The IRS has provided welcome relief to U.S. investors from the Foreign Bank Account Reporting (”FBAR”) requirement to report large holdings in offshore private funds held in 2009.
Specifically, in a notice issued on February 26, 2010, the IRS said that investors in offshore hedge funds, private equity funds and venture capital funds do not have to file FBAR reports for foreign accounts held during 2009.
The notice (IRS Notice 2010-23) states that the IRS will not apply its enforcement authority adversely in the case of persons with financial interests in, or signature authority over, commingled funds other than foreign mutual funds for calendar year 2009 and earlier years. As a result, investors in these funds will not need to file FBARs (which otherwise would have been due on June 30, 2010) for 2009 and earlier years with respect to such investments.
Concurrently with Notice 2010-23, the IRS and Treasury Department issued Announcement 2010-16, which continues a suspension of FBAR filing requirements for non-U.S. persons (i.e., persons who are not United States citizens, residents, or domestic entities) for 2009 and earlier years.
Finally, the Treasury Department issued proposed regulations through its Financial Crimes Enforcement Network (FinCEN) that would apply the relief in the IRS pronouncements described above to future years, and would provide additional relief in certain situations. We note, however, that FinCEN indicated that they would continue to study the private investment fund industry and reserved the right to require FBAR reporting for these types of funds. As FinCEN stated in the proposed regulations:
“Treasury remains concerned about the use of, for example, hedge funds to evade taxes and FinCEN will continue to study this issue.”
FinCEN is accepting comments on the proposed regulations until April 27, 2010.
