On February 26, 2010, the Internal Revenue Service ("IRS") issued Notice 2010-23, 2010-11 I.R.B., and Announcement 2010-16, 2010-11 I.R.B., providing guidance with respect to certain persons who may be required to report certain foreign financial accounts on Form TD F 90-22.1, Report of Foreign Bank Accounts ("FBAR"), by June 30, 2010, for the 2009 calendar year, and, in certain circumstances, earlier calendar years.

Under Notice 2010-23, the IRS provided administrative relief to certain persons who may be required to file an FBAR for the 2009 and earlier calendar years. Under Announcement 2010-16, the IRS suspended, for persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts, or estates), the requirement to file an FBAR for the 2009 and earlier calendar years.

On February 26, 2010, the Financial Crimes Enforcement Network, a bureau of the Department of the Treasury, issued a notice of proposed rulemaking, which contains proposed changes and revisions to the regulations implementing the Bank Secrecy Act ("BSA") regarding FBARs (the "Proposed Regulations"). The Proposed Regulations (1) clarify which persons will be required to file an FBAR, (2) clarify which accounts will be reportable, (3) exempt certain persons with signature or other authority over foreign financial accounts from filing FBARs, and (4) prevent certain United States persons from avoiding an FBAR filing requirement.

How the Recent Guidance Impacts Certain Taxpayers

United States persons having a financial interest in, or signature or other authority over, financial accounts in a foreign country are currently required to file an FBAR if the aggregate value of such financial accounts exceeded $10,000 at any time during the calendar year (for a more detailed discussion of the FBAR reporting obligations prior to the modifications contained in Notice 2010-23 and Announcement 2010-16, see the section titled "Who Has an FBAR Reporting Obligation" in Fulbright's August 2009 Alert – IRS Extends FBAR Filing Deadline for Certain U.S. Persons until June 30, 2010). The recent guidance impacts the current FBAR filing requirements, in part, in the following ways:

• Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would have otherwise been due on June 30, 2010, now have until June 30, 2011, to file an FBAR for the 2010 and prior calendar years.
• Persons with a financial interest in, or signature authority over, a foreign commingled fund that is a "mutual fund" are required to file an FBAR, unless another filing exception applies, and are thus required to file an FBAR by June 30, 2010, for the 2009 and earlier calendar years. An FBAR for the 2010 calendar year will be due by June 30, 2011.
• Persons with a financial interest in, or signature authority over, foreign commingled funds which are not "mutual funds" are not required to file an FBAR with respect to those accounts for the 2009 and prior calendar years. Importantly, persons with such an interest in foreign hedge funds and foreign private equity funds need not file FBARs with respect to those funds for the 2009 and earlier calendar years. We are awaiting guidance as to whether the IRS will require persons with a financial interest in, or signature authority over, foreign commingled funds which are not "mutual funds" to file an FBAR for the 2010 calendar year.
• The requirement to file an FBAR on June 30, 2010, for the 2009 and earlier calendar years is suspended for persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts or estates). All persons are directed to rely on the definition of "United States Person" found in the July 2000 FBAR instructions. Under the July 2000 version, "United States person" includes: (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust. We are awaiting guidance with respect to the 2010 calendar year.
• The Proposed Regulations (1) clarify which persons will be required to file an FBAR, (2) clarify which accounts will be reportable, (3) exempt certain persons with signature or other authority over foreign financial accounts from filing FBARs, and (4) prevent certain United States persons from avoiding an FBAR filing requirement.

Notice 2010-23 Extends the FBAR Filing Deadline Until June 30, 2011, for Certain Persons

Notice 2010-23 extends the filing deadline until June 30, 2011, for persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would have otherwise been due on June 30, 2010. The June 30, 2011 deadline applies to FBARs with respect to foreign financial accounts over which the person has signature authority, but no financial interest, for the 2010 and prior calendar years.

Also under Notice 2010-23, persons with a financial interest in, or signature authority over, a foreign commingled fund that is a "mutual fund" are required to file an FBAR by June 30, 2010, for the 2009 and earlier calendar years, unless another filing exception, as provided in the FBAR instructions or other guidance, applies. According to the current FBAR instructions and as described above, the term "financial account" encompasses, in part, 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). The parenthetical including "mutual funds" was added in October 2008, but its practical application has been unclear due to its potentially broad interpretation by the IRS and numerous unofficial comments by the employees of the IRS in 2009, which indicated that equity investments in foreign hedge funds and foreign private equity funds are reportable for FBAR purposes. Consequently, many investors (including tax-exempt investors and U.S. qualified plans) in foreign hedge funds and foreign private equity funds have been uncertain as to the requirement to file an FBAR.

Under Notice 2010-23, the IRS stated that the term "commingled fund" will not be interpreted by the IRS to apply to any funds other than "mutual funds" with respect to FBARs for the 2009 and prior calendar years. In Notice 2010-23, the IRS specifically stated that the IRS will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund, including a foreign hedge fund or a foreign private equity fund, with respect to that account for the 2009 and prior calendar years.

Finally, under Notice 2010-23, if a taxpayer has no reportable foreign financial accounts for the year in question, such taxpayer who qualifies for the FBAR filing relief provided in Notice 2010-23 should check "no" in response to FBAR-related questions found on U.S. federal tax forms for 2009 and earlier years that ask about the existence of a financial interest in, or signature authority over, a foreign financial account.

Notice 2010-23 modifies and supplements Notice 2009-62, 2009-35 I.R.B. 260, wherein the IRS had stated that persons with signature authority over, but no financial interest in, a foreign financial account, and persons with a financial interest in, or signature authority over, a foreign commingled fund, had until June 30, 2010, to file an FBAR for the 2008 and earlier calendar years with respect to such foreign financial accounts.

Announcement 2010-16 Suspends the June 30, 2010 FBAR Filing Requirement for Certain Persons

Also released by the IRS on February 26, 2010, was Announcement 2010-16, which suspends the June 30, 2010 FBAR filing requirement for certain foreign persons and entities. For persons who are not United States citizens, United States residents, or domestic entities (corporations, partnerships, trusts, or estates), Announcement 2010-16 suspends the requirement to file an FBAR for the 2009 and earlier calendar years. Announcement 2010-16 supplements and supersedes Announcement 2009-51, 2009-25 I.R.B. 1105, which directed taxpayers and practitioners to refer to the definition of "United States person" in the July 2000 version of the FBAR instructions to determine if they had an FBAR filing obligation. Announcement 2010-13 clarifies that all persons may rely on the definition of "United States person" in the July 2000 version of the FBAR instructions to determine if they have an FBAR filing obligation for the 2009 and earlier calendar years. Under the July 2000 version of the FBAR instructions, the term "United States person" means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.

Under Announcement 2010-16, the requirement to file an FBAR due on June 30, 2010, is suspended for persons who are not United States citizens, United States residents, or domestic entities. The substitution of the definition of "United States person" applies only with respect to FBARs for the 2009 calendar year and, as provided for in Announcement 2009-51, earlier calendar years. Accordingly, all other requirements of the 2008 version of the FBAR form and instructions, as modified by Notice 2010-23, as discussed above, remain in effect until amended or changed by subsequent guidance issued by the Department of the Treasury, including the IRS.

A Glimpse into the Future: Department of the Treasury Proposes Changes to the FBAR Requirements

On February 26, 2010, the Proposed Regulations were published in the Federal Register. The Proposed Regulations clarify which persons will be required to file FBARs and which accounts will be reportable. In addition, the Proposed Regulations exempt certain persons with signature or other authority over foreign financial accounts and would include provisions intended to prevent United States persons from avoiding this reporting requirement. Relevant provisions of the Proposed Regulations include the following:

• Section 103.24(b) of the Proposed Regulations revises the definition of "United States person";
• With respect to "reportable accounts" and in addition to adding definitions to the terms "bank account" and "securities account," the term "other financial account" is defined in Section 103.24(c)(3) of the Proposed Regulations to include an account (1) with a person that is in the business of accepting deposits as a financial agency; (2) that is an insurance policy with a cash value or an annuity policy; (3) with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or (4) with a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions. Certain accounts of a government entity or instrumentality are exempted;
• The definition of a "financial interest" is revised, including, in part, when the United States person is the owner of record or holder of legal title, when another is acting on behalf of the United States person, and other situations, described in Section 103.24(e) of the Proposed Regulations. Under Section 103.24(e)(3) of the Proposed Regulations, an anti-avoidance rule exists wherein a United States person that causes an entity, including, but not limited to, a corporation, partnership, or trust, to be created for a purpose of evading the "financial interest" definition shall have a financial interest in any bank, securities, or other financial account in a foreign country for which the entity is the owner of record or holder of legal title;
• Under Section 103.24(f) of the Proposed Regulations, "signature or other authority," means, subject to certain exceptions, authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by delivery of instructions (whether communicated in writing or otherwise) directly to the person with whom the financial account is maintained. Exceptions generally apply to officers and employees (so long as such persons have no financial interest in the reportable account) of financial institutions that have a federal functional regulator, and certain entities that are publicly traded on a United States national securities exchange, or that are otherwise required to register with the Securities and Exchange Commission;
• Streamlined FBAR filing is available to certain United States persons having a financial interest in, or signature or other authority over, 25 or more financial accounts under Section 103.24(g)(1)-(2) of the Proposed Regulations, and consolidated FBAR filing is available for an entity that is a United States person and owns directly or indirectly more than a 50 percent interest in an entity required to file an FBAR under Section 103.24(g)(3) of the Proposed Regulations;
• Under Section 103.24(g)(4) of the Proposed Regulations, participants and beneficiaries in retirement plans under Sections 401(a), 403(a), or 403(b) of the Internal Revenue Code of 1986, as amended (the "Code"), as well as owners and beneficiaries of individual retirement accounts under Section 408 of the Code or Roth IRAs under Section 408A of the Code, are not required to file an FBAR with respect to a foreign financial account held by or on behalf of the retirement plan or IRA; and
• Under Section 103.24(g)(5) of the Proposed Regulations, certain trust beneficiaries of certain trusts are not required to report the trust's foreign financial accounts under certain circumstances.

The Proposed Regulations reflect congressional concern that foreign financial institutions were being used to evade domestic criminal, tax, and regulatory laws. Written comments on the Proposed Regulations may be submitted, as described in the Proposed Regulations, on or before April 27, 2010.

This article was prepared by Gregory M. Matlock (gmatlock@fulbright.com or 713 651 5500), Jasper G. "Jack" Taylor III (jtaylor@fulbright.com or 713 651 5670) and Brian P. Teaff from Fulbright's Tax Practice Group and Tax Controversies Practice Group. If you have any questions or need any assistance related to these or any other tax controversy matters, please feel free to contact any of the authors listed above or Nancy T. Bowen, Brent Gardner (bgardner@fulbright.com or 713 651 5307), Charles W. Hall (chall@fulbright.com or 713 651 5268), Richard L. Hunn (rhunn@fulbright.com or 713 651 5293), Kathryn Keneally, William S. Lee (wlee@fulbright.com or 713 651 5633), Robert C. Morris (rmorris@fulbright.com or 713 651 8404), Shawn R. O'Brien (sobrien@fulbright.com or 713 651 5285) or Susan V. Sample (ssample@fulbright.com or 713 651 5458).

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