Resetting the FBAR: Foreign Financial Account Reporting Regulations are Finalized With Significant, But Not Always Helpful, Clarifications

by Eversheds Sutherland (US) LLP
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The Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) division recently issued final rules regarding the reporting of foreign bank and financial accounts (commonly known as FBAR filings). The final FBAR regulations largely adopt proposed regulations issued in early 2010, but with some significant clarifications. The key points are:

-Only individuals that control a financial account by direct instructions to a financial institution have “signature or other authority.”

-Only life insurance and annuity policies with cash value are treated as “financial accounts,” but in those cases reporting is required even if the policy or contract is not in payout status.

- Whether hedge funds and private equity funds are “financial accounts” is determined under the general rules – only interests in funds that issue shares available to the general public are covered.

- Companies that make a section 953(d) election are not treated as domestic companies for FBAR purposes and, thus, accounts of such companies and policies issued by such companies are subject to FBAR reporting.

- The reporting exception relating to signatory authority over accounts of financial institutions registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) does not extend to investment advisors, and the exception for SEC registered investment advisors applies only to those investment advisors who provide services for clients registered under the Investment Company Act.

- U.S. employees of U.S. subsidiaries of foreign corporations who have signature authority over financial accounts do not qualify for the expanded consolidated FBAR rule, notwithstanding language in the proposed regulations that suggested they may so qualify.

-Filers eligible to defer pre-2010 FBARs may apply the final regulations to those FBARs that are due on June 30, 2011.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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