Private Foundation FBAR Alert April 2011
Private Foundations that have a financial interest in, or a signature or other authority over, one or
more financial accounts outside the U.S. are required to file a Report of Foreign Bank and Financial
Accounts (“FBAR”). The filing must occur on a calendar year basis on or before June 30 of the
following year. There are severe civil, and in some cases criminal, penalties for noncompliance.
Recently, there has been a great deal of uncertainty regarding who must file an FBAR and the types
of investments that are required to be reported.
On February 24, 2011, the Financial Crimes Enforcement Network (“FinCEN”) issued a Final Rule
which amended the Bank Secrecy Act (“BSA”) regulations regarding the FBAR filing requirements.
The Final Rule provides additional clarity about who must file an FBAR and the types of accounts
that are considered “foreign financial accounts.” The changes made by the Final Rule are effective
March 28, 2011, and apply to FBARs for calendar year 2010, which are required to be filed by June
The highlights of the Final Rule are as follows:
Clarification of a reportable foreign pooled income or commingled fund has been made and
only applies to a “mutual fund.” For this purpose, a mutual fund has the following
o 1) shares available to the general public;
o 2) a regular asset value determination; and
o 3) a regular redemption feature.
Private equity or hedge funds that fail any of these criteria will not be subject to FBAR
“Signature or other authority” over a reportable financial account has been defined to mean
“the 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 direct communication (whether
in writing or otherwise) to the person with whom the financial account is maintained.”
Generally, the test is whether the foreign institution will act upon a direct communication from
that individual regarding the disposition of assets in the account.
An exemption from FBAR filing is available to employees and officers with signature or other
authority over their employer’s reportable financial accounts only in situations where their
employer is regulated by specified government organizations or agencies (SEC, Federal
Reserve, others). Officers and employees of private or non-regulated employers who have
signature or other authority over reportable accounts of such employer will continue to have
FBAR filing obligations.
An account maintained with a financial institution located in the U.S. is not considered a
reportable foreign account, regardless of whether there are foreign investments held in such
account. This is also true in the case where there is an account with a financial institution
located in the U.S. and certain assets may be held outside the U.S. by a global custodian
(provided that the U.S. investor does not have direct access to such assets).
Private Foundations with more than 25 reportable foreign financial accounts need only
provide the number of financial accounts and certain other basic information unless
additional information is specifically requested.
Participants and beneficiaries of certain retirement plans and individual retirement accounts
do not need to file an FBAR with respect to any foreign financial account held by or on behalf
of such retirement plans or IRAs.
Independent of the Final Rule, the IRS has announced a New Voluntary Disclosure Program
relative to FBARs. Foundations who did not take part in the initial Voluntary Disclosure Program
which ended on October 15, 2010, have another chance to file delinquent FBAR returns for the tax
years 2003 through 2010. The penalty relief provisions in the new Voluntary Disclosure Program
are not as generous as the initial one; however, IRS Commissioner Douglass Shulman has
described it as the “last, best chance for taxpayers to come clean while we have other banks in our
sights.” The new program will require delinquent FBARs to be filed by August 31, 2011.
Please do not hesitate to contact an ODMD tax professional if you potentially have FBAR filing
exposure; would like an explanation of how the new rules apply to your specific fact pattern or would
like to enter the new Voluntary Disclosure Program.