IRS Relaxes Offshore Income Reporting Deadline

by Mike Godfrey, Tax-News.com, Washington

30 June 2009

The US Internal Revenue Service has announced that the June 30 deadline for filing reports about offshore accounts has been put back for certain taxpayers who, until recently, thought they were not caught by the rules.

The announcement comes after the IRS issued a revised version of Form TD F 90-22 - Report of Foreign Bank and Financial Accounts (FBAR) last year, in the process causing much confusion among taxpayers with foreign investments as to whether they are subject to the rules.

There remains considerable uncertainty as to whether holdings in certain foreign investment funds, such as hedge funds or private equity funds, must file an FBAR, although IRS staff have reportedly indicated that such holdings can be considered a ‘foreign account’ under the rules, a development which has kept tax advisors very busy over the past few weeks as individuals seek to establish whether or not they should file as the June 30 deadline draws nearer.

However, on June 24, 2009, the IRS offered the following advice:

“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, should file the delinquent FBAR report according to the instructions and attach a statement explaining why the report is filed late.”

“Send a copy of the delinquent FBAR, together with a copy of the 2008 tax return, by September 23, 2009, to the Philadelphia Offshore Identification Unit.”

The IRS said that in this situation, it will not impose a penalty for the failure to file the FBAR.

The agency continued:

”Additionally, if all 2008 taxable income with respect to a foreign financial account is timely reported and a United States person only recently learned they have a 2008 FBAR obligation and there is insufficient time to gather the necessary information to complete the FBAR, the United States person may follow the procedures set forth above and no penalty will be imposed.”

"For 2008 tax returns due after September 23, 2009, the tax return does not need to accompany the 2008 FBAR.”

According to an FAQ page added to the IRS website in March, a “financial account” includes “any bank, securities, securities derivatives or other financial instruments accounts.” The term includes “any savings, demand, checking, deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution.”

Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

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 USD10,000 at any time during the calendar year, is required to file an FBAR.

A person has signature authority over an account if “such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.”

An FBAR must be filed regardless of whether the foreign account generates any income.

Under the rules, a “foreign country” includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

A "United States person" includes “a citizen or resident of the United States, or a person in and doing business in the United States.” The term "person" includes “individuals and all forms of business entities, trusts, and estates.”

The IRS had also planned to extend the FBAR requirement to non-US persons, but it announced on June 5 that this had been “temporarily suspended” for those who are not citizens, residents, or domestic entities.

The new version of the FBAR form issued last year included a change in the instructions to the definition of a United States person. However, the agency said that it took action to reduce the filing burden after “concerns and questions” were raised regarding the new instructions.

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