Update on New Foreign Bank Account Form, Reporting and Due Diligence Requirements
The AICPA FBAR Task Force recently met with IRS FBAR (Report of Foreign Bank and Financial Accounts) officials and learned of developments with the new form, reporting rules, and due diligence requirement. See below an update on:
1. Income Tax Return Questions and Notification to Clients of the New FBAR Form and Requirements for 2009
2. IRS FAQs on FBAR
3. Expanded Scope of FBAR
3. Preparer “Due diligence” Penalties for FBAR per IRS OPR
4. Penalty Enforcement for FBAR - $10,000 per Return Penalties
5. AICPA Resources/Tax Guides on FBAR Available
1. Income Tax Return Questions: AICPA reminds tax practitioners that when gathering information for Form 1040s (and Form 1041s, 1065s, 1120s, etc.), to ask clients about the existence of foreign bank accounts and disclose the information in Question 7, Part III of Form 1040, Schedule B, Interest and Ordinary Dividends, even if the client has no reportable interest or dividends and would not otherwise fill out the Schedule B, Line 3 Other Information, Schedule G of Form 1041, Line 9 of Schedule B of Form 1065, and Line 6a of Schedule N of Form 1120. (See related tax organizer e-alert item.) Taxpayers who are currently filing Form 5471, Form 8858, Form 8865 or Form 3520 may also be subject to FBAR reporting requirements. (See related Form 5471 penalty e-alert item) If the questions on Schedule B of the Form 1040 Part III are left blank, it may be considered an incomplete return and the statute of limitations will remain open.
Practitioner Should Notify Clients of FBAR: Tax practitioners with clients with foreign bank accounts should notify clients of their responsibility to file the "Report of Foreign Bank and Financial Accounts" (Treasury Form TD F 90-22.1, referred to as FBAR) on or before June 30, 2009. IRS has released a new Form TD F 90-22.1, http://www.irs.gov/pub/irs-pdf/f90221.pdf, which should be used for all 2008 filings in 2009 and later years. Significant changes have been made to the form so the practitioner should read the instructions carefully. Practitioners should also check their tax return software programs to make sure the new version of the form is being used for all FBARs filed in 2009 or later, even if the FBAR is being filed for a prior year. We note that the return must be RECEIVED by June 30, not mailed by that date, and recommend sending it in Certified Mail, Return Receipt Requested as proof of the receipt date.
2. FAQs: IRS frequently asked questions (FAQs) on the FBAR are at http://www.irs.gov/businesses/small/article/0,,id=148845,00.html.
3. Expanded Scope of FBAR: According to the new form instructions, beginning for the 2008 tax year, the new FBAR requirements apply to persons in and doing business in the U.S. Therefore, a non-resident alien working in the U.S. (as an employee or independent contractor) may be subject to the new 2009 FBAR filing requirement because that individual is “in and doing business” in the U.S. and has signing or other authority over foreign financial accounts.
A foreign corporation that is in and doing business in the United States is also considered a U.S. person.
Previously, nonresidents did not have to file, but with this 2009 form, persons in, and doing business in, the United States must file FBARs, whether or not they are nonresidents. This means that many nonresidents who do business in the U.S. (Canadians, for example) may have to disclose their foreign bank account information.
The IRS website - http://www.irs.gov/businesses/small/article/0,,id=204798,00.html and
http://www.irs.gov/businesses/small/article/0,,id=148845,00.html has more information on the “doing business in the U.S.” requirement, including that it will be determined based on an analysis of the facts and circumstances of each case, and that it is generally required if the person is conducting business within the United States on a regular and continuous basis.
The IRS website indicates that persons who are merely visiting or who sporadically conduct business in the United States are not in and doing business in the United States for FBAR reporting purposes and provides the following examples of persons who are not considered to be in and doing business in the United States for FBAR reporting purposes and do NOT need to file FBARs:
- Persons who are not citizens or residents and who are engaged in a business but who only occasionally visit the United States to meet customers or business associates.
- Artists, athletes, and entertainers who are not citizens or residents of the United States and who only occasionally come to the United States to participate in exhibits, sporting events, or performances.
- A person who is not a United States citizen or resident and who visits the United States to manage his personal investments, such as rental property, and conducts no other business.
The AICPA Tax Division will continue to discuss this issue and our concerns with this new requirement with the IRS.
4. Preparer Due Diligence Requirement: According to the IRS Office of Professional Responsibility in a posting on their website at http://www.irs.gov/pub/irs-utl/fbar_document.doc, failure to timely file required tax or information returns, including FBARs, must be disclosed by practitioners on Form 8554, Application for Renewal of Enrollment to Practice Before the Internal Revenue Service.
In addition, a practitioner must comply with FBAR rules as part of his or her due diligence obligation under Section 10.22 of Circular 230. IRS further states: “Due diligence does not require that the practitioner "audit" their client. However, it does require that a practitioner make reasonable inquiries when a client provides information that suggests possible participation in overseas transactions/accounts subject to FBAR requirements. A practitioner may rely on information provided by a client in good faith. However, they may not ignore implications learned from information provided or actually known. The practitioner is also required to advise a client of potential penalties likely to apply to a position taken, such as failing to abide by FBAR requirements. The practitioner must make reasonable inquiries if information appears incorrect, inconsistent with an important fact or factual assumption, or is incomplete.”
5. Penalty Enforcement for FBAR: The IRS has announced that it intends to enforce penalties for FBAR noncompliance – as far back as 6 years, the statute of limitations under the Bank Secrecy Act, Title 31 USC. It might be possible to negotiate for one year of penalties if compliance is started. Effective March 24, 2008, IRS has delegated the authority (Delegation Order 4-35, http://www.irs.gov/pub/foia/ig/spder/do_4-35_rev_1.pdf) to handle such enforcement to various government officials.
6. AICPA Resources on FBAR: The AICPA Tax Division's International Tax Resource Panel's Reporting Requirements Task Force has developed two guides on foreign income reporting and the TD F 90-22.1 (guide 1 and guide 2). For more details on this, see prior e-alert /NR/rdonlyres/E7DB3712-A36E-4ED9-8B69-39168FFE5A60/0/ealert053008.pdf or update at
/Resources/International/Foreign+Bank+and+Financial+Account
+Information+Needs+to+be+Reported+and+Filed+by+June+30.htm