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FBAR: Challenges for Clients and Firms Alike

BY Ryan Dudley
July 28, 2009

Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (commonly known as the “FBAR”), is an annual report that “U.S. persons” are required to file to disclose financial interests, or signatory or similar interests, in foreign bank and financial accounts (“foreign accounts”). While it is administered by the Commissioner of Internal Revenue (the “Commissioner”), the FBAR is required to be filed pursuant to Treasury Regulations relating to the Bank Secrecy Act, not the Internal Revenue Code (the “Code”).

The FBAR is not filed with the tax return, discloses no information about the income derived in a foreign account, and is not used for calculating any tax obligations. Yet the Internal Revenue Service (“IRS”) has converted the FBAR from a minor information report to a primary tool for pursuing hidden bank accounts.

This creates challenges and opportunities for law firms. U.S. law firms can be subject to the FBAR filing requirements, and as such, each firm should assess whether it has an interest in any foreign accounts. Law firms must also ensure that their partners are aware of these obligations, and that they may have a reporting obligation if they accept certain roles as directors, trustees, nominees, or escrow agents that give them access to foreign accounts. At the same time, this is an opportunity to bring great value to clients. Unless alerted by their trusted tax attorneys, many U.S. persons will be unaware of this sudden change in approach by the IRS, and the potentially devastating implications of failing to file outstanding FBARs.

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