalty amount due is fi rst mailed to the taxpayer.58

Agreed CaseIf the taxpayer agrees to assessment of penalties, the taxpayer should return to the examiner the delin-quent FBARs, along with the signed and dated Form 13449.59 The examiner places the signed Agreement Form 13449 in the FBAR case fi le, and retains a copy of the FBAR in the FBAR case fi le, and marks the FBAR as secured through examination. The examiner will complete a summary memorandum and a FMD and close the FBAR case to the group manager, who will review the case for technical and procedural issues.60

Unagreed CaseIf the FBAR penalty is not agreed to, the taxpayer must mail a written protest in duplicate to the examiner within 30 days.61 The case is then transferred to the IRS Appeals Division.62 The appeal is entered on the FBAR database at the DCC which has responsibility to monitor the statute of limitations.63 The DCC is to notify Appeals when the statute of limitations has less than a year to expire.64 Placing responsibility for monitoring the statute of limitations on the DCC seems to be at odds with established procedures in tax cases which place responsibility on the examina-tion and appeals personnel.

IRS Appeals

The new IRM provisions confi rm that FBAR penalty determinations by the examination function will be subject to pre-assessment and pre-collection IRS Appeals review–like most other taxes and penalties administered by the IRS.

CollectionIt should be noted that unlike a tax or penalty which is subject to collection under the Internal Revenue Code’s broad administrative collection remedies of liens and levies, the FBAR penalty assessment is not subject to these administrative collection remedies. Remedies available to col-lect the penalty are limited to collection through the Financial Management System (FMS), which collects nontax debts for the government and in appropriate cases, by lawsuit in federal district court. This limitation on the IRS’ ability to admin-istratively collect the FBAR penalty should provide an inducement to the IRS to resolve FBAR penalty determinations in a manner which includes pay-ment of the penalty.

FBAR Criminal ReferralsThe IRS Criminal Investigation Division (“CI”) has authority to examine criminal FBAR violations.65 Acceptance by CI of an FBAR referral for criminal investigation depends on the evidence establishing willfulness.66 A Fraud Technical Advisor (FTA) can assist an examiner in determining whether or not there is a willful violation and provide the exam-iner with information concerning referrals to CI.67 If the examiner considers that the case warrants referral for possible criminal investigation, the examiner will involve a FTA as soon as possible.68 If the FTA considers that criminal investigation is not appropriate, the FTA will so advise the ex-aminer and provide a written explanation of the reason that criminal referral is not appropriate.69 The examiner may then proceed with the FBAR case under FBAR civil procedures.70

If there are “fi rm indications” of willful FBAR viola-tions that warrant referral to CI, the FTA will advise the examiner.71 The examiner will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, with a detailed explanation of the FBAR violations.72 If the referral of the FBAR case to CI is declined, the exam-


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iner follows procedures where material violations exist and civil penalties are asserted.73 If the referral is accepted, the examiner will place a transmittal memorandum in fi le indicating acceptance, complete the FMD showing CI acceptance and forward the FMD to DCC, which will enter the information on the FBAR database, note on the FBAR database that a follow-up FBAR civil examination is needed and monitor the statute of limitations.74 After completion of the criminal case, the examiner will forward any de-linquent or corrected FBARs to DCC and commence any appropriate civil FBAR penalty action.75

ConclusionIt has been over fi ve years since the IRS was fi rst delegated authority to administer the FBAR compli-ance program. More and more taxpayers and their

professionals are becoming aware of the FBAR fi ling requirement, but many are still unaware of the re-quirement. To the IRS’s credit, they have recognized that FBAR compliance is as much an educational issue as one of enforcement, and for the most part have been cautious in asserting penalties. That is the only rational approach for what is in essence is a “new” reporting regime which few taxpayers, their professionals and even IRS personnel, knew about or understood. As time goes on and the education and enforcement effort grows, one should anticipate the IRS will insist on better compliance and we will see penalties asserted more often than in the past. There will likely be some Offi ce of Professional Responsibility inquiries as to why preparers did not ask the question of whether their client had a foreign bank account.

Stay tuned.

Exhibit 1. FBAR Q&A

The following materials were released 10/22/2007 by IRS following a National Phone Forum on FBAR compliance. The information is deemed reliable as of that date. National Phone Forums are sponsored by Internal Revenue Service Small Business/Self Employed Communications Liaison and Disclo-sure Division, Stakeholder Liaison. Additional questions for IRS concerning FBAR can be sent to [email protected].

Absence of a SignatureIn an absence of signature or other authority over an account of the trust is a benefi ciary of a trust exempt from fi ling on the foreign fi nancial account(s) of the trust?

No. A benefi ciary may have an obligation to fi le an FBAR even though he has no au-thority over the foreign accounts of the trust. The benefi ciary should fi le an FBAR if the benefi ciary is a U.S. person and either has a present benefi cial interest in more than 50 percent of the assets of the trust or receives more than 50 percent of the current income of the trust. See the defi nition for “fi nancial interest” in the instructions to the FBAR.

Aggregate

In the slide (page 4) stating “if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year” - Does it mean the total value of ALL the accounts exceeds $10,000 or the largest value of EACH account over $10,000 during the year?

For purposes of determining whether an FBAR needs to be fi led, the largest value during the year is determined separately for each account (including the accounts that did not exceed $10,000) and added together. See the instructions for Item 22, Account Valuation, for the FBAR form.

If a U.S. citizen has two foreign bank accounts with the following max. balances:

$12,000$1,000

Do both accounts have to be included on the FBAR form?

Yes.When is the aggregate value determined? For instance, if 2 foreign accounts exist and the ending monthly balances when added together do not exceed $10,000 at any time

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during the year, is there a fi ling requirement if during some month the balances in the 2 ac-counts exceeded $10,000 for 1 day.

The maximum value of the account when there are monthly statements is the largest amount that appears on the statement, not the ending balance. See the instructions for Item 22, Account Valuation, for the FBAR form.

If a person holds a foreign account and the bal-ance of the account fl uctuates during the year and for argument purpose the amount goes over 10,000 and comes down by the end of the year. Would this person need to fi le forms subject to FBAR requirement.

Yes. The maximum value of the account is the largest amount during the year. See the instructions for Item 22, Account Valuation, for the FBAR form.

Bank SubsidiaryEmployees of a Bank who have authority over foreign accounts with no personal interest in the account are exempt from fi ling the report. Are Employees of a “Bank Subsidiary” (that is not a bank. but is a subsidiary of a large do-mestic bank that is subject to bank Regulatory authority), also exempt from fi ling the report?

Yes, provided that the employees otherwise qualify for the exception for offi cers and employees of banks described in the FBAR instructions.

Canadian Citizen – Resident of US and Form 8891

If a Canadian citizen is a resident of the U.S. and has fi led the Form 8891 each year for their various RRSPs, is an FBAR to be fi led along with the 8891 each year?

Yes. Even though both the FBAR and IRS Form 8891 contain similar information about the Canadian retirement accounts, they serve different purposes. The Form 8891 contains information that is needed by IRS, including information that is not re-ported on an FBAR. Unlike the Form 8891, the FBAR is intended to be made available

to other government agencies, including state and federal law enforcement agen-cies. Internal Revenue Code restrictions on disclosure of tax return information generally prevent the use of the Form 8891 for this purpose.

If the fi ling of 8891 has been done the past 2-3 years, but no FBAR has been fi led, how should I proceed with various clients fi ling needs? The FBAR fi ling requirement for RRSPs seems to be a duplication of the reporting process. Therefore is there any thought into allowing RRSPs to be an exception to the rule if a 8891 is properly fi led?

No one is considering such an exception at this time. Even though both the FBAR and IRS Form 8891 contain similar information about the Canadian retirement accounts, they serve different purposes. The Form 8891 contains information that is needed by IRS, including information that is not re-ported on an FBAR. Unlike the Form 8891, the FBAR is intended to be made available to other government agencies, including state and federal law enforcement agen-cies. Internal Revenue Code restrictions on disclosure of tax return information generally prevent the use of the Form 8891 for this purpose.

Canadian Registered Retirement Plan

My taxpayer has had a Canadian Registered Retirement plan. He has not had any contribu-tions to it for many years, however, he began receiving distributions from it in 2006. He fi led form 8891 reporting the distribution and ac-count balance with his 2006 individual income tax return. Is it also necessary to fi le TD F 90-22.1? This is his only foreign account and since the 8891 was fi led, it would seem redundant. I believe he fi led the TD F 90-22.1 in 2005, but may not have fi led in previous years.

Yes, both forms should be filed. Even though both the FBAR and IRS Form 8891 contain similar information about the Canadian retirement accounts, they serve different purposes. The Form 8891 contains

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information that is needed by IRS, includ-ing information that is not reported on an FBAR. Unlike the Form 8891, the FBAR is intended to be made available to other government agencies, including state and federal law enforcement agencies. Internal Revenue Code restrictions on disclosure of tax return information generally prevent the use of the Form 8891 for this purpose.

CFCDoes a CFC have to fi le a TD-F 90-22.1 or only the shareholders? IF so what is the support for this position? Do attribution rules apply? If so in what way and what is the support for this position?

Presently, if the controlled foreign corpo-ration (the CFC) was not incorporated in the United States, it does not have to fi le FBARs since only domestic corporations have to fi le FBARs. This is expected to change with the next revision to the FBAR form. In the current draft for the next revi-sion, foreign corporations that are in, and doing business in, the United States will also have to fi le FBARs. A shareholder who is a United States person may have to fi le FBARs depending on the shareholder’s ownership interest in the CFC. If a share-holder owns directly or indirectly more than 50 percent of the total value of shares of stock in the CFC, the shareholder has to fi le FBARs, even if the CFC does not have to fi le. Concerning indirect ownership in-terests, the attribution rules in the Internal Revenue Code are not applicable with respect to FBARs. The FBAR instructions, however, provide guidance on whether an indi vidual has a fi nancial interest in a foreign account held by a partnership, corporation, estate, or trust.

Community Property State and Joint Ownership

Does the spouse of a person with an interest in / signature authority over a Foreign Bank Account by reason of residing in a community

property state have a separate (for her only) FBAR fi ling requirement? The spouse with the interest in / signature authority over a Foreign Bank Account does fi le the FBAR. The account is not listed with the foreign fi nancial institu-tion as jointly owned.

No. If the spouse is not a joint owner of his or her spouse’s account except by virtue of the state’s community property laws, and does not have signature authority or other authority comparable to signature authority over the account, there is no fi ling requirement.

Say the wife has her own foreign bank ac-count, but lives in a community property state, should the FBAR indicate the account is jointly owned by the spouse?

No. If the husband is not a joint owner of the account except by virtue of the states’ community property laws, and the husband does not have signature authority or other authority comparable to signature authority over the account, the wife should not indicate on the FBAR that the account is jointly owned with the husband.

CorporationCan you please explain how FBAR reporting should be done where a corporation owns a foreign bank account? Can the corporation fi le the FBAR form as the entity having a fi nancial interest in the account? Individual employ-ees of the corporation would have signature authority over the account, but cannot per-sonally benefi t from the account. Would the corporation’s reporting cover those individual employees?

The domestic corporation should fi le an FBAR to report the corporation’s fi nancial interest in the foreign bank account but the employees who are United States citizens or residents also have an obligation to fi le FBARs if they have signature authority or other authority that is comparable to sig-nature authority over the bank account. There is an exception for offi cers and employees of domestic corporations that are listed on a national securities exchange

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or that have assets exceeding $10 million and at least 500 shareholders. In order for the exception to apply, the offi cer or em-ployee must have no personal interest in the account and must have been advised in writing by the chief fi nancial offi cer of the corporation that the corporation has fi led a current report which includes the account.

I have a client that is an S-corporation (Com-pany A). Company A’s stock ownership is as follows: 6% John Doe (the father), 6% Jane Doe (the mother), 44% Bill Doe (John and Jane’s son) and 44% Bob Doe (John and Jane’s son). Company A owns 100% of the stock of Company B (which is a Qualifi ed Subchapter S Subsidiary of Company A). Company B has a bank account in Montreal, Canada. The value of the account exceeded $10,000 for 2006. Who is required to fi le a Form TD F 90-22.1 for 2006? Company A? Company B? John Doe? Jane Doe? Bill Doe? Bob Doe? All six of them?

S corporation status has no effect on the FBAR reporting requirements. Companies A and B would have to fi le FBARs but Company A can fi le a consolidated FBAR for both corporations. The shareholders do not have to fi le FBARs. Although any shareholder who owns directly or indi-rectly more than 50% of the value of the stock of either of the two corporations would have to fi le FBARs, the attribution rules in the Internal Revenue Code do not apply to FBARs. The FBAR instruc-tions provide guidance on whether an individual has a fi nancial interest in a foreign account held by a partnership, corporation, estate, or trust.

You are an offi cer of a corporation that is not a large public company. The corporation fi les the FBAR and indicates on the FBAR that you have signature authority over a fi nancial account. Am I correct in understanding that both the corporation and the offi cer should have fi led FBARs? Is this situation similar to the joint ac-count situation where only one FBAR was fi led even though two were technically required? So is it safe to infer that penalties would not be assessed and that going forward separate FBARs should be fi led?

Yes, both the corporation and the offi cer should have fi led FBARs. The offi cer can fi le delinquent FBARs, attaching a state-ment explaining the circumstances, and fi le current FBARs, keeping copies for his records. No penalty will be assessed if there was reasonable cause for not fi ling the FBAR. Reasonable cause is determined based on the facts and circumstances of each case.

Our parent company owns more than 50% of several US entities and we fi le a consolidated 1120 return. We have more than 25 foreign bank accounts in which we have fi nancial interest. On many of these accounts we also have signature authority. What is the proper way to report this? If the accounts are in-cluded in the consolidated report as a result of the fi nancial interest, do we also have to report them separately as a result of having signature authority?

The corporation can fi le a consolidated FBAR to report the accounts but offi cers and employees who are United States citi-zens or residents also have an obligation to fi le FBARs if they have signature authority or other authority that is comparable to signature authority over the account. There is an exception for offi cers and employees of domestic corporations that are listed on a national securities exchange or that have assets exceeding $10 million and at least 500 shareholders. In order for the excep-tion to apply, the offi cer or employee must have no personal interest in the account and must have been advised in writing by the chief fi nancial offi cer of the corpora-tion that the corporation has fi led a current report which includes the account.

Do US shareholders that own over 50% of a corporation fi le a form TDF 90-22.1? Therefore the corporation, the 2 employees that can transfer the funds from the US bank account to pay the suppliers (check signers), and the two 50% shareholders need to fi le a form TDF 90-22.1 for the accounts? So 5 forms for the same bank accounts need to be fi led.

A shareholder will only have to fi le FBARS as a shareholder if he or she owns directly


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and indirectly more than 50% percent of the total value of shares of the corpora-tion. If a shareholder owns exactly 50% of the total value of the shares, then the shareholder does not have to fi le FBARs as a shareholder. The FBAR reporting require-ment can result in multiple FBARs that report the same bank account.

Corporate Foreign AccountIf a U.S. person has signature authority over a cor-porate foreign account, but doesn’t own 50% of the corporation do they need to fi le the FBAR?

Yes, even though the corporation files an FBAR to report the foreign account, a United States person who has signature authority or other authority comparable to signature authority also has to file an FBAR to report the same account. There is an exception for officers and employees of domestic corporations that are listed on a national securities exchange or that have assets exceeding $10 million and at least 500 sharehold-ers. In order for the exception to apply, the officer or employee must have no personal interest in the account and must have bee advised in writing by the chief financial officer of the corporation that the corporation has filed a current report which includes the account.

Issues Respecting DecedentsIf a taxpayer is deceased and the Personal Representative of the Estate discovers that an FBAR was never fi led for the deceased when preparing the FBAR for the Estate, and believes that the taxpayer had foreign fi nancial accounts that may have had an aggregate amount above $10,000, (the documentation of such accounts is not readily available) what is the P.R.’s re-sponsibility and what steps should the personal representative take?

The personal representative should fi le an FBAR for the estate but will not be expected to fi le FBARs that the decedent should have fi led.

What steps would the personal representative take if unable to locate the documents from the foreign accounts?

The personal representative should take reasonable steps to obtain the infor-mation needed to complete the FBAR, including contacting the foreign fi nancial institution. The personal representative can fi le the FBAR with the information the personal representative was able to obtain and attach an explanation as to why the FBAR is not complete, keeping copies for his records.

Who is responsible for the penalties for the deceased taxpayers non-fi ling?

If penalties were assessed against the deceased taxpayer, the penalties are debts against the estate. No penalty will be assessed if there is reasonable cause for the nonfiling and delinquent FBARs are filed.

Domestic company making legitimate loan to foreign company/individual

What about a domestic company that makes a legitimate loan (market value rates and terms) to a foreign company or individual?

Generally, a loan by a domestic company to a foreign company or individual is not a fi nancial account for FBAR reporting purposes. An exception would be if the foreign company or individual routinely entered into such loans, or accepted de-posits, with the general public or otherwise acted as a bank or other fi nancial institu-tion with respect to such loans.

Due DiligenceWhen we, as preparers, question our clients and get a negative response to the “Foreign investment” questions on Sch B - Form 1040, how do you suggest we prove “due diligence”? Can a question be added below those to ques-tions so that the Preparer can indicate that the client has responded negatively?

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If the preparer is not reasonably expected to know that the taxpayer has a foreign fi nancial account and the preparer asks the taxpayer if the taxpayer had a foreign fi nancial account this should be suffi cient, in most cases, to show due diligence. There are no plans to add another question to the Schedule B with respect to foreign accounts.

Expansion of the Large Corp exception to include Universities

I would like to know whether Treasury is looking at an expansion of the Large Corp exception to include Universities and their employees. The current exception requires shareholders (>500) as well as domestic cor-poration status in order for the employees to be exempt from fi ling.

Universities are becoming more and more in-volved on a global level. We have “European Campuses” or “Semester Abroad” programs and hundreds of students in “Exchange” programs. Many Universities have multiple foreign bank accounts and the defi nition of “signature authority” is often 15 to 20 people who administer the foreign programs, wire funds, set budgets, and process payments, as well as the Dean of the College offering the program, the Controller, Asst. Treasurer, Treasurer and President. Basically, anyone who can expend money from that “Fund”.

I’m sure that this is the reason that employees of Large Corps are excluded... What about large Universities??

There is no exception to the FBAR report-ing requirement for offi cers and employees of large universities. The offi cers and em-ployees of the universities who are United States citizens and residents will have to fi le FBARs if they have signature authority or other authority comparable to signa-ture authority over the foreign fi nancial accounts, even if they have no personal fi nancial interest in the accounts.

Fax SignaturesDoes the IRS accept a fax signature on the FBAR?

No. Should you fi le the FBAR with fax signature if pressed for time, then follow up with Amended FBAR with an original signature later and an expla-nation of why the signature was obtained late?

Yes.

Filing RequirementsIs a U.S. Citizen who is permanently living outside of the U.S. required to fi le the form?

Yes.We have a client who has a domestic corpora-tion in which there are two foreign directors and a foreign corporation which holds a fi nan-cial interest in said domestic company. The 2 foreign directors also hold interest in the same foreign corporation. There is also an offi cer who we believe has access to at least one of the foreign accounts, but as of yet we do not know if he holds any fi nancial interests in them. Who is required to fi le the FBAR, if they meet the over 10,000 aggregate total?

If the domestic corporation has a fi nan-cial interest in foreign accounts, then the domestic corporation is required to fi le an FBAR. If the client owns directly and indi-rectly more than 50% percent of the total value of shares of the corporation, then the client is required to fi le an FBAR. If an offi cer or employee is a citizen or resident of the United States and has signature au-thority or other authority comparable to signature authority over foreign fi nancial accounts of the corporation, then that person is required to fi le FBARs.

Financial InterestIs ownership in a foreign country such as a trust, real estate, collectables, and inheritance considered fi nancial interest under FBAR?

An ownership interest in real estate or col-lectibles is not a fi nancial account for FBAR purposes and is not reported on an FBAR.


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A trust is generally not a foreign ac-count for FBAR purposes, it can be if, for example, it is an investment trust similar in function to a mutual fund with account owners holding an equity interest in the trust. This would not include trusts set up under a will to manage the interests of the benefi ciaries in the decedent’s estate. If the trust is a domestic trust, it is subject to the FBAR reporting requirements. Whether the trust is domestic or foreign, if a benefi ciary is a citizen or resident of the United States and has either a present benefi cial inter-est in more than 50 percent of the assets of the trust or receives more than 50% of the current income of the trust, then the benefi ciary is also subject to the FBAR reporting requirements. If a citizen or resident of the United States inherits an interest in a foreign fi nancial account, then that person is subject to the FBAR reporting requirements with respect to his or her inherited interest in the foreign fi nancial account.

Does the exemption for offi cers in a large cor-poration extend to smaller non-publicly traded corporations? At what level of the corporation would an individual be responsible for fi ling FBAR forms? For example would a controller be responsible, manager or CEO? How many forms per corporation need to be fi led?

The exception for offi cers and employees of large corporations does not apply to non-publicly traded corporations unless the corporations have over $10 million in assets and at least 500 shareholders. Only the offi cers and employees who have signature authority or authority comparable to signature authority must fi le FBARs for the corporation’s fi nancial accounts. If their supervisors do not have this authority, they do not fi le FBARs. The corporation files FBARs for its fi nancial accounts and each offi cer or employee with signature authority or other authority comparable to signature authority fi les an FBAR for the accounts they have authority over.

Form 1099-INT

A U.S. bank account issued a U.S. Form 1099-INT. However, the banker’s name and address on Form 1099-INT indicated foreign branch. Does this bank account subject to FBAR fi ling requirement, assuming the balance is over $10K? If so, how do I report this on Form TD F 90-22.1, line 25?

Generally, if the account is maintained with a branch of a U.S. bank that is located in a foreign country, then the bank customer should fi le an FBAR. For FBAR reporting purposes, Puerto Rico, the Virgin Islands, the Northern Mariana Islands, and the territories and possessions of the United States are not considered to be foreign countries. In addi-tion, an account with a United States military banking facility that serves U.S. Government installations overseas is not reported on an FBAR even though the account may be lo-cated in a foreign country.

Foreign Entity for DepositoryWhat is actually considered a foreign entity for depository? Military clients often answer the question that they do have an account on base overseas, however I am assuming this is just an extension of a U.S. banking system established in the U.S. Is this a correct assumption, that there would be no fi ling requirements even if they deposited greater than $10000 into this on base bank.

An account with a United States military banking facility that serves U.S. Govern-ment installations overseas is not reported on an FBAR even though the account may be located in a foreign country. The military clients may wish to confi rm that their ac-counts are with a military banking facility as described in the FBAR instructions. If so, then they do not have to fi le FBARs for the accounts.

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response from Elizabeth Witzgall and states that Treasury’s position is that paying the premium on a foreign life insurance policy that has a cash value component is a “deposit” within the meaning of FBAR. Thus, the cash value account of a foreign life insurance policy would essen-tially be a fi nancial account. If this is indeed a valid posting on the website, why has this not been refl ected on the FBAR instructions or on the FBAR FAQ IRS Website? Needless to say, the insurance lobby should understand the issue.

The defi nition for fi nancial account in the FBAR instructions includes “savings, demand, checking, deposit, time deposit, or any other account maintained with a fi -nancial institution or other person engaged in the business of a fi nancial institution. Since a cash surrender value insurance policy can be used to store cash and withdraw it at a later time, it is treated as a fi nancial account with a fi nancial insti-tution for FBAR purposes. If the policy is located overseas, and the cash surrender value exceeds $10,000, the policy holder should report the policy on an FBAR. This only applies to policies located overseas, policies acquired in the United States from an insurance agent located in the United States are not policies located overseas.

Foreign Life Insurance Accounts

Are foreign life insurance products consid-ered other fi nancial instruments? If a US Citizen is a benefi ciary of a Canadian insur-ance policy required to fi le an FBAR if the proceeds exceed $10,000? Example: Cana-dian insurance policy pays annual dividends of an amount under $50. Should we then be inquiring details about the insurance?

The U.S. citizen does not have to report being the benefi ciary of a foreign life insur-ance policy. If, on the other hand, the U.S. citizen is a policy holder of a life insurance policy located in a foreign country, and the cash surrender value of the policy exceeds $10,000, the U.S. citizen is required to report the policy on an FBAR.

Foreign Postmark

Would a foreign postmark on June 30th (or July 2 this year) count as timely fi led?

Unlike with tax returns, FBARs are consid-ered fi led on the day that they are received, not the date that they are mailed.

Foreign TrustA US person is deemed to have a fi nancial interest in a foreign account when the person has a benefi cial interest in 50% or more of the assets in a foreign trust or receives 50% or more of the current income. If the foreign trust is a wholly discretionary trust, how does one measure the percentages? Is it solely deter-mined retrospectively based upon distributions that were actually made?

A benefi ciary fi les an FBAR to report his interest in the foreign fi nancial accounts that are held by the trust. It does not mat-ter if the trust itself is foreign. If the trust is a domestic trust, it also has an obligation to fi le FBARs. If the benefi ciary’s interest in the assets or income of a trust that holds foreign fi -nancial accounts cannot be determined, the benefi ciary should fi le an FBAR. If you have a question as to how the terms of a particular trust agreement affect a benefi -ciary’s obligation to fi le FBARs, you may request a written ruling from IRS.

Gold BullionIs an account that is holding ‘gold bullion’ considered a reportable account?

Yes. An account with a fi nancial institu-tion that is located in a foreign country is a reportable account whether the account holds cash or non-monetary assets.

Interest-bearing Securities Issued by Foreign Country

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FBAR requirement for one who invest in these securities?

No. Investments in interest-bearing se-curities, such as savings bonds, that are issued by a foreign government and that are acquired through a bank located in the United States are not reported on FBARs.

IRA AccountAssume an Individual Retirement Account with a custodian domiciled in the United States. Assume that the owner of the account is an individual who is a citizen of the United States and who is domiciled in the United States. As-sume that the IRA account owns an interest in an off-shore hedge fund. Question 1: Is an FBAR report required? Question 2: Who is required to fi le the report? - the custodian? - the owner? - both the custodian and the owner?

The IRA is an account located in the United States. The owner of the IRA does not have to report the interest in the foreign hedge fund that is held in the IRA located in the United States. If the custodian does not have signature authority (or other au-thority comparable to signature authority) over the hedge fund account, but instead, is only holding units of the hedge fund as an investment in the IRA, and does not control the hedge fund, then the custodian does not have to fi le an FBAR either.

With so many clients now using International Funds (e.g. Vanguard Target Retirement Funds, or other similar funds) for IRA and/or 401k Investments, will they be required to report on an FBAR form? And to answer the question on the Schedule B - Form 1040?

No FBAR is required for mutual funds that are located in the United States even though the funds invest in the securities of companies located in foreign countries. If, however, the mutual funds are located in a foreign country, then an FBAR is required even if the funds only invest in the securi-ties of companies located in the United States. It is the location of the mutual fund, not the types of investments made by the fund that determines whether a

mutual fund investor should fi le an FBAR. If the client’s mutual fund is located in a foreign country, then the client is subject to the FBAR reporting requirement with respect to the mutual fund account and must treat the mutual fund account as a foreign fi nancial account for purposes of answering the Schedule B question.

Does having the ability to vote (due to an IRA or 401k holding) during an annual meeting of a company in which a client invests (less than $10K) globally cause a requirement to fi le a FBAR form?

No.If a taxpayer has an IRA type account in a for-eign country, does it need to be reported on an FBAR? If that is the case, which item should be checked in box 21 of the 90-22.1?

IRA accounts located in the United States are not reported on an FBAR. IRA type ac-counts that are located in a foreign country are fi nancial accounts that are reported on an FBAR. If the IRA-type account is not a bank or securities account, then check item c., Other, on the FBAR form and write a short description, in the space provided, of the type of account that it is.

LLCWhy would a domestic legal entity of an LLC not be included as a US person?

The defi nition in the FBAR instructions for “United States person” was not updated to include LLCs and other types of legal entities that may not have existed or that were not as common when the FBAR in-structions were fi rst published. The next version of the FBAR will include all legal entities in the defi nition of “United States person.” Because LLCs share characteris-tics of both corporations and partnerships, we believe that the instructions may be interpreted to include such organizations in the defi nition of “United States person.” For this reason, we advise that LLCs fi le FBARs. The next version of the FBAR form should make it clear that LLCs are subject

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to the FBAR reporting and recordkeeping requirements.

Matching ProgramIs there a matching program between Schedule B interest and FBAR account disclosure?

The information reported on an FBAR can be used by IRS for tax compliance purposes. Beyond this, we do not feel it is appropriate to discuss here whether there is such a matching program. The purpose for this conference call is to answer questions about the FBAR fi ling requirements.

Mexico Real EstateMexico does not allow a U.S. person to own real estate in Mexico. Therefore, when a U.S. citizen buys real estate in Mexico they buy the property through a Foreign Bank Trust. Is this the equivalent of a foreign trust and a U.S. benefi ciary? Does this give rise to a 3520 or 3520-A?

If the U.S. citizen has an interest in a foreign trust, he should fi le a form 3520 or 3520-A. If a person has a question as to whether he should fi le a form 3520 or 3520A to report an interest in Foreign Bank Trust located in Mexico, he should consult a tax professional. An ownership interest in real estate is not an interest in a foreign account for FBAR reporting purposes.

What about a foreign trust in Mexico that owns real estate for a US citizen? Does this require a form TDF 90-22.1? US citizens cannot own certain real estate, so a trust is set up to pur-chase, mortgage, own the property.

No. An ownership interest in real estate is not an interest in a foreign fi nancial ac-count for FBAR reporting purposes.

MilitaryWhat about government and military employ-ees stationed overseas? I assume the same rules apply if they open a bank account in the local area and have a balance greater than 10k at any point in time, correct?

Yes, generally, they would have to fi le FBARs if they opened a foreign bank account but there is an exception for certain banks op-erating on the military installation. An account with a United States military banking facility that serves U.S. Govern-ment installations overseas is not reported on an FBAR even though the account may be located in a foreign country. The military clients may wish to confi rm that their ac-counts are with a military banking facility as described in the FBAR instructions. If so, then they do not have to fi le FBARs for the accounts.

Money LaunderingWould you please discuss the how this re-porting has uncovered money laundering? It doesn’t seem that the individuals it is aimed to catch would actually fi le this form.

The reporting requirement was intended to discourage the use of foreign accounts by U.S. persons for money laundering and other illegal purposes since the civil and criminal penalties for failing to comply are substantial.

Non-ResidentA husband, who is a U.S. citizen, is living in a foreign country and married to a foreign nation-al of that country. She is not a U.S. citizen and has never fi led a U.S. tax return either with her husband or by herself. She has no social security number or tax identifi cation number. She has never been to the United States. She has bank accounts with funds greater than $10,000. Does she have to fi le the TD F 90-22.1? Their kids who also have never been to the United States and have no social security number or taxpayer identifi cation number, but who are U.S. citizens, also have bank accounts that exceed $10,000.. Do they have to fi le TD F 90-22.1 2) A U.S. Sub Chapter S. Corporation whose ownership consists of two U.S. citizens formed an off shore Business Trust(Corp)in the British Virgin Islands. The Foreign Corporations only bank accounts are in the United States.


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All administrative work is performed within the United States.The British Virgin Island Corporation is owned 80% by the U.S. Sub S. Corp and 20% by individuals with no one of these individuals owning 10%. The individu-als are all passive investors. Does the foreign Corporation have to fi le a TD F 90-22.1? What about the U.S. Domestic Sub S. Corp.

For the fi rst scenario, the wife, who is not a U.S, citizen or resident, does not have to fi le FBARs but the children, who are U.S. citizens, do have to fi le with respect to their fi nancial interests in foreign bank accounts. For the second scenario, if the foreign corporation’s only fi nancial accounts are the bank accounts located in the United States, and the foreign corporation is not acting as a fi nancial institution (such as a mutual fund company) then neither the investors nor the domestic corporation is required to fi le an FBAR to report a fi nan-cial interest in the bank accounts.

Defi nition of US person for FBAR fi ling: An individual who is not a US citizen satisfi es the substantial presence test for being a resident alien. They however fi le a 1040NR as a non-resident by using a treaty tie breaker or closer connection exception. Are they subject to the FBAR fi ling requirements?

Although the defi nition for “resident alien” in section 7701(b) of the Internal Revenue Code is not applicable with respect to the FBAR reporting requirements, individuals can establish that they are not residents for FBAR reporting purposes if they can show that they are not “resident aliens” for income tax purposes. In this case, the taxpayer who fi les as a nonresident alien does not have to fi le an FBAR. Please note that the fi ling instructions will change with the next version of the FBAR to require per-sons in, and doing business in the United States to fi le FBARs.

If someone is on a J visa, for example, so they are considered a nonresident for income tax purposes under 7701(b), even though they may be living in the US for two years, for example, are they required to fi le an FBAR? I know one speaker mentioned that the visa did not matter, but the

visas in question (Neville’s question) were H and L visas. Those individuals would be residents un-der 7701(b), whereas a J or F visa holder would usually be a nonresident under 7701(b).

Although the defi nition for “resident alien” in section 7701(b) of the Internal Revenue Code is not applicable with respect to the FBAR reporting requirements, individuals can establish that they are not residents for FBAR reporting purposes if they can show that they are not “resident aliens” for income tax purposes. In this case, the taxpayer who fi les as a nonresident alien does not have to fi le an FBAR. Please note that the fi ling instructions will change with the next version of the FBAR to require per-sons in, and doing business in the United States to fi le FBARs.

A follow up question on the definition of US resident. If an individual is a resident alien under substantial presence test of IRC sec 7701(b), but under an income tax treaty residency tie-breaker provision he is a non-resident for US income tax purposes, will he be required to fi le an FBAR?

Although the defi nition for “resident alien” in section 7701(b) of the Internal Revenue Code is not applicable with respect to the FBAR reporting requirements, individuals can establish that they are not residents for FBAR reporting purposes if they can show that they are not “resident aliens” for income tax purposes. In this case, the taxpayer who fi les as a nonresident alien does not have to fi le an FBAR. Please note that the fi ling in-structions will change with the next version of the FBAR to require persons in, and doing business in the United States to fi le FBARs.

Other Financial Instruments“Other Financial Instruments” was not ad-equately defi ned in the seminar. Does that term include an investment in a foreign stock traded on a U.S. exchange or a mutual fund from a U.S. mutual fund company which is invested in foreign securities?

Although investments in brokerage accounts and mutual funds located in the United

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APPENDIX PAGE A-61


States are accounts that can hold fi nancial instruments (such as stock certifi cates and bond notes), the accounts are not foreign accounts for FBAR reporting purposes. It is the location of the account, not the type of securities held in the account that deter-mines whether an FBAR should be fi led.

Ownership AttributionIs there ownership attribution? If so, what are the ownership attribution rules and what is the support for the rules?

The attribution rules in the Internal Revenue Code are not applicable with respect to FBARs. The FBAR instructions, however, provide guidance on whether an individual has a fi nancial interest in a foreign account held by a partnership, corporation, estate, or trust.

PartnershipWhen you say indirectly control more than 50% stock or interests in partnerships, does this include accounts owned by Spouse, Chil-dren, Siblings etc?

No, the attribution rules found in the Inter-nal Revenue code are not applicable with respect to the requirement to fi le FBARs.An individual holds a foreign fi nancial ac-count in his or her name and this account has less than $10,000 during the calendar year. The individual also has signature authority over a foreign account held by a partnership where the individual is a partner owning a less than 5% interest in capital and profi ts. The partnership will fi le the FBAR form for its foreign account. Is the individual also required to fi le an FBAR? If so, what accounts should be included on the FBAR? The individual would fi le an FBAR for the partnership account because he has signature authority over the account, not because he is a partner with less than a 5% interest in the partnership. The individual would also include, in the FBAR, his per-sonal foreign fi nancial account. This will

result in the partnership’s foreign account appearing on two FBARs: the one fi led by the partnership and the one fi led by the individual who had signature authority over the partnership’s foreign account.

A partnership has an escrow account with a foreign bank. The escrow account has a main account and many sub-accounts because a new sub-account is established each time funds are received from a separate transaction. A partner in the partnership, owning a less than 5% interest in capital and profi ts, has signature authority over the foreign bank account. This signature authority gives him or her access to the main account and all of the sub-accounts without having to sign new papers each time a sub-account is formed. The partnership will fi le the FBAR and report the foreign account and all of the sub-accounts. Is the partner required to fi le the FBAR? If so, does he or she report only the main account or the main account and all of the sub-accounts?

The partner should fi le an FBAR to report his signature authority over the partner-ship’s foreign fi nancial account. This will result in the partnership’s foreign account appearing on two FBARs: the one fi led by the partnership and the one fi led by the partner who had signature authority over the partnership’s foreign account. The part-ner and the partnership need only report the main account. The aggregate value of the account includes the value of each subaccount.

If a U.S. person holds partnership interests with FMV > $10,000, but the ownership is less than 50% of the profi ts, is an FBAR required?

No, the U.S. person does not have to report an ownership interest in the foreign fi nan-cial accounts of a domestic partnership in this case. The U.S. person would only have to fi le an FBAR to report a fi nancial interest in the partnership’s foreign fi nancial ac-counts if the U.S. person owned an interest in more than 50 percent of the partner-ship’s profi ts. It is the aggregate value of the foreign fi nancial accounts in question (the accounts held by the partnership), not the fair market value of the partner’s partner-


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APPENDIX PAGE A-62


June–July 2008

ship interest, that determines whether an FBAR is required.

Partnership serving as Investment Manager

We are a domestic partnership acting as an investment manager for about 12 domestic mutual funds. Our domestic partnership has employees which have signatory authority over these mutual funds. The mutual funds have fi nancial interests in foreign bank ac-counts through a domestic custodian. In order for the signatories to move monies from these foreign bank accounts they must contact our domestic custodian. Then our custodian must contact a sub-custodian located in the foreign country of the foreign bank account. Should we recommend the fi ling of the FBAR for the signatories?

Yes, the employees of the partnership who have signature authority should fi le FBARs to report the foreign accounts for which they have signature authority.

Penalties and AbatementAbout the penalty - For US Persons who have foreign bank accounts, but absolutely have no knowledge about FBAR over the years, if they fi le TD F 90-22.1 for 2006, do they also need to fi le from 2001 to 2005? If so, how to waive the penalty and what kind of documents need to be attached?

The U.S. persons should fi le any FBARs that were required during the past 6 years and attach an explanation as to why the FBARs are delinquent. They should also keep copies for their records.No penalty will be assessed if there was reasonable cause for not fi ling the FBAR. Reasonable cause is determined based on the facts and circumstances of each case.

Summary of the penaltiesFor violations occurring after October 22, 2004, civil penalties can be as high as the greater of $100,000 or 50% of the amount in

the foreign account at the time of the violation for each willful violation. For violations oc-curring after October 22, 2004, civil penalties can be as high as $10,000 for each nonwillful violation that is not corrected and for which there was no reasonable cause. There are also criminal penalties for willful violations.

You can view a table of FBAR penalties by click-ing on the following link: http://www.irs.gov/businesses/small/article/0,,id=159757,00.html What criteria does IRS use to determine whether an individual is subject to criminal prosecution for failure to fi le TD-F 90-22.1 for two or more consecutive years?

As with tax cases, referrals of FBAR cases for criminal investigation are based on the facts and circumstances of each case. If a revenue agent believes that a case should be referred for criminal investigation, he will fi rst discuss this with his group manager. The criteria that IRS uses in de-termining whether to pursue a criminal investigation is not made available to the public. See IRM 4.25.5.4 for IRS’s proce-dures with respect to criminal referrals of FBAR cases.

Have penalties been assessed to taxpayers that are not involved in criminal activity (or willfi ll-ness) to date? (clerical error, not aware of fi ling requirement.)

Yes but a determination with respect to pen-alties is made taking into account the facts and circumstances of each case. No penalty will be assessed if there was reasonable cause for not fi ling the FBAR. Reasonable cause is determined based on the facts and circumstances of each case.

Pension IssuesDoes this other financial account include foreign pensions if the person is not yet receiv-ing it and just has this established in a foreign country either by self saving or by a company pension plan?

No, fi nancial accounts for FBAR purposes do not include foreign pension accounts maintained by employers. A foreign retire-

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ment account maintained by the employee (such as an IRA-type account) would, however, be a foreign fi nancial account that should be reported on an FBAR fi led by the employee.

Qualifying PFICDoes a US individual owner of a qualifying electing fund (QEF) or a Passive Foreign Invest-ment Company (PFIC) that fi les an IRS form 8621 need to fi le TDF 90-22.1?

Yes. Even though both the FBAR and the Form 8621 may contain similar informa-tion about the shareholder’s interest in a Passive Foreign Investment Company (PFIC) or a Qualifi ed Electing Fund (QEF), they serve different purposes. The Form 8621 contains information that is needed by IRS, including information that is not reported on an FBAR. Unlike the Form 8621, the FBAR is intended to be made available to other government agencies, including state and federal law enforce-ment agencies. Internal Revenue Code restrictions on disclosure of tax return information prevent the use of the Form 8621 for this purpose. The shareholder’s interest in the PFIC or the QEF is an interest in an account in which the assets are held in a commingled fund and the account owner holds an eq-uity interest in the fund. Such interests are reportable as fi nancial accounts for FBAR purposes.

Schedule B, F 1040If client has foreign bank account but does not meet fi ling criteria that year, should you still fi le the Sch B, 1040 and indicate yes they have a foreign bank account, even if they won’t need to fi le the FBAR.

No. The instructions for Form 1040 Schedule B identify situations, such as the one described in the question, for which an FBAR would not be required. For such situations, the instructions ad-vise taxpayers to check the “no” box on

Schedule B to indicate that they do not have a foreign bank account. See the 2006 Instructions for Schedules A & B (Form 1040), page B-2.

Can you please cite your authority for the schedule B filing requirement if interest/dividend income < $1,500 but has a foreign account?

The authority for the requirement to answer the Schedule B question about foreign accounts regardless of the amount of interest or dividend income reported on the tax return is in the regulations under section 5314 of Title 31. Section 5314 provides the authority to require that FBARs be filed and, although section 5314 is not part of the Internal Revenue Code, it pro-vides clear authority for IRS to ask the question about foreign accounts on Schedule B. Section 103.24 of the Title 31 regulations requires United States persons to both file FBARS and to report to IRS the fact that they have a financial interest in or signature or other author-ity over a foreign financial account. This requirement is met by answering the Schedule B questions in accordance with the Schedule B instructions.

Statute of LimitationsAlso the code section for the statute of limita-tions was mentioned, can you send me the code section?

The 6-year statute of limitations for assess-ing civil penalties for an FBAR violation is in 31 U.S.C. 5321(b)(1).

StockDoes holding an individual stock (such as BNSF) - which may or may not pay dividends - and which invests a portion of its funds into foreign countries require fi ling of a FBAR form?

Generally, no. Only shareholders who own directly or indirectly more than 50 percent of the total value of the corpora-


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June–July 2008

tion’s stock need to fi le FBARs to report a fi nancial interest in the foreign fi nancial accounts held by the corporation.

If a U.S. person owns stock in a corporation but that person holds less than 50% of the value of the stock, is an FBAR required?

No.

1 Steven Toscher and Michel R. Stein, FBAR Enforcement is Coming!, J. OF TAX PRACTICE & PROCEDURE (December 2003-January 2004), at 27.

2 IRS News Release, IR 2003-48, Apr. 10, 2003.

3 Act Sec. 361(b) of The USA PATRIOT Act of 2001 (P.L. 107-56) mandated the Secretary of the Treasury to study methods to improve com-pliance with the FBAR reporting requirements.

4 Written Statement of Kevin Brown, Commis-sioner, SB/SE Division of IRS Before Commit-tee on Banking, Housing and Urban Affairs, United States Senate (Sept. 28, 2004).

5 Act Sec. 821 of the American Jobs Creation Act of 2004 (P.L. 108-357), amending 31 USC §5321(a)(5).

6 Delegation Order 4-35 (March 24, 2008) is available at http://www.irs.gov/pub/foia/ig/spder/do_4-35_rev_1.pdf.

7 U.S. Treasury Department, Report to Congress in Accordance Act Sec. 361(b) of P.L. 107-56 (April 26, 2002) (“Treasury Report”), at 6.

8 Id.9 IR 2008-79, June 17, 2008, (IRS Reminds

Taxpayers to Report Certain Foreign Bank and Financial Accounts, by June 30; Lynnley Browning, IRS Seeks Reports of Foreign Ac-counts, NY TIMES (May 15, 2008).

10 The compliance rate for income taxes is estimated to be about 85 percent.

11 See Code Sec. 6103 et seq.12 Browning, supra note 6.13 Browning, supra note 6.14 U.S. Authorities expected to Subpoena Swiss

Bank’s Records, 2008 TNT 96-6 (May 19, 2008); on July 1, 2008, the U.S. District Court for the Southern District of Florida authorized the IRS to serve a John Doe summons on UBS directing it to produce records identifying U.S. taxpayers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS, DAILY TAX REPORT, July 2, 2008 (Tax Havens-Federal Court Grants John Doe Summons against UBS in U.S. Taxpayer Investigation.

15 Tom Herman, Offshore-Account Holders Bite Their Nails, WALL ST. J. (May 21, 2008), at D1.

16 Lynnley Browning, Ex-UBS Banker Pleads Guilty to Tax Evasion, NY TIMES (June 20, 2008).

17 For more detailed discussion on the FBAR re-quirements, see Toscher and Stein, supra note 1; Steven Toscher and Michel R. Stein, FBAR

Enforcement—An Update, J. OF TAX PRACTICE & PROCEDURE (April-May 2006), at 41; and Steven Toscher and Michel R. Stein, Criminal Enforcement of FBAR Filing Requirements, BUSINESS CRIMES BULLETIN (June 2006).

18 Report of Foreign Bank and Financial Ac-counts , TD F 90-22.1 is available at http://www.irs.gov/pub/irs-pdf/f90221.pdf.

19 Act Sec. 821 of the American Jobs Creation Act of 2004 (P.L. 108-357), amending 31 USC §5321(a)(5).

20 31 USC §5321(d).21 31 USC §5321(b)(1).22 31 USC §5321(b)(2).23 I.R.M. 4.26.17.5.5(4); I.R.M. 4.26.17.5.5.4(1);

18 USC §3282.24 The IRS Web site, www.irs.gov, hosts a num-

ber of informational bulletins and offers the following e-mail address: [email protected] that the public can use to ask the IRS questions regarding FBAR reporting.

25 FBAR Instructions.26 Circular 230, §10.22.27 FBAR Instructions.28 While the Q&A deems the mailbox rule con-

tained under Code Sec. 7502 nonapplicable to FBARs, Code Sec. 7502 indicates that the mailbox rule applies to "any return, statement or other document required to be fi led ... on or before a prescribed date under authority of any provision of the internal revenue laws..." While most certainly an FBAR would qualify as a statement or other document required to be fi led, given the IRS delegation of authority it is an open question whether the prescribed date for such fi ling emanates from any provi-sion of the internal revenue laws, which could make the mailbox rule applicable to FBARs. Moreover, the common law mailbox rule could be applicable if Code Sec. 7502 does not apply. See, e.g., L. Anderson, CA-9, 92-1 USTC ¶50,308, 966 F2d 487.

29 The IRS does have a formal voluntary dis-closure policy with respect to taxes which is located in the Internal Revenue Manual (I.R.M.) at Section 9.5.3.3.1.2.1.

30 I.R.M. 4.26.17.1(2).31 TIGTA Reviews IRS BSA Compliance Pro-

gram (March 18, 2004) (“TIGTA Report”).32 I.R.M. 4.26.17.1(3).33 I.R.M. 4.26.17.2.34 I.R.M. 4.26.17.2(1)(d).

35 I.R.M. 4.26.17.2(1)(d).36 I.R.M. 4.26.17.2(1)(f).37 I.R.M. 4.26.17.2.1(3)(a).38 See Code Sec. 7431 (civil) and Code Sec.

7213 (criminal).39 I.R.M. 4.26.17.2.3.40 I.R.M. 4.26.17.5.2.1.41 Along the same line, BSA summons, TF F 90-

22.31, rather than a summons under Code Sec. 7602, must be used if information that is purely BSA information is sought. IRM 4.26.17.5.3.

42 I.R.M. 4.26.17.4.1.43 I.R.M. 4.26.17.4.1(3).44 I.R.M. 4.26.17.4.2.45 I.R.M. 4.26.17.4.2(2).46 I.R.M. 4.26.17.4.2(2).47 I.R.M. 4.26.17.4.2(2).48 I.R.M. 4.26.17.4.3; See Toscher and Stein, Note

1 and Note 17 for FBAR penalty computation rules and penalty mitigation guidelines.

49 I.R.M. 4.26.17.4.3(2).50 I.R.M. 4.26.17.4.3(5)a.51 I.R.M. 4.26.17.3(5)b.52 Id.53 Id.54 Id.55 The IRS must prove willfulness by "clear

and convincing" evidence and a general presumption of correctness afforded to tax assessments does not apply. See CCA 200603026 (September 1, 2005).

56 I.R.M. 4.26.17.4.3(6).57 31 USC §3717(b); I.R.M. 4.26.17.4.3(6)e.58 I.R.M. 4.26.17.4.3(6)e.59 I.R.M. 4.26.17.4.4(1).60 I.R.M. 4.26.17.4.4(2) & (3).61 I.R.M. 4.26.17.4.6(2).62 I.R.M. 4.26.17.4.7(3).63 I.R.M. 4.26.17.4.7(4).64 Id.65 I.R.M. 4.26.17.5.4.66 I.R.M. 4.26.17.5.4(1)(3).67 I.R.M. 4.26.17.5.4.1(1).68 I.R.M. 4.26.17.5.4.1(2).69 I.R.M. 4.26.17.5.4.1(6)a.70 I.R.M. 4.26.17.5.4.1(6)b.71 I.R.M. 4.26.17.5.4.1(7).72 I.R.M. 4.26.17.5.4.1(8).73 I.R.M. 4.26.17.5.4.2(1).74 I.R.M. 4.26.17.5.4.2(2) & (3).75 I.R.M. 4.26.17.5.4.3.

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Exhibit 2. Offi ce of Professional Responsibility Comments on Professional Responsibility and the Report of Foreign Bank and Financial Accounts1

There have been some questions about professional responsi-bility and the Report of Foreign Bank and Financial Accounts (FBAR). The FBAR, TD F 90-22.1, is not a tax return. It is an information report required under the Bank Secrecy Act (BSA), 31 U.S.C. 5314, and related regulations 31 C.F.R. 103.24, 103.27. Related records are required under 31 C.F.R.103.24 and 103.32. This report, however, is referenced in US tax returns. These tax returns request information about the existence of foreign fi nancial accounts in which the fi ler of the tax return has a fi nancial interest or over which the fi ler has signature or other authority. If the response to the lead-ing question is “yes,” then the tax return fi ler is prompted to fi le an FBAR.

In 2003 IRS was delegated responsibility for assessing penal-ties for failure to fi le this report. In 2004, Congress substantially increased penalties for failure to fi le the FBAR and created a non-willfulness penalty of up to $10,000 for individuals as well as other entities. As a result, there has been increased interest in compliance.

We understand that FBAR non-fi lers are blaming their preparers for the failure to fi le – stating that they have reason-able cause for failure to fi le because the practitioners did not ask about or explain the foreign fi nancial account part of the return. Accordingly, practitioners have expressed concerns about their legal responsibilities respecting this form.

Practitioners must comply with the FBAR fi ling rules. For example, failure to timely fi le required tax or information returns, including FBARs, must be disclosed on Form 8554, Application for Renewal of Enrollment to Practice Before the Internal Revenue Service.

A practitioner must comply with FBAR rules as part of his or her due diligence obligation under Section 10.22 of Circular 230:

§10.22 Diligence as to accuracy. Each attorney, certifi ed public accountant, enrolled agent, or enrolled actuary shall exercise due diligence:

(a) In preparing or assisting in the preparation of, approv-ing, and fi ling returns, documents, affi davits, and other papers relating to Internal Revenue Service matters;

(b) In determining the correctness of oral or written representations made by him to the Department of the Treasury; and

(c) In determining the correctness of oral or written rep-resentations made by him to clients with reference to any matter administered by the Internal Revenue Service.

Due diligence does not require that the practitioner “au-dit” their client. However, it does require that a practitioner make reasonable inquiries when a client provides information that suggests possible participation in overseas transactions/ac-counts subject to FBAR requirements. A practitioner may rely on information provided by a client in good faith. However, they may not ignore implications learned from information provided or actually known. The practitioner is also required to advise a client of potential penalties likely to apply to a position taken, such as failing to abide by FBAR requirements. The practitioner must make reasonable inquiries if informa-tion appears incorrect, inconsistent with an important fact or factual assumption, or is incomplete.

Additional inquiries about the FBAR fi ling requirements may be resolved by reading “FAQs regarding Report of Foreign Bank and Financial Accounts (FBAR),” and other FBAR infor-mation available on the IRS web site at www.irs.gov. Specifi c questions and comments may be emailed to the following address: [email protected]. Questions concerning your ethical obligations in this area may be addressed to the Offi ce of Professional Responsibility at: [email protected].

1 http://www.irs.gov/taxpros/agents/article/0,,id=100709,00.html.

ENDNOTES


This article is reprinted with the publisher’s permission from the JOURNAL OF TAX PRACTICE & PROCEDURE, a bi-monthly journal published by CCH, a Wolters Kluwer business. Copying or distribution without the publisher’s permission is prohibited. To subscribe to the JOURNAL OF

TAX PRACTICE & PROCEDURE or other CCH Journals please call 800-449-8114 or visit www.CCHGroup.com. All views expressed in the articles and columns are those

of the author and not necessarily those of CCH.

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FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) -Financial Accounts

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What is a financial account?

A. A "financial account" includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit or any other account maintained with a financial institution or other person engaged in the business of a financial institution. Financial account also generally includes any accounts in which the assets are heid in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

Persons with a financial interest in, or signature authority over, a foreign commingled fund that is a are an as in

instructions or other relevant guidance, applies. The IRS will not interpret the term "commingled fund" as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, the IRS will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund with respect to that account for calendar year 2009 and earlier calendar years, including hedge funds and private equity funds. ::...:.:::.===--="'-'-'''-=;::..

Q. Is an FBAR required for accounts maintained with financial institutions located in a foreign country if the accounts hold noncash assets, such as gold?

A. Yes. An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.

Q. What does "maximum value of account" mean (for Box 15 on the FBAR)?

A. The maximum value of account is the largest amount (not the average amount) of currency and nonmonetary assets that appear on any quarterly or more frequent account statements issued for the applicable year. If periodic account statements are not issued, the maximum account value is the largest amount of currency or nonmonetary assets in the account at any time during the year. Convert foreign currency by using the official exchange rate at the end of the year.

Though the FBAR instructions direct filers to use the official exchange rate, the Internal Revenue Service has no official exchange rate and generally accepts any posted exchange rate that is used consistently. For exchange rates, check the or other commercial sites.

Q. A person owns foreign financial accounts X, Y and Z with maximum account balances of $100, $12,000 and $3,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?

A. The FBAR instructions require the filing of the FBAR form" ... if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year ... " In this scenario, the person has an FBAR filing obligation because the aggregate value of foreign financiai accounts X, Y and Z is $15,100. The person must report foreign financial accounts X, Y and Z on the FBAR even though accounts X and Z have maximum account values below $10,000.

A. Yes, an FBAR must be filed whether or not the foreign account generates any income.

Q. Does the term "other authority over a financial account" mean that a person, who has the power to direct how an account is invested but who cannot make disbursements to the accounts, has to file an FBAR?

A. No, an FBAR is not required because the person has no power of disposition of money or other property in the account.

Q. Must a U.S. person file an FBAR to report a eurodollar account in the Cayman Islands?

A. Yes, the Cayman Islands account is a foreign account.

Q. A New York corporation owns a foreign company that has foreign accounts. The corporation will file an FBAR for the foreign company's accounts. Do the primary owners of the U.S. company also have to file?

A. Yes, if any owner directly or indirectly owns more than 50 percent of the total value of the shares of stock, that owner will have to file an FBAR.

Q. A company has more than 25 foreign accounts. What should they enter in Part II of the FBAR?

A. If the filer holds a financial interest in more than 25 accounts, check the yes box in item 14 and indicate the number of accounts in the space provided. Do not complete any further items in Part II or Part III of the report. Sign the form in item 44/45 and enter the date signed in item 46. Any person who lists more than 25 accounts in item 14 must provide all the information called for in Part II and Part III when requested by the Department of the Treasury.

are the exceptions to filing requirement?

A. Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. government installations abroad, are not considered as accounts in a foreign country. For this reason, these accounts do not have to be reported on an FBAR.

or personal financial interest in the

or a are on a securities exchange or which has assets exceeding $10 million and 500 or more shareholders of

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corporation, if he has NO personal financial interest in the account and he has been advised, in writing, by the chief financial officer of the corporation that the corporation has filed a current report, which includes that account.

References/Related Topics

•

•

Page Last Reviewed or Updated: April 28, 2010

FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) -Filing Requirements

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commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Q. What is a United States person?

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Q. Is a single-member LLC, which is a disregarded entity for U.S. tax purposes, a United States person for FBAR purposes?

A. Yes, the tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement. FBARs are required under Title 31, not under any provisions of the Internal Revenue Code.

Q. What constitutes signature or other authority over an account?

A. 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 a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.

Other authority exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.

Q. Is a U.S. resident with power of attorney on his elderly parents' accounts in Canada required to file an FBAR, even if the resident never exercised the power

attorney?

A. Yes, if the power of attorney gives the U.S. resident signature authority, or other authority comparable to signature authority, over the financial accounts. Whether or not such authority is ever exercised is irrelevant to the FBAR filing requirement. See for information regarding an extended due date to report signature authority over a foreign financial account.

90-22.1 (PDF).

Q. When is the FBAR due?

A. The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date. See also ~=:::...=~::.....::::.;:::.'

If a filer does not have all the available information to file the return by June 30, they should file as complete a return as they can and amend the document when the additional or new information becomes available.

Q. Where are FBAR forms available?

A. FBAR forms are available:

• Online via IRS.gov in • Online via Department of the Treasury's Financial Crimes Enforcement Network Web

site in PDF. • By calling the IRS at 800-829-3676.

Q. Is there a help line for questions about completing the form?

A. You can get answers to questions concerning the FBAR form by calling 800-800-2877 and selecting option 2.

Q. Does the IRS have an email address to send questions regarding the FBAR?

A. You can send questions concerning the FBAR to :-=~==~===-:;;;..::.,' The email system does not accept actual FBAR reports.

Where I file the FBAR?

A. Send completed forms to:

U.S. Department of the Treasury P.O. Box 32621 Detroit, MI 48232-0621

an is

Detroit, MI 48226

The contact phone number for the delivery messenger service is 313-234-1062. The number cannot be used to confirm that your FBAR was received.

The FBAR is not to be filed with the filer's Federal tax return.

Q. How do I verify that my FBAR was filed?

A. Ninety days after the date of filing, the filer can request verification that the FBAR was received. An FBAR filing verification request may be made by calling 800-800-2877 and selecting option 2. Up to five documents may be verified over the phone. There is no fee for this verification.

Alternatively, an FBAR filing verification request may be made in writing and must include the filer's name, taxpayer identification number and the filing period. There is a $5 fee for verifying five or fewer FBARs and a $1 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury.

The request and payment should be mailed to:

IRS Enterprise Computing CenterlDetroit ATTN: Verification P.O. Box 32063 Detroit, MI 48232

Q. How does an FBAR filer amend a previously filed FBAR?

A. FBAR filers can amend a previously filed FBAR by:

• Checking the Amended box in the upper right-hand corner of the first page of the form; • Making the needed additions or corrections; • Stapling it to a copy of the original FBAR; and • Attaching a statement explaining the additions or corrections.

What happens if an account an

accounts?

A. Yes, under the penalty provisions found in 31 U.S.C. 5314(a)(5), it is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.

Q. How long should account holders retain records of the foreign accounts?

A. Records of accounts required to be reported on an FBAR must be retained for a period of five years. Failure to maintain required records may result in civil penalties, criminal penalties or both.

Q. For filing FBARs for prior years, should the current FBAR form be used or should the previous version of the form be used?

A. The current FBAR form (revised in October 2008) may be used to report a financial interest in, or signature or other authority over, financial accounts that were maintained in years prior to 2008. However, since the changes to the current FBAR form reflect a change in the reporting requirements, the instructions for the prior version of the FBAR form (revised in July 2000) may be relied upon for the purpose of determining the filing requirements for properly reporting financial accounts maintained in calendar years prior to 2008.

Q. Does more than one form need to be filed for a husband and wife owning a joint account?

A. No, provided that the names and Social Security numbers of the jOint owners are fully disclosed on the filed FBAR. A spouse having a joint financial interest in an account with the filing spouse should be included as a jOint account owner in Part III of the FBAR. The filer should write "(spouse)" on line 26 after the last name of the joint spousal owner. If the only reportable accounts of the filer's spouse are those reported as joint owners, the filer's spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer's spouse should also sign the report. It should be noted that if the filer's spouse has a financial interest in other accounts that are not jOintly owned with the filer or has signature or other authority over other accounts, the filer's spouse should file a separate report for all accounts including those owned jointly with the other spouse.

It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of When a truthfully, timely all

provisions of the Voluntary Disclosure Practice, the IRS will not recommend criminal prosecution to the Department of Justice.

Although the use of special voluntary disclosures by taxpayers with unreported income from offshore accounts expired on Oct. 15,2009, noncompliant taxpayers can still use the VDP to resolve their tax liabilities. A voluntary disclosure is made by following the procedures described in Tax professionals or individuals who want to initiate a voluntary disclosure should call their local CI office. Taxpayers with questions may call the IRS Voluntary Disclosure Hotline at 215-516-4777, visit www.irs.gov or.;:;.;:;..;:..:=.;;:;.;..;:;.;..;;:..:.:....:.=-:;;:..:..:::;,,;=-.;:::;..:.

References/Related Topics

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Page Last Reviewed or Updated: April 28, 2010