February 24, 2011
By Brian Monroe
The U.S. Treasury Department finalized Thursday amended rules requiring certain individuals and companies to report their offshore holdings to tax authorities.
The rules, issued by the Financial Crimes Enforcement Network (FinCEN), detail the scenarios under which Reports of Foreign Bank and Financial Account reports (FBARs) must be filed, generally denying most of the exceptions requested in comment letters following the bureau’s proposal of the changes in February 2010.
Under U.S. regulations, a resident, citizen or person doing business in the United States must file FBARs to report to the U.S. Treasury Department a financial interest in, or signature authority over, one or more foreign financial accounts with assets over $10,000.
Responding to requests for clarification, FinCEN said in the finalized rules that the forms must be submitted by any individual who controls how money is dispensed within an account, even if the person is not the primary accountholder or the only one with access to the funds.
The clarification strikes down the argument made by some that, in cases when two or more individuals share signing authority, no one is required to file an FBAR, said Dennis Brager, a Los Angeles-based tax litigation attorney.
“Trying to say that neither of us have authority is a great way to get around the rules,” he said.
The rules also require that companies, not officers or employees, maintain records on who has signatory authority for a period of five years.
The bureau formalized exemptions for several types of companies and organizations as well, including Native American tribes, federal and state agencies, international financial institutions that count the U.S. government as a member and U.S. military banking facilities. The forms are also not required for correspondent accounts used solely for bank-to-bank settlements, FinCEN said.
And in cases when a U.S. bank holds the assets of an American client in an omnibus account maintained outside of the United States, the bank customer is not required to file an FBAR, FinCEN said.
Taken together, the finalized changes will be disappointing to private banking clients and their institutions that lobbied for a relaxation of rules, according to Scott Michel, a lawyer with Caplin & Drysdale in Washington, D.C.
“The most significant takeaway is what [FinCEN] didn’t do” he said. “It maintained these regulations that will burden” tax filers but result in few investigations of crimes, he said.
Failing to file an FBAR can result in monetary penalties as high as 50 percent of the account’s value, under U.S. regulations.
To coax compliance, the IRS has offered several amnesty programs in recent years to reduce penalties for tax evaders who voluntarily disclose their violations. An IRS amnesty program that ended in October 2009 netted disclosures from 14,000 delinquent filers.
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