The Report of Foreign Bank and Financial Accounts: Tough New Requirements presents presents M Mastering Latest IRS Guidance and Preparing for t i L t t IRS G id d P i f FBAR's Increased Data Demands A Live 110-Minute Teleconference/Webinar with Interactive Q&A Q Today's panel features: Brent Lipschultz, Principal, Personal Wealth Advisors Practice Group, Eisner , New York Neil AJ Sullivan, Owner, International Tax Compliance Strategy, Scarsdale, N.Y. Tuesday, February 16, 2010 The conference begins at: 1 pm Eastern p 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View , select Navigational Panels , and chose either Bookmarks or Pages . If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10
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The Report Of Foreign Bank and The Report Of Foreign Bank and Financial Accounts: Tough New R Requirements Webinar i t W bi Feb. 16, 2010 Brent Lipschultz Neil AJ Sullivan Eisner LLP International Tax Compliance Strategy blipschultz@eisnerllp.com neilsullivan@att.net
Today’s Program • Review Of Changes To Form TD F 90.22-1, slides 3 through 24 • IRS FBAR E f IRS FBAR Enforcement So Far, slides 25 through 26 t S F lid 25 th h 26 • Emerging FBAR Issues To Date, slides 27 through 35 • Future Legislation, slides 36 through 41 2
3 Review Of Changes To Form TD F 90 22 1 90.22-1
FBAR Overview • FBAR (Form TD F 90-22.1) is a Treasury annual report under USC Title 31, the Bank Secrecy Act of 1970 (the “BSA”). BSA addressed concerns that U S persons were using foreign bank secrecy laws to concerns that U.S. persons were using foreign bank secrecy laws to conceal illegal activities • Si Since FBAR is not a tax return, Tax Court has no jurisdiction over FBAR i t t t T C t h j i di ti FBAR penalties (Williams, 131 TC No. 6 (10/2/08)) FBAR report is in addition to a taxpayer’s obligation to indicate the existence of a foreign account on: Form 1040, Schedule B, Part III Form 1040, Schedule B, Part III Form 1041, Schedule G Form 1065, Schedule B Form 1120 Schedule N Question 6 Form 1120, Schedule N, Question 6 4
Authority To Administer FBAR • FinCen delegated its authority to enforce the FBAR to the IRS in 2003, reflecting the fact that a major purpose of the FBAR was to identify reflecting the fact that a major purpose of the FBAR was to identify potential tax evasion • The IRS can investigate FBAR non-compliance, and assess and collect civil penalties for failure to comply civil penalties for failure to comply • The authority delegated to the IRS included the authority to revise Form 90-22.1 and instructions • • Currently the IRS is set to release a publication in early December Currently, the IRS is set to release a publication in early December clarifying the rules, and has a regulation projection 5
Who Must File FBAR? Any U.S. person who has a financial interest or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any time during the year must file an FBAR for such year A person or required to file an FBAR also must check the appropriate box of his tax return 6
Key Changes To Form TD F 90.22-1 – Requirement for persons in or doing business in U.S. to file FBAR – “Doing business” standard delayed • IRS guidance forthcoming – Expanded definition of reportable financial accounts – Expanded definition of “financial interest” through ownership in corporations, partnerships or trusts – Expanded definition of “covered trusts” – Broadened standards for who holds signatory authority over foreign accounts – Expanded list of domestic corporation officers and employees who are E d d li f d i i ffi d l h exempt from filing requirement 7
“U.S. Person,” For FBAR Purposes • Prior to 2008, a “U.S. person” was: , p – A U.S. citizen or resident; or – Any domestic legal entity such as a partnership, corporation, estate or trust • Pursuant to the revised FBAR (October 2008), a “U.S. person” is: – A U.S. citizen or resident (including entities); or ( g ); – A person in and doing business in the U.S. – Review of U.S. person definition in Internal Revenue Manual (July 2008) • Revised definition is significantly expanded, with guidance lacking regarding the “in and doing business” standard 8
“U S Person ” For FBAR Purposes U.S. Person, For FBAR Purposes (Cont.) Must a single member LLC file an FBAR? FAQ 8 (6/29/09) reads: • Q. Is a single member LLC, which is a disregarded entity for US tax purposes, a United States person for FBAR purposes? A. Yes, the tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement. FBARs are required under Title 31 not under any provision FBARs are required under Title 31, not under any provision of the Internal Revenue Code. 9
a US Person (cont ) a. US Person (cont.) Example (U.S. Person) 100% Non-U.S. ownership person U.S. domestic LLC Foreign financial g account In the Outside the U S U.S. U.S. 10
Key Changes To Form TD F 90.22-1 y g “In and Doing Business in U.S.” • Based on an analysis of the facts and circumstances of each case • A person is not considered to be in and doing business in the U.S. unless that person is conducting business within the U.S. on a regular and continuous basis • P Persons who “sporadically conduct business in the United States” are not in h “ di ll d b i i h U i d S ” i and doing business in the U.S. • The following examples of persons who are not considered to be in and doing business in the U.S. are included in IRS guidance issued in February – Non-resident aliens (NRAs) who are engaged in a business but only occasionally visit the U.S. to meet customers or business associates – NRA artists, athletes and entertainers who only occasionally come to the U.S. to participate in exhibits, sporting events or performances; and – NRAs who visit the U.S. to manage their personal investments, such as rental property, and conduct no other business in the U.S. – Announcement 2009-51 provides that all persons may rely on the definition of U.S. person found in the 2000 instructions and for filings in 2010 added “a person in and doing business in the United States” 11 11
“Foreign” F Foreign” financial accounts i ” fi i l t A “foreign” financial account is one maintained outside the U.S. The geographical location of the account The geographical location of the account, not the nationality of the not the nationality of the financial institution, determines whether an account is “foreign” A financial account with a non-U.S. branch of a U.S. bank or other U.S. financial institution is “foreign” A financial account with a U.S. office of a foreign bank or other foreign institution is a U.S. account g An insurance policy is foreign if issued by a non-U.S. office of insurer – Examples: E l • Royal Bank of Canada in New York – no • Citibank in Toronto – FBAR requirement • U.S. mutual fund with foreign investments – no FBAR requirement • Foreign mutual fund with all U.S. investments – FBAR requirement 12 12
What Is A Financial Account? • A “financial account” includes a bank, securities, derivatives or other financial instrument account, including any savings, demand, checking, deposit, time deposit, debt card and prepaid credit card account. Safe deposit boxes are not financial accounts unless the institution provides services • Individual bonds, notes or stock certificates held by the filer, however, are not financial accounts; nor is an unsecured loan to a foreign trade or business that is not a financial institution • “Financial account” is any “account in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds)” ( g ) • IRS view is that a cash surrender value insurance policy is a financial account, and thus if the policy is “foreign” and the value exceeds $10,000, must be reported reported 13 13
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