Proposed FinCEN Regulations Would Substantially Alter FBAR Filing Requirements

Sep 08, 2017

On March 10, 2016, the Financial Crimes Enforcement Network ("FinCEN") promulgated proposed amendments to its FBAR regulations, which would make several important changes (source: RIN 1506-AB26, 81 Fed. Reg. 12613 (Mar. 10, 2016). FinCen is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. In summary, FinCen's proposed regulations would:

  • Require companies and other entities to maintain a list (for five years) of all officers, employees, and agents with signature or other authority over foreign financial accounts, making this list available to FinCEN and law enforcement authorities upon request;
  • Expand and simplify the exemption for certain U.S. individuals with signature or other authority over foreign financial accounts, by eliminating the requirement for officers, employees, and agents of U.S. entities to report on accounts owned by the entity (or a subsidiary, parent, or another entity within the same corporate or other business structure of such entity) for which they have signature or other authority, but no financial interest, provided the entity (or any other entity within the same corporate or other business structure) has an FBAR filing obligation to report the foreign financial account;
  • Remove the special rules permitting limited account information to be reported when a U.S. person has a financial interest in, or signature authority over, 25 or more foreign financial accounts, and instead require U.S. persons to report detailed account information on all foreign accounts; and
  • Make other changes, including recognizing the changed due date for filing FBARs, beginning with the 2016 FBAR due in 2017, and the requirement that FBARs be filed electronically.

At a high level, the proposed FBAR regulations contain both good and bad news for taxpayers. The proposed revision to the signature authority exemption, which would eliminate FBAR reporting for officers and employees with signature or other authority (but no financial interest) provided their employer or other entity within the same corporate group is required to report the foreign financial account, would be welcome indeed. Moreover, since many employers prepare and file FBARs on behalf of their officers and employees with signature authority, this burden reduction would benefit them directly. In contrast, the proposed deletion of abbreviated reporting for persons with a financial interest in, or signature authority over, twenty-five or more foreign financial accounts could impose significant administrative burdens on those companies and entities. Rather than simply listing the number of accounts and retaining detailed information for FinCEN’s review upon request, the companies would have to enter and submit the required information through FinCEN’s BSA E-Filing System for each foreign financial account. Interestingly, the proposed regulations do not contain a proposed effective date, nor do they address the ongoing effect of FinCEN’s earlier deferrals (through annual notices) of the FBAR filing requirements in respect of certain signature authority accounts. With respect to the deferrals, the FinCEN release issued with the regulations acknowledges that “as part of the final rule, it would need to determine the effect of the provisions of this proposed rule on earlier FBAR deferrals.…” In the preamble to the proposed regulations, FinCEN specifically requested comment on:

  • Whether it should allow individuals to rely on the proposed reporting exemption, if finalized, with regard to FBAR filings properly deferred under the FinCEN Notices (the latest being Notice 2016-1);
  • Whether removing the abbreviated reporting permitted for U.S. persons meeting the 25 account threshold will result in technology costs to implement systems to transfer account information to the BSA E-filing system; and
  • Whether the proposed broadening of the signature authority reporting exemption combined with removal of the special abbreviated reporting for filers with 25 or more foreign financial accounts will increase or decrease a filer’s burden.

Be proactive and check out the FBAR Wiz app to quickly and anonymously determine if you have an obligation to report offshore accounts or offshore assets. Check out a related blog post on how to avoid the most common FBAR mishaps here.