Saturday, June 27, 2009

FBARs required for Offshore Hedge Fund, Equity Fund Investors

According to this morning's edition of Tax Notes Today, an IRS spokeman yesterday asserted that "the IRS's position is that investments in foreign hedge funds and private equity funds are reportable for FBAR purposes." Somehow such investors have felt themselves exempt -- by IRS inaction, if nothing more substantial -- from FBAR reporting. The issue of whether or not they should file FBARs has been a heated topic over the past week.

Such Offshore hedge and equity fund investors who are just having their Eureka moment on this filing obligation with draconian penalties might want to seriously consider filing the 2008 FBAR. If they do not have time to pull it together by June 30, 2009 (the due date for 2008 FBARs, they can use the special grace period through September 23, 2009 announced in the IRS expanded FBAR FAQs issued (as expanded) just this week which may be viewed here (see paragraph 43).

These investors should also consider how to resolve past FBAR delinquencies and any income tax reporting deficiencies related to the accounts. If they have reported the income from the offshore funds on their income tax returns, they can simply file delinquent FBARs under the special procedure in paragraph 9 of the FAQs here. If they have not reported the income, they have two choices: (i) joining the IRS voluntary disclosure program (That program has been discussed previously on this blog (see the links in the column to the right of this blog), but requires significant penalties); or (ii) hunkering down and hoping for the best with a downside of potentially truly draconian penalties. This choice should only be made with legal counsel to help assist the costs and benefits / risks and rewards of the choices.

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