Foreign Bank and Financial Accounts (FBAR) - Filing Requirements
An FBAR is a Report of Foreign Bank and Financial Accounts - Form TD F 90-22.1. This form must be filed by any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
Last year, there was substantial debate over what constituted a "United States person"; specifically whether a US Limited Liability Company owned entirely by US non-residents and not doing business in the US was a US person and thus subject to the filing requirements. Previous IRS pronouncements had indicated that this was not the case and the IRS had instructed that previous definitions of US persons could be relied on for filing purposes.
Additional guidance has been provided by the Internal Revenue Service. Specifically, IRS Notice 2010-23 and Announcement 2010-16 provide certain short-term relief for the FBAR filing requirements under certain circumstances.
In Announcement 2010-16, the IRS has continued for 2009 the existing definition of a "U.S. Person" subject to FBAR compliance. Accordingly, persons who have U.S. activities but are not U.S. citizens, U.S. residents, or domestic entities, will not have to file 2009 FBARs. At this time, this suspension of the FBAR filing obligation applies only to 2009 and prior years. Thus, non-US persons who had U.S. activities will not be required to file a 2009 FBAR at this time. Unfortunately, no guidance is available with respect to the 2010 tax year.
Similarly, in Notice 2010-23, the administrative relief provided previously by Notice 2009-62 is extended generally for 2009 FBAR filings, except for mutual funds. Specifically, persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report these foreign financial accounts.
Under the proposed regulations issued with respect to the FBAR filing requirements, domestic corporations, trusts, partnerships, and limited liability companies are required to file FBARs. Under the proposed regulations, single-member domestic
LLCs are expressly treated as United States persons for the purpose of FBAR filing and, as such, may be required to file the annual FBAR beginning June 30, 2011. Thus, a domestic LLC with a single foreign owner and a financial interest in a foreign financial account would be required to file an FBAR, even though the foreign person would not be required to file an FBAR if it held an interest in the foreign financial account directly. Moreover, under the proposed regulations, if a United States citizen wholly owns a single-member domestic LLC that, in turn, holds an interest in a foreign financial account, both the LLC and its owner must file separate FBARs.
We have had an attorney make verbal inquiries with the IRS and a staff attorney had informed us that a single Member LLC owned by a US nonresident would not be subject to FBAR reporting if it did no business in the US and had no US-source income. We are hoping future announcements from the IRS will clarify this position.
We shall continue to keep you apprised as new guidance is provided by the IRS.
IRS Circular 230 Disclosure: To comply with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained herein (including any attachments), unless specifically stated otherwise, is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.
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