Legal Updates & Alerts

FBAR Regs: Good News and Bad News...

June 11, 2010
FBAR Regs: Good News and Bad News...
The good news is that new regulations have clarified the definition of "U.S. Persons" for FBAR reporting rules. The bad news is that entities are considered "U.S. Persons" (and therefore subject to the reporting rules) even when an election has been made to disregard the entity for federal income tax purposes.

New regulations clarify who is considered a "U.S. Person" for purposes of foreign bank account reporting rules (fondly known as the "FBAR" rules). The definition identifies the usual suspects as "U.S. Persons":

  • U.S. citizens and residents; and,
  • corporations, partnerships, LLCs and trusts organized under
    o Federal law, or
    o the law of any State (or D.C.), Indian Tribe, Territory or possession.

Tip: The explanation to the new regulations cautions that entities are U.S. persons for FBAR purposes "regardless of whether an election has been disregard the entity for federal income tax purposes." Though the regulations refer specifically to single member LLCs, this principle can also extend to qualified subchapter S subsidiaries, grantor trusts, and qualified REIT subsidiaries. Taxpayers accustomed to ignoring these entities for income tax purposes will now have to treat them as U.S. persons with an FBAR obligation. Thus, electing to disregard an entity for federal income tax purposes will not exempt that entity from FBAR requirements.