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13 J. Tax Prac. & Proc. 37 (2011-2012)
The Meaning of Residence for FBAR Purposes

handle is hein.journals/jtaxpp13 and id is 37 raw text is: February-March 2011

The Meaning of Residence for
FBAR Purposes
By Michael Karlin
Michael Karlin examines the scope of the FBAR requirement for
individuals who are not U.S. citizens.

In the case of individuals who are not U.S. citizens,
the scope of the requirement to file a Treasury
Form TD F 90-22.1 (Report of Foreign Bank and
Financial Accounts), commonly known as the FBAR,
and the related record keeping requirements, has long
been unclear. For FBARs due by June 30, 2011, the
position has at last been clarified by the final FBAR
regulations issued on February 24, 2011.1
For years before 2010, the practitioner continues
to be confronted with overlapping and conflicting
language in the statute, the applicable Treasury
regulations (which are not tax regulations) and the
instructions to the current (2008) version of the form,
instructions which were further modified by IRS no-
tices in 2009 and 2010 temporarily reinstating the
instructions in the prior 2000 version of the form.
While the deadline has passed for filing returns
for years before 2010, except signature authority
returns, the definition of residence remains relevant
for individuals with potential exposure for failing to
file returns. Some of these individuals may have made
a voluntary disclosure under the 2009 IRS program
or are contemplating making one in the newly an-
nounced 2011 program.2 Whether they should be
regarded as resident for FBAR purposes (as opposed
to income tax purposes) in the earlier years covered
by these programs can make a significant difference
to their liability for FBAR penalties.
This article is an attempt to trace a path through
the maze.
Michael Karlin received his B.A. (Hons) and M.A. from Trin-
ity College, Cambridge. He qualified as a solicitor in England
in 1977 and as a member of the California Bar in 1980. After
practicing for many years as an associate and then a partner
with Morgan, Lewis & Bockius, LLP (1983-1997), he was a
Principal of KPMG, LLP (1997-2001). He is a Partner of Kar-
lin & Peebles, LLP, in Beverly Hills, CA.

The Scope of the FBAR
Requirement for Non-citizens
The requirement to file the FBAR derives from the
Bank Secrecy Act of 1970, codified at 31 USC §5311
et seq., and specifically §5314, which in pertinent
part provides:
(a) ... [T]he Secretary of theTreasury shall require
a resident or citizen of the United States or a per-
son in, and doing business in, the United States,
to keep records, file reports, or keep records and
file reports, when the resident, citizen, or person
makes a transaction or maintains a relation for
any person with a foreign financial agency.'
[Emphasis added]
The statute provides for the Treasury Secretary to
prescribe various rules relevant to this requirement.
The Secretary has delegated his authority to the di-
rector of the Financial Crimes Enforcement Network
(FinCEN). In 1977, regulations were prescribed that
were codified at 31 CFR §103.24.4 The regulations,
prior to the most recent amendment, required that:
(a) Each person subject to the jurisdiction of the
United States (except a foreign subsidiary of a
U.S. person) having a financial interest in, or sig-
nature or other authority over, a bank, securities
or other financial account in a foreign country
shall report such relationship to the Commis-
sioner of the Internal Revenue for each year in
which such relationship exists, and shall provide
such information as shall be specified in a report-
ing form prescribed by the Secretary to be filed by
such persons. Persons having a financial interest
in 25 or more foreign financial accounts need

C 2011 M. Karlin



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