Window Of Opportunity Is Closing For Taxpayers With Unreported Foreign Financial Accounts To Take Advantage Of Favorable IRS Guidance
Originally published August 31, 2009
Each taxpayer who has a financial interest in or signature
authority over a foreign financial account generally is required to
file the Report on Foreign Bank and Financial Accounts (FBAR) by
June 30 for the previous year. For the 2008 tax year, the IRS
recently announced that it will accept, without penalty, late
filing of an FBAR for those taxpayers that recently learned of
their obligation to file and that reported all of their 2008 income
on their tax returns. For most taxpayers, the filing deadline has
been extended until September 23, 2009. Individuals who have
signature authority over, but no financial interest in, a foreign
financial account or commingled fund may file until June 30,
2010.
Investments In Foreign Hedge Funds, Private Equity Funds, And
Private Investment Funds Now Reportable On FBAR
These filing extensions followed changes to the FBAR and its
instructions, and an announcement in mid-June that the IRS expects
taxpayers holding investments in foreign hedge funds or foreign
private equity funds to report these interests as foreign accounts.
Prior to this announcement, few taxpayers or tax professionals
believed that these investments were subject to FBAR reporting
requirements. Because of the confusion following the June
announcement, the IRS announced that it will not impose civil and
criminal penalties on certain taxpayers that file an FBAR by the
appropriate extended deadline.
During a June teleconference with the American Bar Association
and the American Institute of Certified Public Accountants, IRS
representatives stated that investors that hold an equity interest
in a foreign hedge fund must report this interest by filing an
FBAR, also known as Form TD F 90-22.1. This announcement surprised
most tax professionals, but an IRS spokesperson later confirmed the
new interpretation. According to the IRS, these and other offshore
private investment funds qualify as "foreign accounts"
for FBAR reporting purposes. The IRS has provided little other
guidance on this matter, except to say that any interest in a
foreign partnership or corporation used by investors to commingle
funds must also be reported.
Previous Assumptions About "Foreign Accounts" For
FBAR Reporting Purposes
Prior to this announcement, most taxpayers assumed that these
types of private investments did not qualify as "foreign
accounts" for FBAR purposes. The IRS does not consider certain
other types of investments in...
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