Asset Protection Concepts and Strategies by Riser Adkisson LLP

New FBAR TD F 90-22.1 Report of Foreign Bank and Financial Accounts

The IRS has issued a new TD F 90-22.1 a/k/a "FBAR" at http://www.irs.gov/pub/irs-pdf/f90221.pdf as part of the IRS's enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore. My read on these new rules is that they are intended to hit:

Offshore mutual funds

Offshore hedge funds

Offshore variable universal life insurance policies

Offshore variable annuities a/k/a Swiss Annuities

The new form is evidence that offshore asset protection is getting more difficult, and at some point advisors will have to make a cost-benefit analysis as to whether the alleged benefits of offshore planning outweigh the hassles of having offshore accounts.

According to the highly-reputable Seattle tax attorney John Colvin who specializes in tax controversy litigation:

The revised Form TD F 90-22.1 and the attached instructions contain significant revisions. For example, the revised form and instructions modify the definition of a "United States person" that is required to file, and also adds a reference indicating that a "financial account" includes an interest in a "mutual fund."

The instructions of the previous edition of Form TD F 90-22.1 defined the term "United States person" to mean:

(1) a citizen or resident of the United States

(2) a domestic partnership

(3) a domestic corporation, or

(4) a domestic estate or trust

The revised form simply defines the term "United States person" to mean "a citizen or resident of the United States, or a person in and doing business in the United States."

The instructions to the revised form also add a new reference to 31 C.F.R. 103.11(z) for the definition of "person." This regulation defines the term "person" as:

An individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.

The instructions to the revised form add the statement that "[a] branch of a foreign entity doing business in the United States is required to file this report even if not separately incorporated under U.S. law." The instructions provide no guidance as to the manner in which such a "branch" in the United States must report.

Because 31 C.F.R. 103.11(z) is issued under the Bank Secrecy Act-instead of under the Internal Revenue Code-changes to the instructions in the revised form make it unclear whether the terms "U.S. resident" (for this purpose) and the acts necessary to be considered "doing business in the United States," are determined with reference to the law under the Internal Revenue Code, or only under the Bank Secrecy Act.

The population of those required to file reports may have been substantially broadened by these changes. 

Labels: asset protection, offshore, offshore account, offshore hedge fund, offshore life insurance, offshore mutual fund, offshore vul, Swiss annuities, Swiss annuity, tax evasion