Many of us who work with foreign asset reporting compliance are quite familiar with the “FBAR” form (actually known as FinCEN Form 114). The Financial Crimes Enforcement Network (FinCEN) has proposed rules that will make changes to some of the current reporting requirements, which will trigger corresponding changes to Form 114 to facilitate the rule changes. These proposed rule changes were officially made March 10, 2016 and it is anticipated that these will become final with ample time before the new April 15, 2017 deadline for the FinCEN Form 114. The proposed regulations as published in the Federal Register may be found here: https://www.gpo.gov/fdsys/pkg/FR-2016-03-10/pdf/2016-04880.pdf
Generally the changes are as follows.
· Changes to the exemptions that currently exist for those who have signature authority over accounts that belong to their employers (I call these exemptions the “executive exemptions”, because they frequently apply to executives of certain companies)
· Changes to the simplified reporting that currently exists for U.S. persons having either a financial interest in or signature authority over 25 or more accounts (the “simplified reporting procedures”)
The “Executive Exemption” Changes
Currently, there are very specific, enumerated exemptions from filing that exist for officers or employees having signature authority over (but no financial interest in) accounts of various types of employers that are subject to other regulations and reporting that would provide FinCEN with desired information on the accounts. There are several specific exceptions, currently found at 31 CFR 1010.350(f)(2), which include:
· An officer or employee of a bank that is examined by certain federal agencies, such as the Federal Reserve or Comptroller of the Currency
· An officer or employee of a financial institution registered and regulated by the Securities and Exchange Commission or Commodity Futures Trading Commission
· An officer or employee with stock listed on a U.S. national securities exchange
Under these current rules, a literal reading indicates that these exemptions exist only for those who are employees or officers of the actual entity that holds the account, and not for accounts owned by subsidiaries or other entities that are part of the employer’s overall business structure. FinCEN refers to such cases as “overlapping signature authority” situations, and such situations have caused confusion among practitioners.
The new proposed regulations seek to clarify that in these overlapping signature authority circumstances, the officer or employee will indeed be exempt from filing if the account belongs to the employer or any other U.S. entity within the same corporate or business structure as the employer and that entity is required to report the account under another section of the same FinCEN regulations (31 CFR 1010.350). The reporting entity has a recordkeeping requirement that includes maintaining a record of the employees or officers who have signature authority over the reported accounts.
The preamble to the proposed regulations make it clear, however, that this broader exemption will not apply if the corporate or business entity within the overall business structure holding the account has no requirement to report its interest in the accounts over which the officer or employee has signature authority. As a practical matter, it may be difficult or impossible for the tax practitioner seeking compliance for their client (who is an officer or employee with signature authority over an employer’s account) to ascertain the filing requirements of the client’s employer, or even what the overall business structure is. The broader proposed rule, however, clarifies the overlapping signature authority issue (and FinCEN points out in the preamble that employers commonly complete and file FinCEN Form 114 for affected employees).
Simplified Reporting
Under the current simplified reporting rules, U.S. persons who have either a financial interest in 25 or more accounts, or who have signature authority over 25 or more accounts, may file an FBAR without providing the full details on each account (but are required to maintain records of such details).
Under the proposed rules, this simplified reporting is being eliminated. Full details on all accounts will need to be reported. FinCEN notes in the preamble to the proposed regulations that in 2013, approximately 10,800 FBAR forms were filed using the “25 or more accounts” simplified filing rules for those having a financial interest in such accounts. According to FinCEN, this represented a combined total of about 5,366,000 accounts, or about 56% of the total number of foreign accounts reported in 2013 by all filers. There is a concern about the lack of details over this large number of accounts. Accordingly, the simplified filing procedures are to be eliminated.
Along with these changes are a number changes that will be made to FinCEN Form 114 to accommodate the elimination of the simplified changes.
As alluded to earlier, don’t forget that the next FinCEN Form 114 deadline is April 15, 2017 (not June 30 as it has been in the past). However, extending the taxpayer’s tax return also extends the due date of the FinCEN Form 114 by the same 6 month period as the tax return extension.