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FBAR Filing: FinCEN’s Third Extension for Certain Signatory Authority Filers

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In FinCEN Notice 2012-2, the Financial Crimes Enforcement Network (FinCEN) announced a third extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of ongoing consideration of questions regarding the filing requirement and its application to individuals with signature authority over but no financial interest in certain types of accounts. The new extended deadline is set for June 30, 2014.

This extended filing deadline applies only to the following classes of individuals:

1). An employee or officer of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”). For this purpose, a “controlled person” is a U.S. or foreign entity that is more than 50% owned (directly or indirectly) by an excepted entity.
2). An employee or officer of a controlled person of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
3). An employee or officer of an investment advisor registered with the Securities and Exchange Commission who has signature or other authority over and no financial interest in a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940.

Notice that categories 1 and 2 do not apply to companies that are not publicly traded or not SEC-registrants.

This extension comes after a series of earlier extensions by FinCEN. On February 14, 2012, FinCEN issued Notice 2012-1 to extend the filing date for FinCEN Form 114 Formerly TD F 90-22.1, FBAR, for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts to June 30, 2013. This Notice was preceded by two earlier extensions: on May 31, 2011, FinCEN issued Notice 2011-1 (revised on June 2, 2011) to extend to June 30, 2012, the due date for filing the FBAR for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts, specifically individuals whose FBAR filing requirements may be affected by the signature authority filing exceptions in 31 CFR § 1010.350(f)(2)(i)-(v). On June 17, 2011, FinCEN issued Notice 2011-2 similarly extending the FBAR filing due date to June 30, 2012, for certain employees or officers of investment advisers registered with the Securities and Exchange Commission who have signature authority over but no financial interest in certain foreign financial accounts.

The extension contained in FinCEN Notice 2012-2 is the third filing extension for individuals with signature authority over but no financial interest in certain types of accounts. It covers not only the reporting of signature authority held by such persons for 2012, but also for all other years for which filing was previously extended to June 30, 2012, under FinCEN Notices 2011-1 and 2011-2.

It is important to note, however, that all other taxpayers who are required to file an FBAR must still do so by June 30, 2013.

FBAR: Financial Interest, Signature Authority, and Other Comparable Authority

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One of the major requirements that gives rise to the obligation to file the FBAR is that a U.S. person has either a financial interest in, or a signature authority or other comparable authority over the relevant foreign financial accounts. In deciding whether the FBAR is required, it is useful to go through all three of these requirements in order.

First, the filer needs to determine whether he has a financial interest in the account. If the account is owned by an individual, the financial interest exists if the filer is the owner of record or has legal title in the financial account, whether the account is maintained for his own benefit or for the benefit of others, including non-U.S. persons. See 75 Fed. Reg. at 8847. Hence, if the owner of record or holder of legal title is a U.S. person acting as an agent, nominee, or in some other capacity on behalf of another U.S. person, the financial interest in the account exists and this agent or nominee needs to file the FBAR. If a corporation is the owner of record or the holder of legal title in the financial account, a shareholder of a corporation has a financial interest in the account if he owns, directly or indirectly, more than 50 percent of the total value of the shares of stock or has more than 50 percent of the voting power. Id. Where a partnership is the owner of record or the holder of legal title in the financial account, a partner has a financial interest in the financial account if he owns, directly or indirectly, more than 50 percent of the interest in profits or capital. Similar rule applies to any other entity (other than a trust) where a U.S. person owns, directly or indirectly, more than 50 percent of the voting power, total value of the equity interest or assets, or interest in profits. Id. Special rules apply to trust and can be found in the Proposed Regulations. Id. Finally, a U.S. person who “causes an entity to be created for a purpose of evading the reporting requirement shall have a financial interest in any bank, securities, or other financial account in a foreign country for which the entity is the owner of record or holder of legal title.” Id.

If there is no financial interest in the foreign financial account, the filer should determine whether he has signature authority over the account. A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained. See 75 Fed. Reg. at 8848. Notice, once again, that control over the disposition of assets in the account is one of the main factors in deciding whether the FBAR needs to be filed.

It is important to mention that, pursuant to the IRS Announcement 2010-23, persons with signature authority over, but no financial interest in, a foreign financial accounts for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts. Combined with IRS Announcement 2009-62, this means that the deadline has been extended for the calendar year 2009 and all prior years.

Finally, even if no financial interest or signature authority exists, the filer has to continue his analysis and determine whether he has “other comparable authority” over the account. This catch-all, ambiguous term is not defined by the IRS. Nevertheless, the instructions to FinCEN Form 114 formerly Form TD F 90-22.1 generally state that the other comparable authority exists when the filer can exercise power comparable to the signature authority over the account by communication with the bank or other person with whom the account is maintained, either directly or through an agent, or in some other capacity on behalf of the U.S. person.