Many of our US readers are concerned about whether to ‘check the box’ on the FBAR (Foreign Bank Account Reporting) form, also known as  TD Form 90-22.1 There has been particular concern that the regulations covering FBAR reporting for last year, 2010, were not clear.

In our free Q Bytes newsletter this week, our resident non-resident banking expert Peter Macfarlane reviewed the new regulations, including a link to a detailed summary of the new FBAR regulations carried out by our friends at Mountain Vision. Since this is such an important topic, we decided to reproduce Peter’s article in full here on the blog.

On February 23rd 2011, the U.S. Treasury Department released its (new) final regulations regarding the obligations to file an FBAR. These final regulations follow the respective proposals issued roughly a year ago on February 26th, 2010. These new rules finalize and clarify several of the proposed provisions. As can be expected with any and all tax rules, they also leave a number of open questions.

Our friends at BFI have written a detailed practical analysis of the new rules here in a special Mountain Vision alert. We strongly suggest you read it. In the meantime, here are a few key things you should know:

• The final rules apply to financial accounts maintained in 2010 and require an FBAR filing by June 30, 2011.
• All LLCs formed under U.S. laws are treated as U.S. persons who are subject to FBAR reporting requirements, even limited liability companies that are treated as disregarded entities for U.S. tax purposes. This puts an end to the use of American LLCs from states such as Delaware, Nevada and Wyoming for international tax planning.
• Unallocated precious metals programs such as the Perth Mint Certificate Program or GoldMoney are now definitely reportable. Physical precious metals held in, for example, a Swiss or Austrian safe deposit box with relevant foreign private banks are also now reportable, at least in those cases where such safe deposit boxes are linked to the ownership of a bank account and a private banking relationship. This is a major change to the old rules.
• The new treasury FBAR rules still do not clarify whether allocated and segregated precious metals programs such as Global Gold or a personal overseas vault that is NOT linked to a banking relationship are reportable. At this point, BFI have concluded that the Global Gold program is reportable, at least in its current form, although there is an allocated segregated storage program run by Global Gold for institutional clients that may not be reportable.
• Only individuals, not entities, have FBAR filing requirements on account of “signature or other authority”. Individuals who merely participate in decision-making, or who instruct or supervise persons with signature authority, are not themselves treated as having “signature or other authority” that trigger an FBAR reporting requirement. This is very odd provision, that might be taken to create a huge loophole.
• Gold has been singled out specifically as reportable under the new regulations. Other precious metals would not appear to reportable on FBAR. Thus, silver, platinum or palladium held in the Global Gold program would be non-reportable.

The new rules on what constitutes a ‘foreign account´ that is reportable, once again raise the question as to what the true agenda behind FBAR rules really is. Is it really about the drug trafficking and terrorism they keep using to justify it? Or is to do with taxation and capital controls?

I’ve noticed that a lot of my colleagues who came out and said that the HIRE Act was not about capital controls when it was first released (refer to our article here) have now quietly changed their minds.

I will not beat about the bush. These rules are about the US government taking control of what American individuals do with their money. They are designed to deter the little guy from going offshore. In the meantime, they leave some big loopholes open for the big guys.

The reason for turning up the heat is that more and more little guys are going offshore. Because it make sense. The tighter they turn the screws, the more it makes sense to go offshore. Fortunately it is still possible within the rules to keep assets securely offshore legally. The Q Wealth Report will continue to bring you practical information on this. Meanwhile, we would advise you to seek urgent professional advice if any part of the Foreign Bank Account Reporting requirements and your obligations thereunder are unclear to you. Paid up Q Wealth members are entitled to free referrals to relevant professionals.

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