Alert February 17, 2009

Reminder: IRS Reporting Obligations for Businesses and Individuals Regarding Foreign Bank and Financial Accounts

As a reminder, individuals and businesses have an obligation to report to the Internal Revenue Service (“IRS”) regarding their interests in foreign bank and financial accounts, including bank, securities, securities derivative, prepaid credit or debit card, and other accounts maintained abroad.  Individuals must disclose on Schedule B of their federal income tax returns if, at any point in 2008, they had a financial interest in or signature or other authority over one or more financial accounts in a foreign country with an aggregate value of over $10,000.  In addition, all U.S. persons (both individuals and businesses) that had such an interest must file a “Foreign Bank Account Report,” or “FBAR,” on Form TD F 90.22-1 with the IRS by June 30, 2009.  Form TD F 90.22-1 is available on the websites of both the IRS and the Financial Crimes Enforcement Network (“FinCEN”). 

As a general rule, employees and officers of a firm that has foreign financial accounts are not exempted from reporting merely because the firm has made a necessary FBAR filing.  Indeed, employees and officers who sign on their firm’s foreign accounts may have their own FBAR reporting obligation.  There are only limited exceptions to this rule.  For example, officers and employees of certain banks and of U.S. corporations with publicly traded shares in the United States or with assets exceeding $10 million and more than 500 shareholders may qualify for an FBAR filing exception. 

Firms will need to consider carefully their FBAR obligations because a firm’s foreign bank accounts may result in reporting obligations (and consequences for failing to meet those obligations) not only for the firm but also for the firm’s employees.  Moreover, firms may wish to consider the April 15 filing deadline for individual tax returns in determining when to assess their FBAR reporting obligations.