Foreign accounts: new rules for disclosure, penalties and extended statute of limitations.

• Author: Josephs, Stuart R.
• Position: FedTax

The 2010 Hiring Incentives to Restore Employment Act (PL. 111-147) signed into law March 18. 2010, covers increased compliance regarding foreign accounts and assets.

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Under existing law, U.S. persons transferring assets to, and holding interests in, foreign bank accounts or foreign entities may be subject to sell-reporting requirements under IRC Title 2G and Title 31 of the Bank Secrecy Act.

Treasury Department Form TD F 90-22.1, "Report of Foreign Bank and Financial Accounts," (the FBAR) must be filed by June 30 of the year following the year in which a $10,000 filing threshold is met. This threshold is the aggregate value of all foreign financial accounts in which a U.S. person has a financial interest, or over which the U.S. person has signature or other authority.

The FBAR is filed with the Treasury Department at the. IRS Detroit Computing Center. Failure to file the FBAR is subject to criminal and civil penalties.

Although the FBAR is processed by the IRS, it is neither part of the income tax return nor filed in the same office as that return. Thus, for IRC purposes, the FBAR is not considered "return information" and its distribution to other law enforcement agencies is not limited by IRC Sec. 01030 nondisclosure rules.

Although the obligation to file an FBAR. arises under Title 31. individuals subject to the FBAR requirements are alerted to it in preparing (heir annual federal income tax returns. Specifically, the 2009 Form 1040, Schedule B, Part 111 contains this question: "At any time during 2009, did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account?" and directs taxpayers to "See instructions on back for exceptions and filing requirements for Form TD F 90-22.1." Individuals who answer "yes" must identify the foreign country.

Responding to this question does not. discharge one's obligations under Title 31 and constitutes "return information" protected from routine disclosure to those charged with enforcing Title 31.

The FBAR requires disclosure of any account in which the filer has a financial interest or as to which the filer has signature of other authority (in which case the filer must identify the owner of the account).

The Treasury Department and the IRS revised the FBAR and its accompanying instructions in October 2008. For example, the terminology has been updated to reflect new...