United States persons having a financial interest in, or signature authority or other authority over, financial accounts in a foreign country are required to report those accounts to the Treasury Department by June 30, 2009, if the aggregate value of the financial accounts exceeded $10,000 at any time during the 2008 calendar year. United States persons who are required to report their accounts must file a Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1, each year that they have a financial interest in, or signature authority or other authority over any financial accounts in a foreign country, including bank, securities or other types of financial accounts. A new component of Form TD F 90-22.1 requires taxpayers to disclose the maximum value of the foreign account during the calendar year reported. Form TD F 90-22.1 may be accessed at http://www.irs.gov/pub/irs-pdf/f90221.pdf.

Who Has a Reporting Obligation?

A United States person has a financial interest in a foreign account if such person is the owner of record or has legal title, regardless of whether the account is maintained for his/her benefit. United States persons who have certain relationships with a corporation, partnership, or trust, are also considered to have a financial interest in the foreign account owned by that corporation, partnership, or trust.

A United States person has signatory authority if such person can control the disposition of money or other property by delivery of a document containing his/her signature to the entity with whom the account is maintained. Accordingly, with certain exceptions, officers and employees of businesses having signatory authority over foreign business financial accounts may individually be required to file Form TD F 90-22.1. Certain consolidated reporting is allowed for corporations which directly or indirectly own more than a 50 percent interest in one or more other entities.

Civil and Criminal Penalties for Non-Compliance

United States persons failing to comply with the FBAR filing requirements could face civil and criminal penalties for non-compliance. Civil penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

Taxpayers With Previously Undisclosed Foreign Accounts are Encouraged to Come Forward

On March 26, 2008, the IRS outlined a new policy of voluntary compliance that allows taxpayers with previously undisclosed foreign accounts to settle their tax liabilities with the IRS. Taxpayers wishing to take advantage of this new policy must voluntarily disclose their foreign accounts within six months of March 23, 2009. Taxpayers who participate in the IRS's voluntary compliance program may be able to avoid criminal prosecution. For additional information on the IRS's voluntary disclosure program related to undisclosed foreign accounts, please see Fulbright's April 2, 2009 Briefing - IRS Makes Limited Time Offer To Taxpayers With Undisclosed Offshore Accounts.

IRS and Justice Department Aggressively Pursuing Taxpayers Who Fail to Report Foreign Accounts
 

The IRS has ramped up its enforcement efforts, and has received information from banks and other third parties that will be used to identify taxpayers who have failed to report their foreign accounts. On April 2, 2009, the Justice Department filed the first criminal complaint against a taxpayer who failed to comply with these reporting requirements. On April 14, 2009, another U.S. citizen pled guilty for failing to report his interest in a foreign bank account and failing to report any income earned on the account. The Justice Department has emphasized its commitment to reviewing the "information [it] has received from all sources" and to "helping the IRS to ferret out and hold accountable taxpayers who are hiding assets in undisclosed foreign accounts."

This article was prepared by Fulbright's Tax Practice . If you have any questions or need any assistance related to these matters, please feel free to contact Nancy T. Bowen, Richard L. Hunn (rhunn@fulbright.com or 713 651 5293), Andrius Kontrimas (akontrimas@fulbright.com or 713 651 5482), William S. Lee (wlee@fulbright.com or 713 651 5633), Kathryn Keneally, Robert C. Morris (rmorris@fulbright.com or 713 651 8404), Shawn R. O'Brien, Lisa Rossmiller (lrossmiller@fulbright.com or 713 651 8451, or Jasper G. Taylor III (jtaylor@fulbright.com or 713 651 5670)).