In my last blog entry I described how a virtually unknown Treasury agency, the Financial Crimes Enforcement Network, has issued proposed regulations that would change the offshore investment reporting requirements for U.S. taxpayers.

The rules are slated to become effective well before the June 30, 2010 filing deadline for Treasury Form TD F 90-22.1, the “foreign bank account reporting” form, or FBAR. That means they would apply retroactively to 2009.

Another aspect of these rules will no doubt disturb foreign persons investing offshore through a U.S. corporation, partnership, or limited liability company. Anyone, U.S. or foreign, who owns 50% or greater interest in a foreign corporation, partnership, or limited liability company, must already file the FBAR. The proposed rules extend this obligation to a foreign investor holding non-U.S. assets through a U.S. “disregarded entity.” This is true even if the disregarded entity holds no U.S. investments. Simply the fact that the entity was formed under the laws of a U.S. state triggers reporting.

To rent or buy this 54 minute video with Costa Rica Attorney Roger Petersen please visit our Video On Demand page here.

There’s a silver lining in the proposed rules, however, for some offshore investors. The most important is that if you have offshore investments in your retirement plan (including your IRA), the FinCEN announcement would exempt you from filing the FBAR. However, your retirement plan or IRA custodian still needs to file the form. Moreover, if the IRA formed a foreign entity (such as a LLC), you may need to file the FBAR for any accounts the LLC holds.

In a separate ruling, the IRS announced that foreign persons “in or doing business” in the United States don’t need to file a FBAR for 2009. This is welcome news for investors from countries with less than stellar records on human rights or corruption. The Treasury Department shares FBAR information with foreign governments, so foreign investors won’t need to worry about this data getting into the wrong hands–at least temporarily.

In yet another surprise announcement, the IRS backed away from its insistence that anyone who merely signs checks or authorizes payments from a foreign account, but has no financial interest in it, file a FBAR. The IRS has delayed the effective date of this requirement until June 30, 2011. This means that if you had such authority in 2009, you don’t need to file FBAR for 2009. However, you will need to file it for 2010, unless the IRS extends the deadline once again.

The same announcement also delays the effective date that U.S. investors in private equity or hedge funds need to report their interests in such funds. U.S. hedge fund investors won’t need to file a FBAR for such holdings for 2009. If you own an interest in hedge funds in 2010, you’ll need to acknowledge that interest by June 30, 2011. Again, this deadline may well be extended. However, you must still report other offshore funds on the FBAR.

These silver linings don’t change the fact that if you’re a U.S. taxpayer, the government wants to know the details of virtually everything you own offshore. What’s more, it’s moving forward on at least three simultaneously to force you to submit this information, as I described in Part I. That makes it almost inconceivable the expanded reporting rules won’t eventually become effective, although FinCEN may not succeed in making them retroactive to 2009.

You can see part I here.

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.