Understanding your clients' FBAR filing obligations and getting them in compliance.

• Author: Silverstein, Joshua
• Position: Foreign bank account reports

Following the June 30, 2014, filing deadline for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), owners of reportable foreign accounts and those with signature authority over those accounts now find themselves either in compliance or delinquent. Some reading this item may be unsure into which category they or their respective businesses fall; others may be aware that they are delinquent and wonder whether any procedures are available for relief from civil or criminal penalties.

This item highlights two nuances of the scope of the FBAR reporting requirements that commonly result in filing missteps. For those who are delinquent, this item offers guidance on potential relief from penalties in accordance with applicable IRS procedures.

Scope of Reporting Requirement Subject to certain exceptions discussed below, the Bank Secrecy Act, P.L. 91-508, and corresponding regulations impose the FBAR reporting requirement on "[e]ach United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country" (31 C.F.R. [section] 1010.350(a)). Understanding the definitions of these terms is crucial to knowing the extent of one's FBAR filing obligations. However, the regulations' definitions of these terms contain more intricate or less obvious meanings, the nuances of which can pose traps for the unwary.

Two areas that most often cause compliance issues for FBAR filers are:

* U.S. persons who have a controlling interest in a foreign entity that owns reportable accounts; and

* The regulatory exceptions to the signature authority filing requirement, particularly as affected by the recent extension of the 1-13AR filing deadline for certain types of employees of U.S. and foreign entities.

Financial interest: In addition to having a financial interest in a foreign account by directly owning the account, a U.S. person is treated as having a financial interest in a foreign account when the record owner or legal title holder of the account is (1) a corporation in which the U.S. person owns directly or indirectly more than 50% of the voting power or the total value of the shares; (2) a partnership in which the U.S. person owns directly or indirectly more than 50% of the profits or capital; or (3) any other entity in which the U.S. person owns directly or indirectly more than 50% of the voting power, total value of the equity interest or assets, or interest in...