Final revised regulations for the FBAR (Report of Foreign Bank and Financial Accounts) became effective at the end of March 2011. While not granting a broad exemption for benefit plans, certain changes to the definitions within the rules provide some relief to plan filers.
The FBAR was created many decades ago under the Bank Secrecy Act and is enforced by the Financial Crimes Enforcement Network (FinCEN). The actual Form, TD F 90-22.1, is available through the Internal Revenue Service (IRS) and is used to report a financial interest in or signature authority over a foreign financial account. Based on informal remarks by IRS officials shortly before the filing due date of June 30, 2009, the FBAR became a topic of intense focus for the benefit plan world. At that time, the comments indicated that investments held by benefit plans in offshore hedge funds and private equity funds would trigger an FBAR filing, not only for the plan, but also for those individuals with signature authority over the plan. An outcry of questions and objections resulted from the guidance confusion, which prompted the IRS to grant filing extensions to delay FBAR filings for the 2009 calendar year until June 30, 2011.
With the recently issued revisions to the FBAR regulations, the definitions were clarified. A financial account is reportable if located outside the United States and includes traditional bank deposit accounts, securities and brokerage accounts, and shares in a mutual fund or similar pooled fund (e.g., a fund that is available to the general public with a regular net asset value determination and regular redemptions). Because most offshore hedge funds and private equity funds are typically not available to the general public and are considered private offerings, they do not fall under the definition of a foreign financial account. Furthermore, the regulations clarify that when holdings outside of the United States are only accessible through a U.S. global custodian bank, no FBAR filing is required.
The regulations also narrowed the meaning of signature authority and financial interest as they relate to benefit plans. The end result is that an FBAR filing may very well not be warranted for your plan under these revisions. The plan's investment consultant may aid in the determination of whether an FBAR filing is required.