New Focus on Business Owners' Foreign Accounts

A recently amended federal rule issued by the Financial Crimes Enforcement Network, a division of the U.S. Treasury, has immigrant small business owners scrambling to learn a new acronym: FBAR. The Report of Foreign Bank and Financial Accounts mandates that U.S.citizens, U.S.residents, business partnerships, trusts, and corporations disclose financial interest or signatory authority in any foreign financial accounts that exceed $10,000. Although FBAR requirements have been around for decades, revisions published in February and heightened enforcement are prompting immigrant entrepreneurs to take the rules more seriously, says Sanjeev Sardana, chief executive officer of BluePointe Capital Management, a San Mateo, Calif., financial planning firm that caters to Indian American entrepreneurs. He spoke recently with Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

Karen E. Klein: What is the FBAR requirement?

Sanjeev Sardana: The government is pushing for people who have accounts outside the U.S. to disclose them if they had more than $10,000 of aggregate value at any time in the previous year. At this point it's just a reporting requirement, with a deadline of June 30.

This requirement, part of the Bank Secrecy Act, dates back to 1972. Why are you and your clients talking about it now?

The rule has been around for a long time but a lot of people didn't really know about it, or didn't realize they had to file a separate disclosure form until this year. With the need to collect more revenue, the government wants to make sure that people who have financial interests overseas are reporting all their income, worldwide, so they can pay taxes on it. They also want to see how much money is being held overseas by Americans.

What is the deadline and what kind of form must be filed?

People with overseas accounts have until June 30 of this year to report everything from 2010. The form that must be filed is TD F 90-22.1

Who has to file it?

Anyone who had more than $10,000 of aggregate value in any foreign financial account at any time in 2010. This includes anyone who has a financial interest in any overseas account or signatory authority over a foreign financial account.

What does signatory authority mean?

Say there's a foreign bank account in the name of a company and you're their representative here or abroad. You are probably given signatory [authority] as an executive of a company. It doesn't have to be directly your money.

Sometimes our clients have parents outside the U.S. and they hold signatory authority on their parents' accounts in case something happens to them. Again, it's not our clients' money, but they have to report it.

Does it apply to any financial holdings outside of bank accounts?

Any financial account. That could be a stock holding, an insurance policy with a cash value, an annuity, or a savings or checking account. Everything is included if it is maintained by a financial institution or individual broker.

Do you feel that the increased enforcement will apply disproportionately to small business owners?

Sure. They are the ones with the money—and if they are immigrants, they are likely to have money overseas. Many of our clients are diversifying their holdings outside the U.S. for valid and legitimate reasons, like they want to invest in property or markets in other countries or in their home countries.

Others have businesses they're running with relatives in their home countries. Or they invest in those businesses. Even if they are not directly operating the business, they may have signatory authority over the accounts.

Are there areas people should be particularly aware of in the reporting requirement?

I think what could be confusing is the $10,000 threshold. People will say: 'Oh, my average balance last year was not $10,000, so I don't have to file the report.'

But if that balance even once went over $10,000 at any time during the year, you have to report it. People sometimes forget that they have life insurance policies or accounts that exceed $10,000.

How are you advising your clients?

If they have any investments overseas, check them out. If they have bank accounts, they should try to jog their memories and examine their records to see if they may have gone over $10,000 even for a day.

And we're reminding them that if they are on their parents' bank accounts, they will have to file by the June 30 deadline. Better to disclose now than to possibly face penalties or audits sometime in the future.

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