U.S. FBAR Rule’s Wide Net

All overseas account signatories must report on personal tax forms.

The reach of the U.S. Foreign Bank Account Report (FBAR) requirement may surprise many U.S. corporate finance employees, who might assume that since they have no financial interest in the company’s overseas accounts, they’re exempt from reporting. In fact, the U.S. Financial Crimes Enforcement Network (FinCen) broadened the scope of the FBAR rule last year to include even employees with no financial interest in foreign accounts.

That means all those with control over an account or accounts with total balances of more than $10,000 are now required to check the appropriate boxes on Schedule B of their personal income tax return, then file an additional form, TD F 90-22.1, by the end of June.

Although FinCen in February delayed the filing requirement for another year, companies really need to pay attention to the rule’s expansion now, says Salome Tinker, director of financial accounting and reporting at the Association for Financial Professionals. “A lot of people think, ‘It’s not my account, it’s my company’s account.’ But in fact, the rules changed.”

Tinker, who's pictured at the right, recommends that U.S. companies and their employees file the reports this year, and use the one-year extension to file reports they may not have filed in previous years.

Last year the government made the FBAR rule that has been in place for some time “more stringent,” she says. “If you have the ability to have some control over the account, you have to file one of those Foreign Bank Account Reports.”

Being a signatory on an account qualifies as control, as does having the ability to initiate a wire transfer. “The woman in AP who makes $30,000, all she does is payroll, and now all of the sudden she’s subject to money-laundering laws,” Tinker says.

The expanded reporting requirement is part of a broader U.S. effort to crack down on money laundering and people who try to avoid taxes by hiding funds overseas. “They’re really using this as a mechanism to find out where money is,” says Richard Nichols, a financial service tax partner and head of the Northeast financial service tax practice at McGladrey.

Nichols points out, though, that expanding the FBAR requirement to all the signatories or other employees with control over a foreign bank account means the government will be getting multiple reports on the same bank account. “In a typical corporate environment, you can have one, two, five people who might be authorized signatories on an account,” he says. “You’re creating duplication of the same reporting.

“We already reported that we as a company have a financial interest,” Nichols says. “Is it really necessary that the 10 guys who have the ability to move the money tell the government?”

Some executives might not even realize that they have signing authority, he says, citing the theoretical case of an executive who signed the paperwork to open a bank account a number of years ago. “He hasn’t signed a check for 12 years, but nobody has updated their records,” Nichols says. “This poor individual doesn’t even know he has signature authority and he has an obligation, based on that, to fill out one of these forms.”

Employees who fail to meet the FBAR filing requirement can be fined as individuals for a percentage of the money in the accounts.

Nichols also points out that for FBAR’s purposes, a foreign account is not only a bank account: “It can be a securities account, it can be a brokerage account. If I’m in manufacturing, and use a traded commodity such as copper or platinum in my product, and I have copper or platinum in my account overseas, theoretically that is a foreign bank account.”

Tinker takes FinCen’s one-year extension of FBAR as an encouraging sign that the government may be considering businesses’ objections to the expanded requirement. “Hopefully it shows they’re still looking into the issue,” she says.


For an update on another IRS measure aimed at curbing tax evasion, the Foreign Account Tax Compliance Act, see FATCA Gets Less Painful.



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