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By Edward Tanenbaum, Esq.
Alston & Bird LLP, New York, NY
On December 26, 2012, the Financial Crimes Enforcement Network (FinCEN) issued Notice 2012-2, extending the due date for filing Form TD 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), from June 30, 2013, to June 30, 2014, for certain individuals with signature authority over, but no financial interest in, certain foreign financial accounts. The new extended filing deadline applies only to those individuals whose due date for reporting their signature authority had previously been extended in prior FinCEN Notices 2011-1, 2011-2, and 2012-1.
By now, we all know too well the requirement imposed by §5314 of the Bank Secrecy Act1 for U.S. persons to file FBARs to the extent that they have either a financial interest in, or signature or other authority over, a foreign financial account (as defined). The FBAR must be received by the IRS on or before June 30 of the year following the year to which the report relates.
FinCEN published final regulations under the Bank Secrecy Act regarding the FBAR in February 2011 (the "Final Regulations")2 and a number of notices of administrative guidance have since been released, especially regarding the signature authority of certain officers and employees.
In particular, the FinCEN Final Regulations provide an exception to the filing requirement applicable to officers and employees of five categories of entities subject to specific types of federal regulation, provided that the officers or employees have no financial interest in the reportable foreign account:3
1. Banks examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration;
2. Financial institutions registered with and examined by the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission. The Preamble notes that SEC-registered investment advisors are not included in the definition of financial institution and, thus, are outside the scope of this exception;
3. Authorized Service Providers (meaning entities that are registered with and examined by the SEC) that provide services to investment companies (e.g., mutual funds) that are registered under the Investment Company Act of 1940. This rule was included because mutual funds do not have employees of their own but, instead, have their day-to-day operations performed by service providers, such as investment advisers;
4. Entities (regardless of whether the entity is domestic or foreign) with a class of equity securities listed (or American depository receipts listed) on any U.S. national securities exchange. This exception also applies to officers and employees of a U.S. subsidiary of a listed U.S. entity with respect to foreign financial accounts in which such subsidiary has an interest, provided the subsidiary is included in a consolidated FBAR report filed by the U.S. parent; and
5. U.S. corporations with a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act (i.e., corporations with more than $10 million in assets and more than 500 shareholders of record).
In response to certain questions regarding the application of the exceptions, FinCEN issued various Notices extending the FBAR due date for certain individuals. For example, in Notice 2011-1, FinCEN announced that it had received questions regarding the applicability of the exceptions to the following individuals:
(1) an employee or officer of an entity under 31 CFR §1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person4 of the entity; or
(2) an employee or officer of a controlled person of an entity under 31 CFR §1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.
FinCEN granted an extension of the filing date from June 30, 2011, to June 30, 2012, to allow these individuals the time to file FBARs based on their signature authority in either of those situations.
In Notice 2011-2, FinCEN noted the regulatory exception for officers and employees of Authorized Service Providers with signature authority over (but no financial interest in) a foreign financial account owned or maintained by an investment company that is registered with the SEC but then also noted that questions had arisen as to compliance by officers and employees of investment advisors registered with the SEC when such persons have signature authority over (but no financial interest in) foreign financial accounts of persons that are not registered investment companies. In light of those questions, FinCEN granted an extension of the filing date of the FBAR to June 30, 2012, to allow such persons additional time to comply.
Finally, in Notice 2012-1, noting that additional questions and concerns had been raised with respect to the exceptions addressed in Notice 2011-1 and Notice 2011-2, FinCEN further extended the filing date to June 30, 2013, for the persons affected by those two earlier Notices.
And, now, in Notice 2012-2, FinCEN acknowledged that it continues to receive questions that require additional consideration with respect to the exceptions expressed in the earlier Notices and, as a result, has further extended the filing date from June 30, 2013, to June 30, 2014.
It seems pretty clear that FinCEN must be grappling with a number of issues affecting the persons described in the foregoing Notices, perhaps ranging from an inability to timely obtain the relevant information necessary to report, to the concern that there may be unnecessary filings or duplicative reporting.
For example, under the Final Regulations:
1. Officers or employees of foreign subsidiaries of a listed U.S. corporation who have signature authority over the foreign financial accounts of such foreign subsidiaries do not qualify for an exception from reporting, even if the U.S. parent company is obligated to report such foreign financial accounts in its own FBAR.
2. Officers or employees of U.S. subsidiaries of foreign corporations who have signature authority over foreign financial accounts do not qualify for an exception from reporting as the foreign parent is not required to file an FBAR and the U.S. subsidiary's stock is not publicly traded. This rule applies even if the foreign corporation voluntarily files an FBAR report.
3. The fourth exception listed above does not apply if the officer or employee has signature authority with respect to a foreign account owned by an entity other than the entity of which such individual is an officer or employee. For example, officers or employees of a listed U.S. parent who have signature authority over a foreign financial account of its U.S. subsidiary do not qualify for the exception with regard to the subsidiary's account. Similarly, officers or employees of a U.S. subsidiary who have signature authority over a foreign financial account of its listed U.S. parent do not qualify for the exception with regard to the U.S. parent company's account. Whether the two U.S. companies file a consolidated FBAR report is irrelevant for these purposes.
In its Final Regulations FinCEN rejected various expansions of the five exceptions from reporting available to certain officers and employees who have only signature authority. While a number of legitimate reasons were offered up by FinCEN, it remains in the interest of both the government and taxpayers to lighten the reporting load somewhat in order to avoid costs and administrative burdens. Hopefully, FinCEN is re-thinking some of these previously rejected expanded situations.
This commentary also will appear in the March 2013 issue of the Tax Management International Journal. For more information, in the Tax Management Portfolios, see Blum, Canale, Hester, and O'Connor, 947 T.M., Reporting Requirements Under the Code for International Transactions, and in Tax Practice Series, see ¶7170, U.S. International Withholding and Reporting Requirements and FATCA.
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