Alert June 09, 2009

IRS Temporarily Suspends the Broadening of FBAR Filing Requirements for “U.S. Persons”

The Internal Revenue Service (the “IRS”) on June 5, 2009 issued Announcement 2009-51 (the “Announcement”) to reduce confusion over the reporting requirements with respect to foreign bank accounts on Form TD F 90.22-1 (Report of Foreign Bank and Financial Accounts), commonly referred to as “FBAR.”  The Announcement indicates that the IRS is temporarily suspending those reporting requirements for upcoming FBAR filings – due on June 30, 2009 (covering the 2008 calendar year) – for those persons who are not citizens, residents, or domestic entities.  The confusion was a result of a changed definition that would have applied to, and ultimately broadened, the upcoming June 30 filing obligation.

The FBAR filing rules require that each U.S. person who has 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, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30 of the succeeding year.  FBARs are under increased scrutiny due to the U.S. Government’s crackdown on the holders of offshore accounts who may have failed to pay U.S. taxes. 

Form TD F 90.22-1 was revised in October 2008 with several changes, including a change to the definition of “U.S. person.”  That revision broadly defined a “U.S. person” as a citizen or resident of the U.S., or a person in and doing business in the U.S. 

However, due to comments, concerns, and questions from the public, the IRS reinstated a prior set of FBAR instructions (the July 2000 version).  Importantly, this technical reversion to the prior instructions only applies to the issue of whether a person has an obligation to file an FBAR.  Under the prior version of the form, a U.S. person is defined as a (1) citizen or resident of the U.S.; (2) a domestic partnership; (3) a domestic corporation; or (4) a domestic estate or trust.  This change will smooth the FBAR filing process for June 30, 2009 by allowing all persons to rely on the narrower definition of “U.S. person” found in the instructions for the prior version of the FBAR (the July 2000 version). 

All other requirements of the current version of the FBAR form and instructions (revision dated October 2008) are still in effect.  Moreover, the current version of the form must be used when filing a FBAR.  The Announcement indicates that the IRS will issue future guidance with respect to FBARs due in later years.