The proposed rules provide welcome relief for employees and officers of many private investment funds, but expand reporting for holders of 25 or more accounts.
On March 1, the Financial Crimes Enforcement Network (FinCEN) issued proposed regulations that revise and clarify certain provisions in the rules regarding the filing of Reports of Foreign Bank and Financial Accounts (FBAR).
Among other things, the revisions would relieve certain employees from having to file an FBAR with respect to accounts owned by their employer or affiliate, and expand the amount of information to be provided by holders of more than 25 non-US financial accounts.
The proposed regulations would do the following:
FinCEN has previously issued temporary notices of exemptions concerning those filers covered by the proposed regulations, and those temporary exemptions remain unaffected. The FBAR is a calendar year report ending December 31 of the reportable year. Please note: Beginning with the 2016 reporting year, the due date for the FBAR filing is April 15 of the following year (so that with respect to the 2016 calendar year, the due date for the FBAR filing is April 15, 2017). The due date for FBARs filed with respect to 2015 remains June 30, 2016.
Generally, any US person or entity that at any time during a calendar year had a financial interest in, or signature or other authority over, financial accounts located in a foreign country with an aggregate value in excess of $10,000 is required to file an FBAR.
Under final FBAR regulations issued in 2011, officers and employees of certain entities (“excepted entities”) are exempt from the FBAR filing obligation if they hold only signature authority but no financial interest in the accounts held by the entities. It was not clear, however, how this exemption applied with respect to an officer or employee’s overlapping signature authority within a corporate or business structure (e.g., employees or officers of a large company’s treasury group that is either at the parent or subsidiary level that have signature authority over financial accounts of the entities within the corporate group). Uncertainty over how to implement the filing obligation for such persons with only signature authority over, but no financial interest in, financial accounts led to numerous deferrals of FBAR filing dates applicable to such persons.
Recognizing that the prior exemptions, as a practical matter, would potentially impose greater filing obligations than necessary, the proposed regulations would simplify and expand the exception for employees with only signature authority over their employer’s accounts, where the employer or other entity in the employer’s corporate group is already required to file an FBAR to report its financial interest in such account. The new exemption also applies to “agents” and their employees that have no financial interest in the entity’s accounts and that are not otherwise holders of legal title or owners of record in the account. As a result, an entity’s service provider that has signature authority over the entity’s financial accounts may be covered under this exception.
Notably, the proposed regulations significantly expand the availability of this exception to cover officers, employees, and agents of all US entities—not just “excepted entities” as described in the current final regulations. In particular, this expansion would be a welcome reprieve for employees and officers of many private investment funds with offshore accounts, as the typical private equity or hedge fund is not considered an “excepted entity” under the current final FBAR regulations.
For those officers and employees that are eligible for this new exception, the employer that is required to file the FBAR with respect to the account due to its financial interest in the account must maintain a list of those persons with signature authority over the account for five years. That list would be made available to FinCEN upon request.
It is important to note that the proposed exemption does not cover an officer or employee with signature authority over an account where neither the employer nor any other entity in the employer’s group is required to report a financial interest in the non-US account. Thus, for example, a US employee of a non-US entity who has signature authority over that non-US entity’s accounts remains obligated to file the FBAR with respect to such account where the non-US entity is not included as a subsidiary of a US entity that files the FBAR for such accounts.
Under the current final regulations, where the filer has a financial interest or signature authority over 25 or more non-US financial accounts, the filer need only provide the number of accounts and certain other basic information on the report. However, such filers need not provide more detailed information regarding the accounts, such as value/balance, type of account, and identity of the financial institution where the account is held. Based upon an “information gap” identified by FinCEN with respect to situations where a filer has more than 25 non-US financial accounts, the proposed regulations now require full reporting of all the filer’s reportable non-US financial accounts, rather than the summary disclosure permitted under current final regulations.
The proposed regulations contain other miscellaneous changes to the final regulations. Most notable among these changes is the change in due date for the FBAR. Up to and including the 2015 calendar year, the due date for the FBAR filing has been June 30 of the following year. Beginning with the 2016 reporting year, the due date for the FBAR filing is April 15 of the following year (so that with respect to the 2016 calendar year, the due date for the FBAR filing is April 15, 2017).
In addition, the proposed regulations now provide for the availability of extensions to October 15 of the reporting year, with such extensions available upon request. The exact procedures for requesting an extension are not yet clear. While the FBAR is electronically filed with FinCEN each year, the proposed regulations continue to state that persons remain obligated to file a similar return on Form 8938 with the IRS to report non-US accounts.
The proposed regulations described above will not take effect until and unless they are adopted in final form. In the interim, existing procedures for FBAR filings remain in effect. The US Department of the Treasury and FinCEN are currently seeking comments regarding these proposed regulations.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Gabriel A. Quihuis
Richard S. Zarin
William P. Zimmerman
Nathan J. Hochman
 “Excepted entities” include federally regulated banks, a financial institution registered with the US Securities and Exchange Commission (SEC) or US Commodity Futures Trading Commission (CFTC), an authorized service provider with signature authority over an account owned by an SEC-registered investment company, or an entity with securities listed on a US national securities exchange.
 The preamble to the proposed regulations notes that up to 100 employees may have signature authority over the same financial account, leading to the filing of 100 FBARs regarding the same financial account.