IRS Extends FBAR Filing Deadline for Persons with Signature Authority
By R.Michael Sorrells
With the growing number of investments in offshore funds, the IRS is boosting its scrutiny of accounts established in certain tax havens to identify possible sources of income that are not currently being taxed. As part of its efforts, the IRS is focusing more attention on Form TD 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"). The FBAR is required to be filed by US persons (including tax-exempt organizations) having a financial interest in or signature authority over any financial account in a foreign country if the aggregate value of those accounts exceeded $10,000 at any time during the calendar year. The FBAR is due annually on June 30, with no permissible extension. Penalties for failure to file this form are significant: $10,000 per return.
An increasing number of tax-exempt organizations have begun utilizing offshore hedge funds to increase investment returns and diversify their portfolios. These hedge funds are often set up as corporate entities in various tax havens, such as the Cayman Islands or the Bahamas. In June of this year, just a couple of weeks before the deadline, investors and their fund managers went into a scramble over the appropriate disclosure requirements after an IRS representative stated on a conference call that investors in offshore funds were required to file an FBAR by the June 30 deadline. Without any definitive guidance from the IRS on this topic, a significant number of organizations took a conservative approach and filed the FBAR.
In response to various questions raised by this form, the IRS issued Notice 2009-62, on August 7, 2009, which provides an extension until June 30, 2010 to certain taxpayers for filing FBARs for 2008 and prior years. The extension generally provides relief to persons with signature authority over, but no financial interest in, a foreign bank account. Thus, an individual employee or officer of an organization with signing authority has the opportunity to catch up on these filings without any penalty.
The Notice also requested public comments on possible exceptions and relief from FBAR filing, including the following:
- Under what circumstances should officers and employees with only signature authority over an employer's foreign financial account be excepted from the FBAR filing requirements?
- When should an interest in a foreign entity (i.e., corporation, partnership, or trust) be subject to FBAR reporting?
The comment period ended on October 6, 2009. Hopefully, the IRS will soon issue guidance which will resolve some of these reporting issues.
For more information, read our recent blog post, "The Potential Cost of Tax Evasion (& the Swiss Alps)," contact our Nonprofit Services Group at 440-449 6800 or R.Michael Sorrells, National Director of Nonprofit Tax Services and Member of the Institute for Nonprofit Excellence in BDO Seidman’s Greater Washington, D.C. office at msorrells@bdo.com.
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