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UPDATE: 9/21/09: IRS extends deadline for entry into Offshore Account Voluntary Disclosure Program

On 9/21/09, the IRS extended to October 15, 2009, the date taxpayers are required to enter the voluntary disclosure program. The extension, therefore, provides interested taxpayers additional time in which to make initial contact with the IRS in order to receive consideration for the program, or to take advantage of the simplified filing provided in the FAQs. Go here for more information.

IRS Modifies Foreign Bank Account Reporting Requirements
June 25, 2009
 
On June 25, the IRS updated its administrative guidelines for certain taxpayers who fail to file FBAR reports for 2008 by the June 30, 2009 deadline. Under the updated guidelines, taxpayers who reported and paid tax on all their 2008 taxable income, but only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the FBAR, may file a delinquent FBAR report by September 23, 2009, together with a copy of their 2008 tax return and a statement explaining why the report is filed late.

The American Bar Association recently hosted a teleconference on June 12, 2009, which was joined by three representatives of the Internal Revenue Service.  The topic of the teleconference was “Foreign Bank Account Reports: Getting it Straight before the June 30 Deadline!”  The hot topic on the call was the treatment of offshore hedge funds and other managed offshore accounts including private equity funds for purposes of the definition of a “foreign financial account” for FBAR filing purposes.

The revised Form TD F 90-22.1 (FBAR) instructions state that financial accounts “generally also encompass 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)” (emphasis added).  The mutual fund parenthetical was added with the October 2008 revisions to the form and instructions.  Although the term “mutual fund” is not specifically defined, the revised definition of financial accounts would appear to apply to private investment funds, thereby suggesting that equity interests in offshore hedge or other offshore funds will be treated as financial accounts.  It appears to be the position of the Service that every United States investor in an offshore hedge fund should consider filing an FBAR form, whether or not the fund has any offshore bank or securities accounts.

Therefore, it is recommended that, until further guidance is received from the Service, hedge funds or other managed offshore funds be treated as financial accounts and any United States person that owns an equity interest in an offshore investment fund file an FBAR form, including the following:

(1)    Domestic feeder funds that have an investment in an offshore master fund;
(2)    United States persons that invest directly in an offshore feeder fund; and
(3)    Investment managers and general partners (and their principals) that have an equity interest in an offshore fund (including a profits interest).

Entities other than individuals and/or businesses may also have a FBAR filing requirement.  This may include retirement accounts and non-profit or tax exempt entities.  Further, it appears to be the position of the Service that any remainder beneficiaries should also be filing FBAR forms, as well as any United States partners in foreign partnerships (regardless of ownership interest, if said foreign partnership is a merely acting as an investment fund).  The Service has indicated that more formal guidance should be issued later this year on FBAR-related issues.

Should you have any questions about whether you must be filing an FBAR form, please contact a Smith & Howard tax professional immediately at 404-874-6244.

*Due Date Reminder:  The deadline for filing Form TD F 90-22.1, the Report of Foreign Bank and Financial Accounts (“FBAR”) is June 30, 2009.  It is unclear whether the forms must be received by June 30 or mailed by June 30.   Therefore, to be cautious, we should assume until further guidance is issued that these forms must be received by June 30, 2009.  Note that Form TD F 90-22.1 may also be hand-carried to any local office of the Internal Revenue Service for forwarding to the Department of the Treasury.