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IRS Tells Foreign Financial Account Holders They Must File

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The IRS has released new guidance for clients who need to answer questions about foreign financial accounts (FFAs) for their 2010 federal income tax filing. The questions are on Form 1040, Schedule B, according to an announcement on Wednesday.

This affects clients who “have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)”

The IRS says U.S. “persons” must file an FBAR, with few exceptions, if:

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

The IRS also said in its notice that U.S. “citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States,” must complete the FBAR filing.

The “exceptions” to required filing include:

  1. Certain foreign financial accounts jointly owned by spouses;
  2. United Statespersons included in a consolidated FBAR;
  3. Correspondent/nostro accounts;
  4. Foreign financial accounts owned by a governmental entity;
  5. Foreign financial accounts owned by an international financial institution;
  6. IRA owners and beneficiaries;
  7. Participants in and beneficiaries of tax-qualified retirement plans;
  8. Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
  9. Trust beneficiaries; and
  10. Foreign financial accounts maintained on a United States military banking facility.

The IRS added that even if there is “no taxable income,” someone holding an FFA may still have to file. There is no extension for filing the FBAR; they are not filed with the taxpayer’s tax return. They are due “on or before June 30 of the year following the calendar year being reported.” 

Draft Final Instructions are here. The IRS has provided links and telephone numbers for help filing the FBAR and details in the IRS Report of Foreign Bank and Financial Accounts (FBAR)