Form TD F 90-22.1 and Foreign Financial Accounts

January 2012

In today's global economy, it is very common for individuals, companies, partnerships, trusts or estates to have one or more foreign financial accounts. A foreign financial account broadly includes any type of a bank account, securities account, mutual fund account, unit trust account, securities derivatives account or other financial instruments account that is located outside of the United States.

The purpose of this letter is to remind you that every U.S. person, as defined below, that has any type of a direct or indirect interest in or signature authority or control over any type of a foreign financial account has to file Form TD F 90-22.1 by June 30 to avoid penalties starting at $10,000 as mentioned below. To illustrate various reporting requirements, several simplified examples are set forth below.

  • Carmen is a U.S. citizen who has a mutual fund account in the Bahamas with a value of $6,200 and a savings account with a value of $4,100 in the Cayman Islands. Since the aggregate value of the two accounts exceeded $10,000 at some point in the previous year, Carmen is required to file two treasury forms to report his direct interest in the two foreign financial accounts.
  • John is a U.S. citizen who directly owns two foreign subsidiaries that have three checking accounts with values of $3,500, $2,500 and $4,300 respectively. Since the aggregate value of all three accounts exceeded $10,000 at some point in the previous year, John is required to file three treasury forms to report the indirect interest in the three foreign financial accounts.
  • Mary is a U.S. citizen who is the grantor of a foreign asset protectorate trust that has a foreign brokerage account with a value that exceeded $10,000 at some point in the previous year. She has to report the brokerage account maintained by her foreign trust. In addition she has to comply with other special reporting rules applicable to foreign trusts.
  • A U.S. Corporation (an "S" or a "C") has two foreign subsidiaries that collectively have two checking accounts, one time deposit and one brokerage account with values of $200,000, $100,000, $50,000 and $5,000. Since the aggregate value of all four accounts exceeded $10,000 at some point in the previous year, the U.S. Corporation is the U.S. person who is required to file four treasury forms to report its indirect interest in the four foreign financial accounts.
  • A U.S. citizen who is a director or officer of a foreign company or foreign partnership may be deemed to have control over the foreign corporation's or foreign partnership's foreign financial accounts and in such a situation would have to file the Treasury form(s) if an exception did not apply.
  • A U.S. Corporation (an "S" or a "C") has a branch in a foreign country. The U.S. Corporation has a payroll account at a foreign bank and a foreign checking account with values of $20,000 and $2,000 during the year. Since the aggregate value of the two accounts exceeded $10,000 at some point in the previous year, the U.S. Corporation is the U.S. person who is required to file two treasury forms to report its direct interest in the two foreign financial accounts.
  • A U.S. Corporation (an "S" or a "C") owns a foreign subsidiary which itself owns another foreign subsidiary. Each foreign subsidiary has a checking account with values of $11,000 and $6,000 respectively during the year. Since the aggregate value of the two accounts exceeded $10,000 at some point in the previous year, the U.S. Corporation is the U.S. person who is required to file two treasury forms to report its indirect interest in the two foreign financial accounts.

The "Report of Foreign Bank and Financial Accounts" has to be filed by June 30th with the Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621 to avoid civil and criminal penalties. Please note there is non-willful failure to file penalty of $10,000 that can be assessed for each foreign financial account that is not reported. The penalty for a willful failure to file the Treasury Department form starts at $100,000.

Reporting for all foreign financial accounts is required if at any time during the preceding year there was an aggregate value in excess of $10,000 in the U.S. person's directly and indirectly owned foreign financial accounts.

The term "U.S. person" is all inclusive and refers to a U.S. citizen, any U.S. corporation, a U.S. resident alien, a U.S. partnership, a U.S. green card holder, a U.S. trust, a U.S. estate and certain check-the-box entities owned by a U.S. person.

Indirect ownership of a foreign financial account typically arises when a U.S. person: (a) owns directly or indirectly through attribution more than 50 percent of a foreign subsidiary, (b) has more than a 50 percent profits interest in a foreign partnership, (c) has a more than 50 percent ownership of a foreign check-the-box entity, (d) receives more than 50 percent of the income of a foreign trust, (e) is the beneficiary of more than 50 percent of the assets of a foreign trust, (f) etc.

Because the penalties for failure to file can be significant, if there are any questions about whether a form should be filed, we suggest that you consider the conservative approach and file the form to report the financial account.

This is presented for informational purposes only and should not be construed as financial or legal advice. For more information, please contact Stuart Lyons or your BNN advisor at 1-800-244-7444.