Tuesday, June 30, 2009

FBAR Filing Requirement Includes Private Investment Funds - IRS Extends Filing Deadline For Certain Filers Without Penalty

Generally, any U.S. person (including any U.S. tax-exempt entity) is required to file a Report of Foreign Bank and Financial Accounts (FBARs) if it has a financial interest in, or signature or other authority over, one or more foreign financial account(s) and the aggregate value of such account(s) exceeds $10,000 at any time during the year. The Internal Revenue Service (IRS) recently clarified on a conference call that, for purposes of FBAR reporting requirements, a "foreign financial account" includes an offshore investment in hedge funds [the audio of the entire conference call is available here]. This could have broad implications for any U.S. person who (i) invests in an offshore private investment fund, (ii) owns more than 50% of an entity (e.g., a feeder fund) that invests into an offshore private investment fund, or (iii) receives any other financial interest in an offshore investment fund (including its investment manager).

Additionally, the IRS effectively extended the filing deadline for 2008 FBARs to September 23, 2009 for two categories of U.S. persons. The first relates to U.S. taxpayers who reported and paid taxes on all their 2008 taxable income but only recently learned of the FBAR filing obligation and could not timely gather all necessary information. These U.S. taxpayers may be eligible for the extended deadline if certain other requirements are met (including providing a statement and copies of tax returns to the IRS). Other U.S. persons who are required to file FBARs with respect to a foreign financial account may be eligible for the extended deadline only if all 2008 taxable income with respect to the accounts is timely reported and certain other requirements are met.