By: Dustin Covello
On February 14, the Financial Crimes Enforcement Network (FINCEN) issued Notice 2012-1, which extends the 2011 and 2012 FBAR filing deadline for certain individuals to June 30, 2013. The notice extends relief previously granted by FINCEN to employees and officers with signature authority over bank accounts owned by subsidiaries of certain regulated entities (e.g., banks, commodity traders, and investment advisors). See Notice 2012-1; Notice 2011-1; Notice 2011-2; 31 C.F.R. § 1010.350(f)(2).
For those keeping score, the government has tinkered with the FBAR filing requirements and deadlines at least seven times in the last three years, each time for different categories of FBAR filers, and each time instituting a different filing deadline. A quick review: Prior to 2008, the FBAR filing requirements were only described thoroughly in the instructions to the FBAR form itself. As a result, many persons obligated to file FBARs simply did not know of this obscure requirement. In 2008, the IRS announced that it intended to enforce the FBAR fling requirement more vigorously. However, given the obscure and ambiguous “signature authority” and “commingled fund” definitions in the FBAR instructions, filers remained confused even after the IRS publicized more vigorous enforcement. Recognizing the ambiguity, the IRS began issuing notices that eliminated or suspended the filing requirements for certain filers for various amounts of time. See Notice 2009-62, Notice 2010-23. These notices targeted limited categories of filers, but separately, as part of OVDI, the IRS announced that all filers who failed to file earlier FBARs could file without penalty, provided that they owed no income tax. Then, the IRS pushed back that deadline after Hurricane Irene.
Meanwhile, also recognizing the ambiguity in the FBAR instructions, FINCEN promulgated final regulations in February 2011 intended to refine the filing requirements. See 31 C.F.R. § 1010.350. However, according to FINCEN, the final regulations created further confusion, leading to two more deadline-suspending notices in 2011 and the above-mentioned notice on February 14 of this year. According to FINCEN, it continues to issue these sporadic notices to address constant questions it receives regarding the signature authority FBAR filing requirement.
These constantly changing and inconsistent rules cause more confusion than comfort. Anecdotally, we’ve received calls from FBAR filers who learn of a given IRS or FINCEN notice that promises relief, but the filers do not always grasp the limited nature of a given notice. For instance, whereas the IRS granted all categories of FBAR filers clemency as part of OVDI, only signature authority-based filers fitting in narrow categories qualify for relief beyond that year under FINCEN’s notices . If all the rules and deadlines were set forth in one place, a filer may be able to sensibly work through them. But the current jumble of forms, instructions, notices and regulations leaves filers flailing to grasp the rules.
What’s the solution? FINCEN cannot realistically amend the regulations every time a question arises. But, it should weigh the benefits of imposing an FBAR requirement on a given category of filer against the burdens placed on those persons, as well as the likelihood that such a filer would suspect intuitively that they have control over a foreign bank account and the likelihood that such a filer realistically has sufficient control over a given bank account to launder money through it. To begin with, it seems that most questions surround the signature authority filing requirement. As such, FINCEN should take a hard look at whether this requirement makes sense. Then, issue and publicize clear rules – and stick to them.