TREASURY ISSUES FINAL REGULATIONS CONCERNING FOREIGN FINANCIAL ACCOUNT REPORTING

Final rules have just been issued by the Treasury Department's Financial Crimes Enforcement Network [FinCEN] concerning the reporting requirements for U.S. citizens or residents who, directly or indirectly, hold a beneficial interest in or exercise control over certain financial accounts in a foreign country.  Various amendments to the long-standing foreign financial account reporting regulations were originally proposed by FinCEN in February, 2010, as part of its implementation of the 1970 Bank Secrecy Act [BSA].  The final rules focus on those persons who are required to file reports and the types of accounts which are reportable, while adopting provisions intended to prevent persons subject to the rules from avoiding their reporting obligations.  With respect to foreign financial accounts maintained at any time during calendar year 2010, the new rules apply to reports required to be filed by the deadline, June 30, 2011.  The rules also apply to reports required to be filed for all subsequent calendar years.

Who Must File

Generally speaking, any individual who is subject to the territorial jurisdiction of the United States, whether as a citizen or permanent resident, and any entity created, organized or formed under the laws of the United States, its territories or insular possessions, or of any state or the District of Columbia (hereinafter collectively referred to as a “U.S. person”), must provide certain information to the IRS with respect to any calendar year in which that person held either a

                [1] financial interest in, or

[2] signature or other authority over

any bank, security or other financial account in a foreign country, provided that, at any time during such year, the account had a value in excess of ten thousand dollars ($10,000).  The form used to report the information to IRS is Treasury Department Form 90-22.1, also known as the “FBAR” form.  In addition to the June 30 filing deadline, records must be kept for each such foreign account for a period of 5 years.

A “financial interest” exists where a U.S. person is the owner of record or holds legal title to an account in a foreign country.  In addition, a U.S. person has a financial interest in each bank, securities or other financial account in a foreign country for which the owner of record or holder of legal title is a trust that was established by such person and for which a trust protector has been appointed.  A trust protector is a person who is responsible for monitoring the activities of a trustee, with the authority to influence the trustee's decisions or to replace (or recommend the replacement of) the trustee.  Further, a U.S. person has a financial interest in each bank, securities or other financial account in a foreign country for which the owner of record or holder of legal title is a corporation, partnership or limited liability company, if such person owns, directly or indirectly, more than fifty percent (50%) of the voting power of the entity.

Which Accounts are Reportable

An “account” includes any formal relationship with a foreign financial agency to provide regular services, dealings or other transactions, and may exist for a short period of time, such as an escrow account, but is not established by simply wiring money or purchasing a money order.

Only foreign accounts are reportable on the FBAR.  An account is not a foreign account if it is maintained with a financial institution located in the United States,