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IRS Increases Reporting and Scrutiny of Foreign Bank Accounts


Starting in 2009, the IRS has expanded the Foreign Bank Account Reporting (FBAR) process. Unfortunately, this change will ensnare many more taxpayers into the FBAR reporting requirements, and will increase the compliance time and cost needed to meet the new requirements.

The IRS has recently issued a revised version of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (Rev. October 2008), which must be filed by any ‘United States person’ who has a financial interest in or signature or other authority over any foreign (non-U.S.) financial account(s), including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

The recently issued revised version of the form contains significant revisions to both the form itself and the instructions. The new forms must be used for filings after December 31, 2008, which are due June 30, 2009 (to be filed with the Department of the Treasury in Detroit, MI).

“Financial interest” generally means legal title or record of ownership. This term also includes foreign entities such as corporations, partnerships or trusts in which a U.S. person owns more than a 50% interest in stock, capital, and assets/income, respectively.

Traditionally U.S. citizens, green card holders and other U.S. residents were required to file this form. (Snowbirds who meet the substantial presence test and fail to file IRS Form 8840 – Closer Connection Exception were also caught). Under the new rules, the form must also be filed by self-employed non-resident aliens engaged in U.S. business and foreign corporations with a U.S. presence that have U.S. employees with applicable signing authority.

Potentially, the filing requirement could also apply to non-resident aliens who merely hold an investment in a U.S. or non-U.S. partnership that is engaged in U.S. business.

Changes to Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts

Significant changes for 2009 forward and items to note include:

• Foreign corporations with U.S. branches and non-resident aliens conducting a trade or business within the U.S. are now subject to FBAR rules.

• Form TD F 90-22.1 must be filed by June 30 of the year following the reporting calendar year. There are no extensions available for filing.

• Precise maximum values of bank accounts during the calendar must now be reported. This will likely entail a taxpayer review of monthly or quarterly statements issued by the foreign financial institution. The reporting of a maximum value of account has changed from selecting pre-defined ranges (e.g., under $10,000, $10,000 to $99,999,…) to that of reporting an actual exact dollar amount. In other words, the individual must report the highest value, in U.S. dollar terms, which the account reached at any time during the year.

• The mailing address of each applicable foreign financial institution must now be provided.

• Foreign currency on Form TD F 90-22.1 is to be converted using the official exchange rate at the end of the year.

• The term “United States person” has been expanded to include a citizen or resident of the United States, or a person in and doing business in the United States.

• The term ‘Financial Account’ has been clarified to include mutual funds as well as a debit card and prepaid credit card accounts in the ‘other account’ category.

• Individual bonds, notes, or stock certificates held by the filer are not financial accounts nor is an unsecured loan to a foreign trade or business that is not a financial institution.

• If the filer does not have a U.S. taxpayer identification number (Social Security number or ITIN), the individual must provide a foreign identification that evidences their nationality or residence. This information can be reported using either a foreign passport or other foreign identification document.

• The form itself has been expanded to include additional ‘Parts’ for reporting purposes. These additional sections allow for completion of a separate block pertaining to the type of account classification. For example:

• Part II – Information on Financial Account(s) Owned Separately;

• Part III – Information on Financial Account(s) Owned Jointly;

• Part IV – Information on Financial Account(s) Where Filer has Signature or Other Authority but No Financial Interest in the Account(s);

• Part V – Information on Financial Account(s) Where Corporate Filer is Filing a Consolidated Report.

• If a delinquent FBAR is filed after the due date (June 30th), then an attached statement must be included to explain the reason for the late filing.

Potential Penalties

The potential penalties for failure to file are large. The civil penalty for failure to file for each account is the greater of $25,000, or the balance in each account (to a maximum of $100,000 for each account). (CFR 31 103.57(g)(2)). There is also a potential criminal penalty of $500,000 and imprisonment of up to five years for intentional failure to file or for fraudulently filed forms.

The reward for informants is the lesser of 25% of the amount collected or $150,000.


The changes to Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, will increase the administrative burden on current filers of the form as well as increase the number of filers with its’ broadened provisions. The IRS has made major revisions to IRS Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) - the so-called “FBAR” that may affect you.

For additional information, assistance or clarification, please contact Michael Shumate, CPA, J.D., LL.M. at 1.416.596.1711 or your local MNP U.S. tax advisor.