100% ESOP - FBAR Filing

[TPS]

Wondering if anyone has encountered this...

100% ESOP-owned plan sponsor has foreign subsidiaries and, as a result, has an obligation under the FBAR regulations (Bank Secrecy Act - UBS scandal etc...) to disclose all financial interests in foreign financial accounts. Although the ESOP, in its capacity as an employee benefit trust, is not obligated to file since it's invested solely in domestic employer securities and maintains no interest in foreign accounts, based on the regulatory langauge the ESOP trustee appears to have a obligation to file in its capacity as the plan sponsor's sole shareholder. The filing instructions and FBAR reg. state - "A United States person (e.g., a trust - no exemption for qualified plans) has a financial interest in a foreign financial account for which...the owner of record (i.e. plan sponsor) is...a corporation in which the United States person owns directly or indirectly...more than 50 percent of the total value or total voting power of shares of stock." Penalties for the failure to file are punitve (50% of foreign accounts up to $100,000).

Although such filing will be redundant, the intent of the regs is to be overly broad. That said, it otherwise seems apparent the ESOP trustee has an obligation to file, right? Am I missing anything?

[Marcus R Piquet]

Hello, TPS. Excellent question!

I spoke to FinCEN, the division of the Department of the Treasury with authority over the FBAR (Form TD F 90-22.1). The agent and I read through the relevant regulation together (31 CFR 1010.350, see http://www.law.cornell.edu/cfr/text/31/1010.350). Our joint interpretation:

1) An ESOP trust qualifies as a "United States person" under §(b)(3) of the regs. There is no exemption for qualified retirement plan trusts.

2) A reportable "financial interest" by a "United States person" includes the ownership of more than 50% of the stock of a corporation under §(e)(2)(ii) of the regulation.

Accordingly, if the ESOP-sponsoring corporation has an FBAR filing requirement, and the ESOP owns a controlling interest in the corporation, the ESOP trust also has an FBAR filing requirement.

I put a call into the IRS also to see what they say. Otherwise we have five business days to take care of this for the 2012 calendar year.

[GMK]

Now, you're down to 4 days.

Having never heard of this before, I asked the accountants, who said, "Sure, we've been filing them for the ESOP all along." They're sending us copies of the filings for the ESOP's records.

With a sigh of relief, I thank you, TPS, for posting this.

[TPS]

Appreciate the confirmation Marcus and GMK!