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FBAR FAQs: How to Comply With This Complex Regulation

  • By Ira Apfel
  • Published: 6/24/2015

Many treasury and finance professionals have questions about complying with FBAR -- and the filing deadline was June 30.

Because there is still a great deal of confusion on several aspects of the regulation, AFP staff and several corporate practitioner members spoke with regulators from FinCEN and asked specific compliance-related questions.

The good news is this: 85 percent to 90 percent of unnecessary FBAR (Foreign Bank Account Reporting) filings can be eliminated.

Why? There are several reasons. First, according to the AFP-FinCEN Q&A, named officers or any other employee on a Corporate Certificate Bank Resolution for U.S. publicly traded entities are exempt from filing a personal FBAR. In addition, officers or employees of publicly traded companies are not required to file a FBAR over a foreign financial account that is owned and maintained by the publicly traded company.

Furthermore, if officers of a corporation have the authority to expend funds with signature authority but no financial interest of the company’s account, then they are required to file a FBAR. However, if they physically cannot, or have the signature authority, to expend funds, then they’re not required to file.

Below are more questions, followed by FinCEN answers:

Who Must File a FBAR?

Question: In the preamble, FINCEN states that “Signature Authority does not mean Supervisory Approvals.” Guidance from FINCEN states that “Supervisors who ‘approve’ of the disposition of assets of a subordinate, but cannot dispose of assets themselves, do not have signature authority. We assume “approve” to mean an internal company approval. Please confirm.

Answer: Confirmed. Internal approval is not a payment approval for FBAR purposes. Therefore, this does not constitute disposition of assets from a bank account.

Question: Please confirm who must file a FBAR from the following list if the organization is a non-governmental organization or a privately held company without any government oversight or regulatory governance: Named officers on a Corporate Certificate Bank Resolution?

Answer: No. Persons named on the general banking resolution only need to file a FBAR if their employer has also given them signature authority on bank accounts or specific access for the disposition of funds. If the individuals named on the banking resolution cannot access banking systems or communicate instructions on the movement of funds legally or within company guidelines or policies then they do not need to file a FBAR.

Question: If an individual or an officer of an organization did not realize they were subject to FBAR filings and needed to file previous-year FBARs, how far back do they need to go?

Answer: Two to three years maximum, and the data need to be retained for five years. FinCEN will never ask for data that is older than five years.

Question: If individuals and officers did not know they were subject to FBAR filing and therefore did not declare their signatory authority on their previous year’s personal taxes, do they need to re-file those previous year taxes? If yes, how can they do that if the form 1040x does not provide a field to correct overlooked FBAR information?

Answer: IRS counsel has advised that previous-year taxes do not need to be re-filed to correct missing FBAR information. The IRS considers late filing of missing FBARs to the FinCEN to be a reasonable effort toward honest disclosure.

If the above examples are for a U.S. publicly traded entity, then the employee is exempt from filing a personal FBAR.

Question: What about for accounts payable clerks that transact on the foreign bank account with proper controls where: one person initiates and another person approves money transfers?

Answer: Since the clerk is simply processing payments in the payable system, and the clerk hands off a payment file to the bank, this does not constitute a reportable FBAR obligation. If the clerk logs on and initiates a payment directly on the bank Web tool to a foreign bank account, this is a direct payment and would constitute a FBAR filing obligation.

Question: Regarding the chain of command in approving/effecting a payment from a corporation based on the decision-making hierarchy of an organization. If a controller has authority to approve a purchase order and the payment with enough internal signature authority at a set dollar threshold, yet the controller has no authority over the bank account, but has authority over the individual that does, is this considered in scope for filing an FBAR?

Answer: This is part of the normal corporate governance and does not constitute a FBAR reporting obligation.

Question: What about online bank account or bank portal administrative “super users” that set up users and ensure controls for the purpose of designating money transfer personnel at a company?

Answer: FINCEN will have to review and provide further guidance on this.

Question: What if an account doesn’t have a person as a signatory and relies on a corporate logo for their account signatory?

Answer: The owner of the electronic signature or logo is responsible and will have a reporting obligation.

Question: What about tax personnel that send foreign tax payments as debit transactions to foreign bank accounts?

Answer: FINCEN will confer with IRS and give guidance on this.

Average Balances

Question: We have trouble getting the highest average balance in our bank accounts from our bank, and we don’t have internal reporting that tracks this since the information changes every minute. What is considered prudent practice in this regard—using the bank’s best value in terms of the highest amount per year?

Answer: FinCEN will confer with IRS to get guidance on the using the general ledger as an alternate source for the highest balance.

Question: The guidance is clear: “A United States person with a financial interest in 25 or more foreign financial accounts should check the Yes box in Part I, item 14a, and indicate the number of accounts in the space provided. The United States person should not complete Part II or Part III of the report but maintain records of the information. If the group of entities covered by a consolidated report has a financial interest in 25 or more foreign financial accounts, the reporting parent corporation need only complete Part V (for consolidated reporting), items 34 through 42, for the identity information of the account owners, but need not complete the account information.” But the electronic filing instructions are not clear to batch filers filing a consolidated FBAR as to how to address this reduced information requirement that pertains to Part V. How do we truncate this information in the file layout? This will help us to eliminate reporting highest average balance information mentioned above.

Answer: Confirmed. If the filer—the person or organization—has 25 or more foreign bank accounts, the total count of accounts and the ownership is required when filing. Account details and balances are not required.

However, account balance information must be available for five years should FinCEN or the IRS ask for the details. Also, all Bank Secrecy Act records should be kept for a rolling five years as well.

Exemption Questions

Question: Is an officer or an employee that works for a company that is listed on a public exchange or an ADR and with no financial interest exempt? Would the subsidiary be included in the consolidated filing? What about the individual—would he or she need to file?

Answer: Foreign companies with subsidiaries in the United States, where the foreign parent is listed on a U.S. public exchange via ADR, what specifically are the exemptions? FinCEN and IRS will follow up on this to confirm.

Disclaimer: Always consult your tax and legal advisers in dealing with any federal regulation. This article is not meant to be legal or tax advice but a recap from an AFP conversation with FinCEN. 

 

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