Reporting Requirements for Foreign Financial Accounts: Final FinCEN Regulations on Foreign Bank and Financial Account Reporting

Sullivan & Cromwell LLP - February 25, 2011
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On February 23, 2011, the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”) released final regulations (the “Final Regulations”) under the Bank Secrecy Act (the “BSA”) relating to annual information reporting requirements for certain foreign bank and financial accounts in which United States persons have a financial interest or over which they have signature or other authority (such report referred to as an “FBAR”). While the Final Regulations contain relatively few changes from the proposed regulations issued on February 26, 2010 (the “Proposed Regulations”), the Preamble to the Final Regulations includes many explanations, primarily in response to comments received on the Proposed Regulations.

Significant changes and explanations include (i) changes made for accounts held through trusts, (ii) clarification on what is a “foreign account,” (iii) clarification of who is a U.S. person for purposes of the FBAR, (iv) revisions and additional guidance with respect to the filing and record-keeping obligations of persons with signature authority over a financial account, and (v) a clarification of the definition of a mutual fund. In addition, like the Proposed Regulations, the Final Regulations do not adopt the filing requirement for non-U.S. persons “in and doing business in the United States” that was introduced in the October 2008 FBAR instructions. The Final Regulations do not require filing by, but continue to reserve on the treatment of investment companies other than mutual funds or similar pooled funds.

The Final Regulations apply to FBARs required to be filed by June 30, 2011 with respect to calendar year 2010, FBARs for all subsequent calendar years, and, at the filer’s election, FBAR filings that were deferred under Notice 2010-23. We have confirmed in conversations with personnel at the IRS that a new version of the FBAR will be issued with revised instructions.