KPMG Publication on FBAR Filing Requirements for Corporations and Executives (4/10/13)

KPMG has posted this helpful promo piece, called Navigating the FBAR Maze (4/8/13), here.  The publication is targeted principally to corporations with offshore operations and the executives who may inadvertently be caught in the FBAR reporting web.  The opening paragraph is:

The requirement to annually report foreign financial accounts on  Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts  (the “FBAR”), has become an area of increased IRS scrutiny in recent  years. Despite the publication of final FBAR regulations in 2011, many U.S. corporations remain confused regarding the FBAR filing requirements, including how the rules affect corporate officers and  employees who have signature or other authority over these accounts.  This article alerts taxpayers to the upcoming filing deadline for calendar year 2012 FBAR reports, with special focus on the requirements for officers and employees having signature or other authority over foreign financial accounts.

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U.S. Persons Have a “Financial Interest” in Accounts of Their Greater-Than-50-Percent-Owned Subsidiaries and Other Entities 

In addition to having a financial interest in a foreign financial account when a U.S. person is a named owner of record or a named holder of legal title, a U.S. person is also treated as having a financial interest through indirect ownership, such as when the owner of record or holder of legal title is:

• A corporation in which the U.S. person owns directly or indirectly more than 50 percent of the voting power or total value of the shares;
• A partnership in which the U.S. person owns directly or indirectly more than 50 percent of the profits interest or capital; or  
• Any other entity in which the U.S. person owns directly or indirectly more than 50 percent of voting power, total value of the equity interest or assets, or interest in profits

Thus, for example, if a U.S. corporation owns a 51 percent profits interest in a foreign partnership and that partnership has a foreign bank account at any time during the 2012 calendar year, the U.S. corporation is considered to have a financial interest in the partnership’s account and should include the foreign account on the corporation’s FBAR (assuming the aggregate value of all foreign financial accounts of the U.S. corporation exceeded $10,000 at any time during the calendar year). 

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The Reporting Exception for Employees and Officers  

Certain U.S. persons may be required to file an FBAR even if they do not have a financial interest in a foreign financial account. FBAR reporting is required by a U.S. person who is an individual and who (alone or in conjunction with another) has signature or other authority over bank, securities, or other financial accounts in a foreign country. The preamble to the final regulations clarifies that an officer or employee who merely has supervisory control over a foreign financial account (i.e., can instruct others within the company to transfer or withdraw funds, but cannot directly transfer or withdraw funds) is not required to report such an account on an FBAR because reporting is limited to those individuals who have control over the account through direct communication to the person with whom the financial account is maintained. Also clarified is the fact that only an individual (and not an entity) can have signature or other authority over an account (so a corporation is not required to complete Part IV of its FBAR).

The article discusses exceptions -- and exceptions to the exceptions -- to this rule.