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Revised IRS Form on Foreign Financial Accounts Raises Issues, Including Who Must File
The IRS has released a revised version of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (Rev. October 2008). This revised form must be filed by
each “United States person” (as defined in the instructions) who has a financial interest in—or signature or other authority over—any foreign financial account, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of the financial accounts exceeds $10,000 at any time during a calendar year.
The revised Form TD F 90-22.1 and its attached instructions both contain significant revisions. For example, the revised form and instructions modify the definition of
a “United States person” that is required to file, and also adds a reference indicating that
a “financial account” includes an interest in a “mutual fund.”
Filing Deadline, Place for Filing
Form TD F 90-22.1 is not a federal income tax form and, therefore, is
not to be filed with a filer’s U.S. federal income tax return.
Instead, Form TD F 90-22.1 is issued under the Bank Secrecy Act (31 U.S.C section 5314) and related regulations, and generally must be filed on or before June 30th of the year following the calendar year reported, with the Treasury Department at the following address:
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
The first page of the revised form contains a legend stating that previous editions of this form are not to be used after December 31, 2008. Reports filed after December 31, 2008, must be filed using the revised form. Consequently, it appears that the revised Form TD F 90-22.1 must be used beginning January 1, 2009, with respect to reporting for calendar year 2008.
Penalties may be imposed for failure to file Form TD F 90-22.1. These penalties are discussed briefly below.
An electronic version of the form is available on the IRS Web site:
http://www.irs.gov/pub/irs-pdf/f90221.pdf
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Unresolved Issues Exist
The instructions to the revised form raise several issues for which further clarification from the IRS/Treasury is necessary. For example, the instructions of the previous edition of Form TD F 90-22.1 (Rev. 7/00) defined the term “United States person” to mean:
(1) a citizen or resident of the United States
(2) a domestic partnership
(3) a domestic corporation, or
(4) a domestic estate or trust
In contrast, the instructions to the revised form define the term “United States person” to mean “a citizen or resident of the United States, or a person in and doing business in the United States.” (Italics added.)
The instructions to the revised form also add a new reference to 31 C.F.R. 103.11(z) for a complete definition of “person.” 31 C.F.R. 103.11(z) defines the term “person” as:
An individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.
In addition, the instructions to the revised form also add a new statement that “[a] branch of a foreign entity doing business in the United States is required to file this report even if not separately incorporated under U.S. law.” However, the instructions to the revised form provide no guidance regarding the manner in which such a “branch” in the United States must report.
It is unclear whether the changes made to the instructions in the revised form are intended to be a change or clarification. For example, it is unclear if a U.S. branch of a foreign entity may have been required to file the previous editions of Form TD F 90-22.1.
In addition, the revisions to the instructions could indicate that all the terms used in the instructions to the revised form are not to be defined under the Internal Revenue Code. For example, because 31 C.F.R. 103.11(z) is issued under the Bank Secrecy Act—instead of under the Internal Revenue Code—changes to the instructions in the revised form
make it unclear whether the terms “U.S. resident” (for this purpose) and the acts necessary to be considered doing business in the United States, are defined under the Internal Revenue Code, or perhaps only under the Bank Secrecy Act.
Depending on the clarification provided by the IRS and Treasury Department on these issues, the population of those required to file reports could be substantially broadened and the administrative burden on filers increased.
Penalty Provisions
The penalty for non-willful failures to report can be up to $10,000. Such penalties can be waived if there is reasonable cause for the violation and if the amount of the transaction or the balance in the account at the time of the transaction was properly reported. Higher penalties can be imposed for willful failures (and there is no reasonable cause exception).
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For more information, contact your local KPMG tax professional or a tax professional with the Practice, Procedure and Administration group within KPMG’s Washington National Tax.
Or contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or
rspeizma@kpmg.com
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