Tax Alert: Report of Foreign Bank and Financial Accounts Due to IRS by June 30
6/24/2009
As indicated in prior J.H. Cohn Tax Alerts (distributed June 1 and March 17) each United States person who had a financial interest in or signature or other authority over any foreign financial accounts, including, bank, securities or other types of financial accounts, in a foreign country during any time during 2008 must file Form TD F 90-22.1, Report of Foreign Bank and Financial Reports (“FBAR”), on or before June 30, 2009 if the aggregate value of such accounts exceeded US$10,000 at any time during 2008. This filing obligation has existed for many years but the filing obligation has become a heightened priority due to additional scrutiny by the IRS and recent pronouncements from the IRS in relation to amnesty programs for late filers.
The filing of FBARs for 2008 has created more confusion than in past years due to, among other things, an apparent expanded concept of what constitutes a “financial account.” The FBAR instructions indicate that a “financial account” also generally includes “any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds).” It is not clear whether such definition would apply to a typical offshore hedge fund or private equity fund. However, informal statements by IRS personnel have indicated that the definition of the term “financial account” would include foreign hedge funds, mutual funds, and private equity funds because such funds appear to constitute “commingled funds.”1
Further confusion stems from the fact that the FBAR form for 2008 does not seem to "mesh" with the concept that it should be completed for equity interests in foreign hedge funds, private equity funds, or mutual funds. The FBAR form (TD F 90-22.1) requests the name of the financial institutions at which the financial accounts are held, the account numbers, and other pertinent information that typically does not exist in the case of foreign hedge funds and private equity funds (some of such information may exist for foreign mutual funds). Nevertheless, we believe that U.S. persons holding interests in foreign hedge funds, foreign private equity funds, and foreign mutual funds should file the FBAR form with respect to such interests on or before June 30, 2009 to avoid the significant penalties that may be assessed for non-filing.2
For more information, please contact your J.H. Cohn professional at 877-704-3500.
(1) See Article in June 24 DTR, 118 DTR G-1.
(2) Id. The June 23 DTR Report suggests that a number of taxpayers are or will likely file because of the harsh penalties involved, even though their obligation to file is arguably unclear. Please note that the technical rule is that the Government must receive the filing by June 30.
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