Report on foreign bank and financial accounts: compliance and controversy.

• Author: Sinclair, Kirk

The following is a brief discussion of various matters relating to T.D. F 90-22.1, Report on Foreign Bank and Financial Accounts (FBAR). In recent months, concern over who is required to file the FBAR has escalated among taxpayers and tax practitioners alike. Along with stepped-up enforcement by Treasury and the IRS, this has made for a very interesting and challenging period in the life of the FBAR reporting requirement.

Background

In 1970, Congress passed the Bank Secrecy Act (BSA), which is codified in title 31 of the U.S. Code (Sections 5311-5330). The purpose of the BSA was to require the filing of certain reports and the retention of certain records where doing so would be helpful to the U.S. government in conducting criminal, tax, and regulatory investigations.

In April 2003, the IRS and FinCEN (the U.S. Treasury Department Financial Crimes Enforcement Network) signed a Memorandum of Agreement whereby FinCEN delegated its enforcement authority to the IRS. This agreement was reached primarily for three reasons: the IRS traditionally has had more enforcement resources, the enforcement was essentially geared toward tax evasion rather than money laundering or other financial crimes, and most FBARs were filed by individuals. (See IRS News Release IR-2003-48 (4/10/03)).

To achieve this goal, the BSA put into place two principal requirements: (1) each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) having a financial interest in, or signature authority over, a bank, securities, or other financial account in a foreign country must report that relationship in each year the relationship exists (31 C.F.R. [section]103.24 (2005)); and (2) records of accounts required to be reported shall be retained by each person having a financial interest in or signature authority over any such account (31 C.F.R. [section]103.32 (2005)).

The first requirement under the BSA forms the basis for FBAR reporting. As is described in the instructions to Form TD F 90-22.1, the FBAR filing requirement is as follows:

Each United States person who has a financial interest in, or signature authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in [a] foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year, must report with the Department of the Treasury on or before June 30, of the succeeding year. The...