The Treasury Department has released proposed regulations that would provide some relief to filers attempting to determine their obligations under the rules regarding the Report of Foreign Bank and Financial Accounts (the "FBAR"), but the regulations do not address many of the problems that commentators have identified with the FBAR rules. These proposed regulations are Treasury's response to comments it solicited in Notice 2009-62.
The proposed regulations reserve on whether interests in offshore private investment vehicles such as hedge funds and private equity funds constitute reportable financial accounts, thus suggesting that those interests are not currently and will not in the near future be treated as reportable financial accounts. In addition, the proposed regulations would make several helpful changes to the FBAR rules, including:
- clarifying that foreign entities need not file FBARs;
- expanding the filing exemptions to include employees of: registered broker-dealers, investment advisers that provide services to regulated investment companies, certain other regulated entities and U.S.-exchange-listed foreign entities;
- exempting participants in retirement plans and IRAs, and beneficiaries of trusts for which an FBAR is filed, from FBAR obligations with respect to accounts held by those entities; and
- permitting non-corporate entities to join in consolidated FBARs.
However, the proposed regulations do not respond to many comments and requests for clarification, and they create additional issues. For example, the proposed regulations:
- would require U.S. employees of foreign affiliates of U.S. filers to report corporate accounts over which they have signature authority, which would be a significant departure (perhaps unintended) from current rules;
- would leave unclear whether employees of a foreign bank subject to U.S. regulatory supervision must report client accounts over which they have signature authority;
- do not provide a filing exemption for exempt organizations, including pension funds, educational organizations and charitable organizations, and their employees;
- do not make a comprehensive effort to avoid duplicative filings;
- do not raise the $10,000 dollar filing threshold (which was set in 1986); and
- do not permit electronic filing, treat the form as filed when mailed or permit any extension of time to file an FBAR.
In addition, the proposed regulations do not state whether they would be effective prospectively or retroactively, thus leaving unclear whether they could or would be required to be relied upon in preparing FBARs for 2009 or prior years.