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IRS Extends FBAR Filing Deadline to June 30, 2010 for Certain Taxpayers, but September 23, 2009 Filing Deadline Continues to Apply to Many Other Taxpayers

Tax Law Alert Terrence W. Stein

Each United States person who has a "financial interest" in, or signature or other authority over, a foreign financial account with an aggregate value over $10,000 at any time during a calendar year must file a Report of Foreign Bank and Financial Accounts (an "FBAR") on IRS Form TD F 90-22.1 with the Department of the Treasury on or before June 30 of the following year.

A United States person has a "financial interest" in a foreign financial account if that person is the owner of record or has legal title to the account. A United States person also holds a "financial interest" in a foreign financial account if the owner of record or holder of legal title to the account (1) acts as an agent, nominee or attorney for such person; (2) is a corporation in which such person directly or indirectly owns more than 50 percent of the total stock value or voting control; (3) is a partnership in which such person directly or indirectly owns more than 50 percent of the profits or capital; or (4) is a trust in which such person has a present beneficial interest, directly or indirectly, in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income. A United States person also holds a "financial interest" in a foreign financial account if the owner of record or holder of legal title to the account is a trust (or a person acting on behalf of a trust) that was established by such United States person and for which a trust protector has been appointed. (Click here to see our previous Quarles & Brady client update on this topic.)

In June 2009, the IRS announced an extension of the FBAR filing deadline to September 23, 2009 for taxpayers who reported and paid tax on all their taxable income for 2008 and previous years but did not timely file FBARs. IRS Notice 2009-62, which will be published on August 31, 2009, announces another extension of the FBAR filing deadline for certain taxpayers.

Who Is Eligible For An Extension Under Notice 2009-62?

Notice 2009-62 extends the FBAR filing deadline for 2008 and prior years to June 30, 2010 for (1) persons with signature or other authority over, but no financial interest in, a foreign financial account and (2) persons with a financial interest in, or signature or other authority over, a foreign financial account in which assets are held in a commingled fund (a "foreign commingled fund").

Unlike the extension announced in June 2009, the extension under Notice 2009-62 apparently applies without regard to whether the affected taxpayer has reported and paid tax on all of the taxpayer's taxable income for 2008 and previous years. Also unlike the extension announced in June 2009, the extension under Notice 2009-62 applies to a person having a financial interest in a foreign financial account only if that foreign financial account is a foreign commingled fund.

An equity interest in a foreign hedge fund or foreign private equity fund is a typical example of a financial interest in a foreign commingled fund. Thus, the extension under Notice 2009-62 generally will apply to taxpayers owning a 50-percent-or-less equity interest in a foreign hedge fund or foreign private equity fund. Accordingly, the FBAR filing deadline for 2008 and previous years for United States persons owning such interests is June 30, 2010.

Since the extension under Notice 2009-62 also applies to all United States persons having signature or other authority over, but no financial interest in, a foreign financial account, the FBAR filing deadline for 2008 and previous years is also June 30, 2010 for United States persons having signature or other authority over, but no financial interest in, a foreign financial account whether or not it is a foreign commingled fund.

Who Is Not Eligible For An Extension Under Notice 2009-62?

A foreign bank account or savings, demand, checking or deposit account maintained with a foreign financial institution is a typical example of a financial interest in a foreign financial account that is not a foreign commingled fund. Thus, the extension under Notice 2009-62 generally will not apply to taxpayers owning (1) a foreign bank account or savings, demand, checking or deposit account maintained with a foreign financial institution or (2) a direct or indirect greater-than-50-percent interest in a corporation or partnership that owns a foreign bank account or savings, demand, checking or deposit account maintained with a foreign financial institution. Accordingly, the FBAR filing deadline for 2008 and previous years for United States persons owning such interests is September 23, 2009 (or earlier, in cases where the United States person has not reported and paid tax on all of that person's taxable income for 2008 and previous years).

Further Guidance Is Anticipated

The Department of Treasury intends to issue regulations clarifying filing requirements prior to June 30, 2010. These anticipated regulations may provide that some persons with signature or other authority over foreign financial accounts are not required to file FBARs or that certain interests in foreign commingled funds are not subject to FBAR reporting.

This update is intended as a general summary of legal matters and not as legal advice. If you have questions or would like to discuss the FBAR reporting requirements, please contact Terrence Stein at 312-715-5029 / terrence.stein@quarles.com, Krupa Shah at 312-715-5027 / krupa.shah@quarles.com or your Quarles & Brady tax attorney.