Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Proposed regs would modify FBAR filing rules for financial professionals

FinCEN news release, “FinCEN Proposes Revising FBAR Rules for Certain Financial Professionals” (Mar. 1, 2016).

FinCEN Notice of proposed rulemaking, Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts.

The Financial Crimes Enforcement Network (FinCEN) has issued proposed regs that would clarify and revise certain rules relating to the filing of Reports of Foreign Bank and Financial Accounts (FBARs). Significantly, the regs would expand the filing duties of U.S. persons with 25 or more foreign financial accounts and eliminate the requirement for certain financial institution employees to report on accounts for which they have signature authority solely due to their employment.

Background. U.S. citizens and resident aliens are legally required to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers (i.e., U.S. citizens and resident aliens with worldwide income subject to the reporting rules) will need to fill out and attach Form 1040, Schedule B, Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.

Separately, certain taxpayers with foreign accounts must file a Form 114 (FBAR) with FinCEN, a bureau of the Treasury Department. It is not a tax form and cannot be filed with IRS. The form must be filed electronically and is only available online through the BSA E-Filing System website. In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the previous calendar year.

Effective for the 2016 reporting year, as a result of a law change made by the Surface Transportation and Veterans Health Care Choice Improvement Act (P.L. 114-41), the FBAR filing due date will be Apr. 15, which can be extended for a maximum of six months (for 2015 and earlier reporting years, the date is June 30 and cannot be extended). The Act directed Treasury to modify its regs accordingly.

FBAR reporting exemptions currently exist for officers or employees of certain federally regulated entities (e.g., a financial institution registered with and examined by the Securities and Exchange Commission) where they have signature authority only and no financial interest in the foreign account. FinCEN has received numerous requests to extend this exemption to cases where officers or employees have “overlapping” signature authority resulting from their having signature authority over both a parent entity’s and its controlled subsidiary’s foreign financial accounts.

Under the current rules, a U.S. person with a financial interest in 25 or more foreign financial accounts or with signature or other authority over 25 or more foreign financial accounts is only required to provide the number of financial accounts and certain other basic information on the report (the “25-or-more rule”), and have available more detailed information to provide upon request, like an account number or the name of the financial institution, as opposed to filing a separate FBAR for each account. (31 CFR §1010.350(g))

Proposed regs. FinCEN has issued proposed regs, described below, intended to revise and clarify certain FBAR filing provisions.

New simplified and expanded exemption. The proposed exemption would eliminate the requirement for officers, employees, and agents of U.S. entities to report on accounts owned by the entity over which the officer, employee, or agent has signature authority solely due to their employment when those accounts are already required to be reported by their employer, or any other U.S. entity within the same corporate or other business structure as their U.S. employer. This would also address instances in which employees have overlapping signature authority with respect to U.S. parent and subsidiary accounts within the same corporate or other business structure. To maintain transparency with respect to U.S. persons eligible for this exemption, employers would be required to maintain information identifying all officers, employees, or agents with signature authority over, but no financial interest in, those same accounts, which would have to be maintained for five years and provided to FinCEN upon request. (Proposed 31 CFR 1010.350(f)(2))

Elimination of 25-or-more rule. FinCEN noted that, in 2013, approximately 10,800 FBARs were filed by individuals or entities with a financial interest in 25 or more foreign financial accounts—representing approximately 56% of the total number of all foreign financial accounts reported that year. According to FinCEN, the 25-or-more rule came about over 35 years ago, and it has since become much easier to both establish overseas accounts and report information on them (e.g., by e-filing). The proposed regs would eliminate the 25-or-more rule, thus giving FinCEN the ability to receive detailed account information on all foreign financial accounts.

New form due date. The proposed regs would also modify the FBAR due date to reflect the recent law change. (Proposed 31 CFR 1010.306(c))

References: For reporting requirement for individuals with foreign assets, see FTC 2d/FIN ¶  S-3650; United States Tax Reporter ¶  60,114.06; TaxDesk ¶  815,516; TG ¶  60611.