Comments on the Report of Foreign Bank and Financial Accounts

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1 Section of Taxation OFFICERS Chair Rudolph R. Ramelli New Orleans, LA Chair-Elect Michael Hirschfeld New York, NY Vice Chairs Administration Leslie E. Grodd Westport, CT Committee Operations Priscilla E. Ryan Chicago, IL Continuing Legal Education William H. Caudill Houston, TX Government Relations Eric Solomon Pro Bono and Outreach John P. Barrie New York, NY Publications Alice G. Abreu Philadelphia, PA Secretary Megan L. Brackney New York, NY Assistant Secretary Thomas D. Greenaway Boston, MA COUNCIL Section Delegates to the House of Delegates Richard M. Lipton Chicago, IL Susan P. Serota New York, NY Last Retiring Chair William M. Paul Members Michael A. Clark Chicago, IL Julian Kim Mary Ann Mancini Mary A. McNulty Dallas, TX Steven M. Rosenthal Pamela Baker Chicago, IL W. Curtis Elliott, Jr. Charlotte, NC Scott D. Michel Eric B. Sloan New York, NY Brian P. Trauman New York, NY Jody J. Brewster Julie Divola San Francisco, CA Fred F. Murray Charles Rettig Beverly Hills, CA Bahar Schippel Phoenix, AZ LIAISONS Board of Governors Allen C. Goolsby, III Richmond, VA Young Lawyers Division Travis Greaves Law Student Division Tuan Ngo Fremont, CA Jennifer Shasky Calvery Director Financial Crimes Enforcement Network Department of the Treasury P.O. Box 39 Vienna, VA Re: April 5, 2013 Comments on the Report of Foreign Bank and Financial Accounts Dear Director Shasky Calvery: 10th Floor th Street, N.W FAX: Enclosed are comments on the final regulations governing the report of foreign bank and financial accounts, issued by the Financial Crimes Enforcement Network on February 24, These comments represent the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association, and should not be construed as representing the policy of the American Bar Association. Enclosure cc: Sincerely, Rudolph R. Ramelli Chair, Section of Taxation Steven T. Miller, Acting Commissioner, Internal Revenue Service Mark J. Mazur, Assistant Secretary (Tax Policy), Department of the Treasury William J. Wilkins, Chief Counsel, Internal Revenue Service Jamal El-Hindi, Associate Director, Financial Crimes Enforcement Network Bill S. Bradley, Chief Counsel, Financial Crimes Enforcement Network Robert B. Stack, Deputy Assistant Secretary (International Tax Affairs), Department of the Treasury Joseph Henderson, Attorney-Advisor (International), Branch 1, Office of Associate Chief Counsel, Internal Revenue Service ACTING DIRECTOR Janet In

2 ABA SECTION OF TAXATION COMMENTS ON THE REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS The following comments ( Comments ) are submitted on behalf of the American Bar Association Section of Taxation and have not been approved by the House of Delegates or Board of Governors of the American Bar Association. Accordingly, they should not be construed as representing the position of the American Bar Association. On February 24, 2011, the Financial Crimes Enforcement Network ( FinCEN ) issued final regulations governing the report of foreign bank and financial accounts (the Final Regulations ). Since the issuance of the Final Regulations, FinCEN has issued a number of notices extending the time to file certain Forms TD F , Report of Foreign Bank and Financial Accounts ( FBARs ), most recently in FinCEN Notice , issued on December 26, Consistent with FinCEN s rationale for extending the time to file certain FBARs, recent experience with the Final Regulations has revealed issues with applying the regulations in various contexts, including the application of the signature authority exception for officers and employees of publicly traded domestic companies and their domestic and foreign affiliates. Principal responsibility for the coordination and preparation of these Comments was exercised by Paul Crispino of the Foreign Activities of U.S. Taxpayers (FAUST) Committee. Significant contributions to the drafting were made by William Benjamin, Ian Bristol, Charles Bruce, Janine Burman, Barclay Collins, Darrell Doss, Dwuane Dupree, Debrorah Jacobs, Lewis Greenwald, Abraham Leitner, Kenneth Levinson, Patrick Martin, James McPherson, Fred Murray, and Mirt Zwitter-Tehovnik. Carol Tello, Chair of FAUST, and Brian Trauman, the Tax Section s Council Director for the international committees, also reviewed the Comments. Although many of the members of the Section of Taxation who participated in preparing these Comments have clients who may be affected by the legal issues addressed by them, no such member (or firm or organization to which any such member belongs) has been engaged by a client to make a submission with respect to, or otherwise influence the development or outcome of, the specific subject matter of these Comments. Contact: Paul Crispino (203) paul.crispino@ge.com Date: April,

3 AMERICAN BAR ASSOCIATION TAX SECTION COMMENTS ON THE REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS EXECUTIVE SUMMARY COMMENTS I. Background of Final Regulations A. Reporting Exceptions for Persons with Signature Authority B. The Consolidated FBAR Exception II. Signature Authority and Scope Issues A. Signatory Authority Issues i. Reinstate Publicly Traded Exception 1. Officers and Employees of Publicly Traded Companies Lack Account Information 2. Expand Reporting Exclusions for Certain Publicly Traded Companies ii. Waive Penalties for Prior Year FBARs iii. Exempt Officers and Employees of U.S. and Foreign Subsidiaries of Section 12(g) Corporations iv. Exempt Officers and Employees of U.S. Subsidiaries of U.S.-Listed Publicly Traded Foreign Corporations v. Coordinate with FATCA Reporting vi. Clarification of Filing Requirements for Investment Management Companies vii. Clarify When an Account is Maintained B. Issues with Covered Persons i. Minors and Incapacitated Owners ii. Spouses of Owners in Community Property Jurisdictions 2

4 EXECUTIVE SUMMARY On February 24, 2011, approximately a year after issuing proposed regulations (the Proposed Regulations ), 1 the Financial Crimes Enforcement Network ( FinCEN ) issued final regulations (the Final Regulations ) 2 implementing the foreign financial account reporting required under the Bank Secrecy Act. 3 The Final Regulations govern who is required to file Forms TD F , Reports of Foreign Bank and Financial Accounts ( FBARs ), and provide limited filing exceptions to certain classes of potential filers. Since the issuance of the Final Regulations, a number of notices have been issued that extend the time to file certain FBARs, most recently in FinCEN Notice Consistent with FinCEN s rationale for extending the time to file certain FBARs, 5 recent experience with the Final Regulations has revealed issues in applying the regulations in various contexts. Our principal suggestions in this regard may be summarized as follows: Reinstate the prior signature authority exception for officers and employees of a domestic publicly traded company and its subsidiaries. Waive penalties associated with pre-2010 FBARs for officers and employees who have signature authority over, but no financial interest in, the foreign financial accounts of a domestic company and its subsidiaries. Extend the signature authority exception for officers and employees to those of a section 12(g) company and its subsidiaries and of a U.S. listed publicly traded foreign corporation and its U.S. subsidiaries. 1 Financial Crimes Enforcement Network, Amendment to the Bank Secrecy Act Regulations-Reports of Foreign Financial Accounts, Notice of Proposed Rulemaking, 75 Fed. Reg (Feb. 26, 2010) C.F.R , 76 Fed. Reg (Feb. 24, 2011). 3 Currency and Foreign Transaction Reporting Act of 1970, Pub. L. No , 84 Stat. 114, codified at 31 U.S.C. section 5311 et seq. 4 FinCEN Notice (Dec. 26, 2012) (extending to June 30, 2014, the FBAR filing deadline for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts held during the 2012 calendar year and for reporting periods previously extended by FinCEN Notice ), Doc , 2013 TNT 3-30; Note that FinCEN also has provided a general exemption from mandatory electronic filing of FBARs until July 1, Important Notice about Mandatory Electronic Filing of Reports to FinCEN, Temporary General Exemption from Mandatory Electronic Filing of the Report of Foreign Bank and Financial Accounts (FBAR), Process for Requesting Limited Duration Exemptions from Mandatory Electronic Filing of most other BSA Reports (Feb. 24, 2012), available at Doc , 2012 TNT Id. (further extending the filing deadline for certain FBARs because of questions and concerns raised in respect of the application of the exceptions for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts). See also FinCEN Notice (February 14, 2012) (extending to June 30, 2013, the time to file FBARs for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts, the filing for which had previously been extended to June 30, 2012, under FinCEN Notice and FinCEN Notice ), Doc , 2012 TNT 31-25; FinCEN Notice (May 31, 2011, revised June 2, 2011) (extending filing deadline to June 30, 2012, for certain officers and employees having signature authority over but no financial interest in certain foreign financial accounts because of questions concerning the application of the exceptions), Doc , 2011 TNT ; FinCEN Notice (June 17, 2011) (extending filing deadline to June 30, 2012, for officers and employees of investment advisors registered with the Securities and Exchange Commission who have signature or other authority over but no financial interest in certain foreign financial accounts in response to questions about processing issues in filing FBARs in a timely manner), Doc , 2011 TNT

5 Coordinate FBAR requirements with the filing requirements under the Foreign Account Tax Compliance Act ( FATCA ) in order to minimize duplicative reporting. Clarify that the officers and employees of an investment management company are not required to file FBARs for accounts over which they make investment decisions (because the investment management company itself is required to file FBARs). Clarify that the term maintained in respect of a foreign financial account refers to assets held in a custodial capacity or in connection with the provision of client services. Provide guidance on how minors and incapacitated individuals can satisfy their FBAR obligations. Exempt from FBAR individuals whose only interest in a foreign financial account arises under foreign community property laws. COMMENTS I. Background of Final Regulations We commend FinCEN for issuing the Final Regulations and providing clarity to FBAR obligations. As other commentators have noted, however, the Final Regulations impose duplicative filing obligations on certain officers and employees of domestic companies and leave unanswered a number of questions. 6 In addition, notwithstanding the issuance of the Final Regulations, the beneficial, but potentially disruptive, practice of extending prior year filings for filers with only signatory authority over a foreign financial account has continued. 7 This practice provides only temporary relief to such filers and creates additional complexity and confusion that at best would be addressed through the waiver of the obligation to file prior year reports or, as we suggest, the waiver of any penalties associated with such filings. 8 Our discussion of these issues is set forth in section II. A. Reporting Exceptions for Persons with Signature Authority The Final Regulations require that each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country file an FBAR for each year in which the financial interest or authority exists. 9 For this purpose, a United States person is defined as: (i) a citizen of the United States; (ii) a resident of the United States; or (iii) an entity (including, but not limited to, a corporation, partnership, trust, 6 See, e.g., Letter from AICPA to FinCEN (July 27, 2011) (noting the narrowing of the signature exceptions and requesting guidance on the application of the exceptions to pre-2010 calendar years), Doc , 2011 TNT ; Chase, Tello, Dupree, The FBAR Reset: Final Regulations Produce Mixed Guidance, 131 Tax Notes 395 (April 25, 2011), Doc , 2011 TNT See, e.g., FinCEN Notice , supra; Notice , IRB 53 (providing filing relief to persons having signature authority over foreign financial accounts held during calendar year 2009 or earlier calendar years properly deferred under Notice or Notice ). 8 This suggestion already has been made. See, e.g., Letter from AICPA to FinCEN (May 31, 2011) (recommending that FinCEN waive all 2009 and prior year signature FBARs that have been deferred under Notice ), Doc , 2011 TNT (hereinafter, the AICPA May Letter ) C.F.R (a). 4

6 or limited liability company) created, organized, or formed under the laws of the United States. The Final Regulations define residency using the definition in the Internal Revenue Code of 1986, as amended (the Code ). 10 A United States person has a financial interest in a foreign financial account when that person is the owner of record, the holder of legal title, or has other financial interests in the account. 11 Under the Final Regulations, an individual has signature authority when that individual (alone or in conjunction with another) can control the disposition of money, funds or other assets in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained. 12 The preamble to the Final Regulations clarifies that the test for determining if a person has signature authority is whether a foreign financial institution will act on a direct communication from that individual. FinCEN received numerous comments seeking to expand the exceptions for persons with signature authority but no financial interest in a foreign account prior to, and after, the issuance of the Proposed Regulations. These comments generally argued that requiring persons with signature authority to file FBARs would result in duplicative reporting and that such reports likely would not to be useful to law enforcement because they would relate to accounts that were already being reported. 13 In the Final Regulations, FinCEN declined to expand the exceptions for signature authority and generally followed the Proposed Regulations. FinCEN noted that various law enforcement agencies had indicated that reports based on signature authority were not duplicative because the signature authority requirement acts as an independent check on the owner of the account and without it there would be increased opportunity to evade reporting. 14 With respect to the FBAR exception for officers and employees with signature or other authority over, but no financial interest in, foreign financial accounts (the signature authority exception ), the Final Regulations provide that the exception covers officers and employees of certain regulated entities. Entities covered by this exception ( covered entities ) include the following: C.F.R (b) (referencing Code section 7701(b)) C.F.R (e)(1)-(3). Persons with other financial interests in an account may include: (1) persons acting as agents, nominees, attorneys, or persons who act in some other capacity on behalf of a United States person; (2) a corporation, partnership, or trust in which the United States person owns, directly or indirectly, more than 50 percent of either the total voting power, total value, or interest in profits or capital; (3) a trust if a United States person is both a grantor and has an ownership interest in the trust; or (4) a trust in which a United States person has either a present beneficial interest in more than 50 percent of the assets or such person receives more than 50 percent of the current income from the trust. Id. The Final Regulations also contains an anti-avoidance rule under which a United States person who creates an entity to avoid having a financial interest in a foreign account will be considered to have a financial interest in any financial account for which the entity is the owner of record or holder of legal title. Id C.F.R (f). 13 Preamble to Final Regulations, 76 Fed. Reg. at Id. 15 Unlike the prior rules, the exceptions apply without regard to whether the officers and employees receive notice that the entities have filed an FBAR that includes the accounts. 5

7 Banks examined by specific boards and agencies; 16 Financial institutions registered with, and regulated or examined by, the Securities and Exchange Commission ( SEC ) or the Commodity Futures Trading Commission; In respect of foreign financial accounts owned or maintained by an SEC-registered investment company, entities registered and examined by the SEC that provide services to investment companies registered under the Investment Company Act of 1940 (so-called Authorized Service Providers ); Entities whose class of equity is listed on any United States national securities exchange, and more than 50 percent owned domestic subsidiaries of such entities if the subsidiaries are included in the parent s consolidated FBAR (the Consolidated FBAR Exception ); 17 and Entities with a class of equity securities (or American depository receipts for equity securities) registered under section 12(g) of the Securities Exchange Act of B. The Consolidated FBAR Exception FinCEN received numerous comments on the scope of the Consolidated FBAR Exception as set forth in the Proposed Regulations. Some commentators requested that FinCEN extend the Consolidated FBAR Exception to cover domestic subsidiaries of foreign companies, but FinCEN declined to extend the exception to cover such subsidiaries. 18 FinCEN also received comments regarding the application of the Consolidated FBAR Exception to officers and employees of foreign subsidiaries of domestic exchange traded companies. Prior to the Final Regulations, the 2008 instructions to Form TD F (the 2008 FBAR Instructions ) provided that the Consolidated FBAR Exception was available to more than 50 percent owned foreign subsidiaries of domestic exchange traded companies. 19 Commentators requested that FinCEN incorporate this exception in the Final Regulations, but FinCEN again declined citing the broader set of changes made in respect of the signature authority exceptions. 20 FinCEN additionally received comments requesting that the Consolidated FBAR Exception be extended to cover officers and employees with only signature authority over the accounts of related entities. 21 Commentators noted that the Consolidated FBAR Exception technically did not apply to officers and employees of a domestic exchange traded parent who had signature or other authority over the foreign financial accounts of the parent s domestic 16 These agencies and boards are the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. 31 C.F.R (f)(2)(i). 17 In the case of a domestic subsidiary, the exception applies to the subsidiary s officers and employees only in respect of foreign financial accounts of the subsidiary itself. 18 Preamble to the Final Regulations, 76 Fed. Reg. at FinCEN declined to extend the exception to domestic subsidiaries of foreign entities because the foreign parent entities have no legal obligation to file an FBAR and the applicable governing regulation of such entities and their domestic subsidiaries differs from that of a domestic entity whose class of equity is listed on any United States national securities exchange. 19 Form TD F (revised October 2008). 20 Preamble to the Final Regulations, 76 Fed. Reg. at 10242, n.17. It is not clear which particular changes FinCEN believes warrant not extending the Consolidated FBAR Exception to officers and employees of foreign subsidiaries of domestic exchange traded companies. 21 Preamble to the Final Regulations, 76 Fed. Reg. at

8 subsidiaries. Officers and employees of the domestic subsidiary likewise would not qualify for the exception if they had signature authority over the accounts of the domestic parent. Again, FinCEN declined to extend the Consolidated FBAR Exception to cover these situations because it did not believe that further relaxation of the rules was appropriate. 22 II. Signature Authority and Covered Persons Issues A. Signatory Authority Issues Prior to the issuance of the Final Regulations, the 2008 FBAR instructions provided a more generous Consolidated FBAR Exception. 23 In relevant part, the instructions did not require officers and employees of a domestic corporation whose equity securities were listed on any United States national securities exchange, or which had assets exceeding $10 million and had 500 or more shareholders of record, to file an FBAR for signature authority over a financial account of the corporation if (i) they had no personal financial interest in the account, and (ii) they had been advised in writing by the chief financial officer (or similar responsible officer of the corporation) that the corporation had filed an FBAR which included that account (hereinafter, the Publicly Traded Exception ). 24 In Notice , 25 the Treasury Department ( Treasury ) and the Internal Revenue Service ( IRS ) requested comments on what circumstances the FBAR filing exception for officers and employees of banks and certain publicly traded domestic companies might be expanded to apply to all officers and employees with only signature authority over, and no financial interest in, an employer s foreign financial account (including circumstances in which an individual has been advised that an FBAR has been filed in respect of a foreign financial account for which that person has signature authority) Id. In rejecting these comments, FinCEN referenced the revisions to the definition of signature authority and the clarification of the scope of the signature authority filing requirement and the recordkeeping rules. While the revisions exclude officers and employees having only supervisory review over foreign financial account, as discussed below, there are instances in which officers and employees have direct authority over the disposition of assets in the accounts of non-employer affiliates in order to provide additional safeguards against fraud and theft FBAR Instructions. 24 The 2008 FBAR instructions also provided an exception for officers and employees of a domestic subsidiary of a qualifying domestic parent if they had no personal financial interest in the account, and they had been advised in writing by the responsible officer of the parent that the subsidiary had filed an FBAR, or had been named in the parent s consolidated FBAR, and such FBAR included the account. A similar exemption was provided for officers and employees of foreign subsidiaries of the domestic parent I.R.B. 260, Doc , 2009 TNT Treasury and the IRS received many comments in response to the notice. See, e.g., American Bar Association Tax Section, Comments on Filing Requirements for Reports of Foreign Bank and Financial Accounts (Notice ) (October 6, 2009), Doc , 2009 TNT ; New York State Bar Association Tax Section, Report on the Rules Governing Reports on Transactions with Foreign Financial Agencies (FBARs) (Report No. 1194, October 30, 2009) (providing a comprehensive overview of FBAR s history and making suggestions to tailor FBAR to accomplish its objections), Doc , 2009 TNT (hereinafter, the NYSBA Report ); American Bankers Association, Report of Foreign Bank and Financial Accounts (FBAR); Form TD F ; Notice (August 7, 2009) (October 6, 2009), Doc , 2009 TNT

9 Subsequent to the issuance of Notice , the Proposed Regulations and proposed revisions to the FBAR instructions were issued and they eliminated much of the Publicly Traded Exception. As noted above, the Final Regulations adopted these proposed changes. i. Reinstate Publicly Traded Exception Domestic publicly traded companies typically require multiple signatures prior to the execution of cash transfers from company accounts in order to combat fraud and theft and to exercise proper controllership over financial accounts. 27 The Final Regulations clarify that officers and employees who approve cash transfers in a supervisory capacity, but who do not have the authority to control the disposition of the assets in the account, are not considered to have signature or other authority for FBAR purposes. 28 For those officers and employees who do have the authority to control the disposition of the assets in the account through direct communication to the financial institution or other party maintaining the account ( Direct Signature Authority ), however, the Final Regulations impose a significant burden. It is typical for an officer or employee of the domestic parent to have Direct Signature Authority over accounts of the parent and the accounts of the domestic and foreign subsidiaries of the parent. While the Final Regulations excuse parent officers and employees on the parent s accounts, they require such officers and employees to file FBARs for the accounts of the domestic and foreign subsidiaries. 29 Because of this responsibility, it is likely that, over time, such officers and employees will decline to accept Direct Signature Authority over subsidiary foreign financial accounts because they will not want to subject themselves to the significant civil and criminal penalties associated with FBAR compliance failures. While this cannot be a desirable outcome, it is a likely consequence of not extending relief to officers and employees having Direct Signature Authority over accounts of non-employer affiliates. For this reason, we suggest that FinCEN reconsider its decision to curtail the Publicly Traded Exception for officers and employees with Direct Signature Authority over the foreign financial accounts of nonemployer affiliates. 30 If this suggestion is not accepted, we suggest an alternative that would permit the officers and employees of pre-screened publicly traded companies and their subsidiaries to qualify for alternative relief. This suggestion is described more fully below. 27 See Letter from National Foreign Trade Council et al. to FinCEN (Nov. 4, 2011) ( Each multinational company has its own guidelines and staffing for managing cash and other investments, but it is not unusual for dozens of employees -- employed by different entities in the corporate group -- to have "signature authority" over the financial accounts of the enterprise. These accounts may be maintained in the names of numerous corporate entities to facilitate day-to-day operations, prudent cash management and for other valid business reasons. ), Doc , 2011 TNT C.F.R (f)(1). See also Preamble to the Final Regulations, 76 Fed. Reg. at See the discussion in footnote 22, supra. 30 Other commentators also have made this suggestion. See, e.g., Letter from Groom Law Group to IRS, Recommendations for Guidance Priority List (Apr. 25, 2012) (recommending, among other things, that all worldwide employees of SEC-reporting companies be exempt from any individual FBAR filing requirements related to such accounts if they have only signature authority over the accounts and the company files an FBAR for the accounts), Doc , 2012 TNT 95-26; Letter from National Foreign Trade Council to FinCEN, Request for FBAR Relief for Multinational Corporate Employees (Nov. 4, 2011) (recommending that the consolidated FBAR exception be reinstated), Doc , 2011 TNT

10 1. Officers and Employees of Publicly Traded Companies Lack Account Information Based on recent experience, we do not believe officers and employees of publicly traded companies that have only signature authority over corporate accounts have sufficient information or control of such accounts to act as an effective independent check on the corporation s own FBARs. 31 While FinCEN rejected relaxing reporting requirements for officers and employees having only signature authority because it believed that the signature authority requirement acts as an independent check on FBAR reporting, 32 we do not believe that this is the case for a number of reasons. First, as a practical matter, officers and employees of publicly traded companies and their subsidiaries rely on their employers to provide the information necessary to complete their FBARs. This especially will be true for current reports because the officers and employees are just now learning of their new responsibilities to file FBARs. Second, in some cases, companies have determined that, rather than facing the administrative burden of providing individual employees with the necessary information, it is more efficient for the companies to prepare FBAR forms on behalf of their officers and employees. In these cases, the companies simply deliver the completed forms to the relevant officers and employees, and request that they sign and mail the forms. The officers and employees of these companies likely do not verify the accuracy of the information on the completed FBARs nor would they generally perform independent investigations into their filing obligations. As such, the desired independent verification is not achieved; the companies are essentially completing two FBARs that contain nearly identical information. Even if officers and employees of publicly traded companies seek to independently fulfill their FBAR obligations, they often face significant administrative burdens in obtaining the requisite information. For instance, many bank signature cards require authorizations of two or more officers or employees before the bank will take action on a request. As such, there may be a significant burden associated with obtaining the relevant information in order to prepare an FBAR because the employees may not have independent access to the account. While it is true that all of the United States persons with signature authority on an account are required to file FBARs, and thus have an incentive to cooperate in obtaining the relevant information, officers and employees with signature authority over multiple accounts may face administrative and logistical burdens in obtaining multiple consents. This possibility could reduce the likelihood that actual verification would occur. Also, as noted above, it is possible that these officers and employees may seek to relinquish their Direct Signature Authority to avoid these administrative and logistical burdens. While we understand the importance of having an independent check on a company s FBAR obligations, we believe that the required duplicative FBARs by officers and employees of publicly traded companies do not, in fact, provide the requisite independent check. For that reason, we suggest that FinCEN consider reinstating the Publicly Traded Exception. 31 See NYSBA Report at 25-28, 53,130, 137 (generally discussing concerns with trying to deputize individuals, including employees, who may have, at best, only a tangential relationship to an account and who likely would not be in any better position than the account owner to have useful information about the account). 32 Preamble to the Final Regulations, 76 Fed. Reg. at

11 2. Expand Reporting Exclusions for Certain Publicly Traded Companies In the past, Treasury and the IRS have granted exclusions to taxpayers who meet specific requirements. For example, certain financial institutions that enter into agreements with the IRS are treated as qualified intermediaries for withholding tax purposes. 33 This type of pre-screening process also likely will apply to certain institutions under FATCA. 34 In a similar way, the Department of Homeland Security provides special treatment for United States travelers returning home who agree to a pre-screening process. 35 If FinCEN declines to reinstate the Publicly Traded Exception, we suggest that it consider permitting domestic publicly traded companies to enter into an agreement with the IRS pursuant to which such companies would agree to comply with such verification and due diligence procedures as FinCEN and the IRS may deem appropriate to ensure compliance with the FBAR regime. 36 Compliance with these verification requirements would relieve company officers and employees, and officers and employees of company subsidiaries, from having to file individual FBARs. 37 In this regard, we note that FinCEN declined to relax the FBAR filing requirements for officers and employees of foreign banks that have entered into qualified intermediary agreements with the IRS because the reporting obligation is on United States persons and the purpose of FBAR is to create a financial trail. 38 The foregoing pre-screening proposal is directed at domestic companies, not foreign companies. While relaxing the FBAR requirements for officers and employees of the pre-screened companies may not create a trail or independent check, the pre-screened company (and, where applicable, its subsidiaries) in fact will be the owner of the account. Thus, the pre-screening program would ensure that the United States owner of the account files a current report for all of its accounts, eliminating the need for an independent check that the company has complied with its FBAR obligations. ii. Waive Penalties for Prior Year FBARs The Final Regulations apply to situations in which it is likely that officers or employees cannot act as independent checks on their employers filing obligations. Since the Final Regulations require persons who hold only signature authority over an account to file an FBAR for each year in which the signature authority exists, officers and employees who leave their employment during the year are required to file an FBAR on account of such signature authority 33 See Treas. Reg (e)(5)(ii) (definition of qualified intermediary for withholding tax purposes). 34 Code section 1471(b)(1) (describing agreement to avoid withholding requirement entered into between the Secretary of the Treasury and a foreign financial institution). 35 In the Global Entry program, participants proceed to Global Entry kiosks to present their passports and other information, rather than proceeding to the general customs and inspection line. The kiosk issues the traveler a transaction receipt and directs the traveler to baggage claim and the exit. This process greatly expedites the traveler s re-entry into the United States. To become a member in the program, travelers must be pre-approved and undergo a rigorous background check and interview before enrollment. See 36 See, e.g., Code section 1471(b)(1)(B) (requiring foreign financial institutions to agree to comply with such verifications and due diligence procedures as the IRS and Treasury may require with respect to the identification of United States accounts). 37 The New York State Bar Association Tax Section made analogous suggestions for qualified filer and registered filer regimes. See NYSBA Report at As mentioned in the text, FinCEN rejected these suggestions. 38 Preamble to the Final Regulations, 76 Fed. Reg. at

12 after their employment has ended. For example, an officer or employee who is terminated from employment on January 2, 2011, would be required to file an FBAR by June 30, 2012, eighteen months after their employment has ended. In such a case, the former officer or employee would have absolutely no access to the information regarding the account. In addition, there is no guarantee that the former employer would provide the former employee with the information necessary to meet the filing obligation. 39 On October 11, 2011, FinCEN issued guidance that clarifies that it does not expect a former employee having signature or other authority over, but no financial interest in, the foreign financial accounts of a former employer to maintain records of those accounts or expect that a former employer would provide information on its foreign financial accounts to a former employee. 40 While acknowledging this, FinCEN still would require the former employee to provide as much information as possible on their FBAR, including, at a minimum, the identity of the former employer, their former job title, and the fact that they had once had signature or other authority over the foreign financial accounts of the former employer. 41 Putting aside former employees, even current employees may have difficulty accessing the information required to file a complete and accurate report. The FBAR regime has developed in an ad hoc manner over many years. For years prior to the Final Regulations, the rules applicable to any particular year could be found on the IRS s website. Not only was this guidance difficult to follow, it left filers unsure as to when the rules might change next. Also, FBAR filing obligations have been extended a number of times in notices issued by the IRS and FinCEN. 42 While filers appreciate the continued extensions, these extensions create the very real possibility that filers will lose access to the information needed to complete the reports. We, therefore, suggest that FinCEN consider waiving any penalties associated with prior year filings that may be incomplete due to the time period that has elapsed, and in appropriate circumstances (such as older prior year reports or those for which information is completely lacking), consider waiving the requirement to file pre-2010 reports even though certain of these reports were due on November 1, See AICPA May Letter at 3 (seeking a hardship waiver for persons who had signature authority but who no longer have access to information needed to prepare prior year FBARs). 40 FinCEN Guidance, FIN-2011-G003 (October 11, 2011), Doc , 2012 TNT Id. Note that the guidance states that its relaxed filing requirements do not apply to changes in employment status made for the purpose of evading the FBAR reporting requirements or to current employees. 42 See, e.g., Announcement (temporarily suspending 2008 FBAR filing obligations for persons who are not citizens, residents or domestic entities), I.R.B. 1105; Notice (extending until June 30, 2010, obligation to file pre-2009 FBARs for persons having only signature authority and for certain other persons), supra; Notice (among other guidance, extending to June 30, 2011, the pre-2010 FBAR filing obligations of persons having only signature authority), I.R.B. 441, Doc , 2010 TNT 39-20; Notice , supra; FinCEN Notice , supra; FinCEN Notice , supra; FinCEN Notice , supra. While Notice extended the filing deadline for pre-2010 FBARs from June 30, 2011, to November 1, 2011, for officers or employees having only signature authority, it did not affect or limit the June 30, 2012, filing deadline for 2010 FBARs FinCEN provided in its Notice for officers and employees of covered entities, or officers and employees of more than 50 percent owned domestic or foreign affiliates of covered entities, having only signature authority over accounts of non-employer affiliates. It also did not affect the June 30, 2012, filing deadline FinCEN provided in its Notice for officers and employees of Authorized Service Providers to file 2010 FBARs and pre-2010 FBARs. As mentioned above, FinCEN Notice extended the deadline to June 30, 2013, for those FBARs subject to FinCEN Notices and , and FinCEN Notice has further extended the deadline to June 30,

13 iii. Exempt Officers and Employees of U.S. and Foreign Subsidiaries of Section 12(g) Corporations We believe that the signature authority exception should be expanded to officers and employees of U.S. and foreign subsidiaries of section 12(g) corporations. We understand that section 12(g) companies are subject to similar SEC reporting requirements and supervision as listed companies. Therefore, we believe that officers and employees of those companies should also be eligible for the signature authority exception. Officers and employees of section 12(g) companies face the same burdens and lack of information as officers and employees of U.S. listed corporations. For that reason, we propose that the signature authority exception be expanded to the officers and employees of the U.S. and foreign subsidiaries of section 12(g) corporations. iv. Exempt Officers and Employees of U.S. Subsidiaries of U.S.-Listed Publicly Traded Foreign Corporations We also propose that FinCEN reconsider expanding the signature authority exception to officers and employees of U.S. subsidiaries of U.S. listed publicly traded foreign corporations. Foreign corporations the stock of which is listed on a U.S. national exchange are subject to similar SEC reporting and supervision as U.S. listed companies. Therefore, we believe that no distinction should be made between U.S. and foreign corporations that are traded on a U.S. national exchange. As discussed more fully above, officers and employees of the U.S. subsidiaries encounter the same issues as their counterparts in nonemployer subsidiaries, most notably the lack of access to the information required to be reported on an FBAR. Consequently, we proposed that the signature authority exception be extended to apply to officers and employees of the U.S. subsidiaries of U.S. listed publicly traded foreign corporations. v. Coordinate with FATCA Rules The Final Regulations were issued after the enactment of the Foreign Account Tax Compliance Act ( FATCA ), 43 but prior to the issuance of guidance under FATCA. 44 Similar in 43 Section 501(a) of the Hiring Incentives to Restore Employment Act of 2010, P.L (March 18, 2010) (the HIRE Act ). 44 Treasury and the IRS have issued final regulations on FATCA providing guidance on its implementation. T.D. 9610, 78 Fed. Reg (Jan. 17, 2013), Doc , 2013 TNT Treasury and the IRS had issued proposed regulations and three notices preceding the final regulations. Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, Notice of Proposed Rulemaking, REG , 77 Fed. Reg (Feb. 15, 2012), Doc , 201 TNT 27-7; Notice , I.R.B. 329, Doc , 2010 TNT ; Notice , I.R.B. 765, Doc , 2011 TNT 69-16; Notice , I.R.B. 124, Doc , 2011 TNT Also, on December 19, 2011, temporary and proposed regulations were issued providing guidance on tax reporting of specified foreign financial assets on Form 8938 under Code section 6038D. T.D. 9567, 76 Fed. Reg (Dec. 19, 2011); 76 Fed. Reg (proposed Dec. 19, 2011). See also Notice , I.R.B. 1, Doc , 2013 TNT 16-7 (modifying the effective and applicability date of Prop. Reg D- 6 and stating that reporting by domestic entities of interests in specified foreign financial assets will not be required before the date specified by final regulations, which will not be earlier than taxable years beginning after December 31, 2012). 12

14 part to FBAR, FATCA is intended to ensure that United States persons are reporting income for Federal income tax purposes. FATCA will be enforced through reporting and withholding tax obligations. In particular, among other things, FATCA requires individuals with an interest in specified foreign financial assets during the taxable year to attach a disclosure statement, on IRS Form 8938, to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000 (or such higher amount as the Secretary may prescribe). 45 The Treasury Inspector General for Tax Administration, the Government Accountability Office and the National Taxpayer Advocate each has expressed concern that the enactment of FATCA and the associated reporting obligations have added to taxpayers burden and the complexity of the tax law. 46 Notwithstanding these concerns, Treasury and the IRS have concluded that reporting on both forms is not duplicative and that both forms must be filed, if required. 47 In support of this conclusion, Treasury and the IRS cite the different policy considerations underlying the reporting regimes and that the Congress recognized these differences at the time of Code Section 6038D s enactment, 48 highlight that the information required on the forms is not identical in all cases, 49 and note that the intention to retain both reporting regimes was specifically referenced in the Joint Committee on Taxation s technical explanation of the HIRE Act Code section 6038D. The temporary Treasury regulations have set higher thresholds, especially for individuals residing abroad. See, e.g., Temp. Treas. Reg D-2T(a)(3) (raising filing threshold for qualified individuals residing abroad, but not filing a joint return, to $200,000 on the last day of the taxable year, or $300,000 at any time during the taxable year). 46 Treasury Inspector General for Tax Administration, New Legislation Could Affect Filers of the Report of Foreign Bank and Financial Accounts, But Potential Issues Are Being Addressed at 11 (September 29, 2010) ( Another problem is that many taxpayers will find that their filing requirements will not only have increased, but also become considerably more complicated as a result of the addition of I.R.C. 6038D. ), Doc , 2010 TNT 227-4; Government Accountability Office, Reporting Foreign Accounts to the IRS, Extent of Duplication Not Currently Known, but Requirements Can Be Clarified, GAO , 18 (Feb. 28, 2012) (recommending that the instructions to Forms 8939 and TD F be revised to explain why duplicative reporting exists, and as data becomes available, determine whether the benefits of implementing a less duplicative reporting process exceed the costs and, if so, implementing that process), Doc , 2012 TNT 62-21; National Taxpayer Advocate, 2012 Annual Report to Congress, , Vol. 1 (Dec. 31, 2012) (identifying as a most serious problem the IRS offshore voluntary disclosure program s discouragement of voluntary compliance for those inadvertently failing to file FBARs and recommending that Forms 8939 and/or TD F be revised to reduce taxpayer burden and duplicative reporting), Doc , 2013 TNT Fed. Reg. at Id. Treasury and the IRS emphasize that an FBAR has a law enforcement as well as tax administration purpose, and as a consequence, different policy considerations apply to Form 8938 and to an FBAR. These policy differences are reflected in (i) the different categories of persons required to file the forms, (ii) the different filing thresholds for reporting, and (iii) the different assets and accompanying information required to be reported. Id. 49 Id. The information required on the forms may not be identical in all cases because of different rules, key definitions, and reporting requirements. 50 Although there are different policy considerations underlying the two reporting regimes, we agree with other commentators that in most cases the required information will be duplicated on both forms. See Letter from Florida Tax Bar to the IRS, Comments to the Proposed Regulations to Section 6038D (Feb. 14, 2012) (noting that even though the definitions for FBAR purposes and Form 8938 are different, it appears that in most cases there will be duplication), Doc , 2012 TNT While Congress intended that both reporting regimes be retained, it does not follow that Congress intended that taxpayers be subject to duplicative reporting, especially where greater communication between the IRS and FinCEN could minimize the reporting burdens on taxpayers. 13

15 While Treasury and the IRS have sought to minimize duplicative reporting for tax purposes, e.g., specified foreign financial assets need not be reported on Form 8938 if reported on certain other tax forms, 51 no similar effort appears to have been made to minimize duplicative reporting between Form 8938 and an FBAR. We suggest that for individuals required to file both Form 8938 and an FBAR, future guidance provide that only one of the forms be required when the information required on both forms is exactly the same. 52 In cases in which the information is not the same, we suggest Treasury and the IRS consider adopting a reporting exception, similar to that adopted for duplicative reporting on tax forms, that would exclude from reporting on Form 8938 any foreign financial account that otherwise would appear on both Form 8938 and Form TD F vi. Clarification of Filing Requirements for Investment Management Companies Under a typical investment management arrangement, an investment management company will enter into a discretionary advisory agreement with its client (the owner of the investment account), pursuant to which the investment management company would be authorized to undertake investment decisions on the client s behalf. In most cases, there is no formal delegation of authority from the investment management company to its employees who actually make investment decisions in respect of the account. In this regard, we request clarification that it is the investment management company, and not its officers or employees, that should file an FBAR in respect of the account. The company, rather than its officers or employees, is granted signature authority over the account pursuant to the investment advisory agreement, and the company would have the relevant information to complete the FBAR. If both the investment management company and the officers or employees who actually make investment decisions in respect of the account are required to file FBARs, we suggest that only the individual who actually signs the advisory agreement be required to file an FBAR with respect to the account, not any other officer or employee of the investment management company. If this suggestion is adopted, we note that Part IV of the FBAR and the related instructions would need to be revised in order to specify how the individual would identify the investment management company having the underlying signature authority. vii. Clarify When an Account is Maintained Some confusion has arisen with respect to the signature authority exception for regulated financial institutions and Authorized Service Providers in terms of what it means for an account to be maintained. Officers and employees of regulated financial institutions and Authorized Service Providers are exempt from filing FBARs when they have signature authority over, but no financial interest in, foreign financial accounts owned or maintained by a financial institution or an investment company that is registered with the SEC. Neither the revised instructions nor 51 Temp. Treas. Reg D-7T(a)(1) (when applicable, taxpayers need only identify on Form 8938 the other tax form on which the specified foreign financial asset is reported). 52 In such a case, one possible coordination would be to excuse the filing of Form 8938 if the individual files an FBAR on Form TD F and checks the box on Form 1040, Schedule B (Interest and Ordinary Dividends), Part III (Foreign Accounts and Trusts). Filing Form TD F could be treated as if Form 8938 had been filed. 53 Similar to the rules of Temp. Treas. Reg D-7T(a)(1)(ii), a filer could be required to identify on Form 8938 that they had reported the foreign financial account on a Form TD F