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ENTERTAINERS AND ATHLETES MUST REPORT THEIR FOREIGN BANK ACCOUNTS TOO

By Daniel J. Scott

If you were not already aware, the United States Treasury requires all citizens and residents of the United States (including all forms of entities, trusts and estates), and certain nonresident aliens and foreign entities (discussed below), who have a financial interest in or signature authority over foreign financial accounts (including bank accounts, brokerage accounts, mutual funds, debit and prepaid credit cards, or other types of financial accounts) with an aggregate value exceeding $10,000 at any time during the calendar year to report such accounts by filing a Form TD F 90-22.1 – Report of Foreign and Financial Accounts (commonly referred to as an "FBAR") on or before June 30th of the succeeding year.

Failure to file an FBAR can result in civil penalties of up to the greater of $100,000 or 50 percent of the amount in the foreign account at the time of the violation, as well as criminal prosecution resulting in fines of up to $500,000 and 10 years imprisonment. This means that clients with a financial interest in or signature authority over foreign financial accounts exceeding in total more than $10,000 for the 2008 calendar year have just over a month to file an FBAR. Subject to some exceptions, the types of accounts that a person must disclose include any foreign account (i) of which such person is the owner of record or in which a person is acting as an agent, nominee or otherwise on his or her behalf, (ii) over which such person has signature authority or can exercise power comparable to signature authority, (iii) that is owned by a corporation or partnership in which such person owns more than 50 percent of the shares or voting power (in the case of a corporation), or more than 50 percent of the profits or capital (in the case of a partnership), and (iv) that is owned by a trust in which such person has a beneficial interest in more than 50 percent of the assets or receives more than 50 percent of the income.

Due to a recent change in the FBAR instructions, nonresident aliens and foreign entities are now required to file an FBAR disclosing all foreign financial accounts (if the aggregate value of such financial accounts exceeds $10,000 at any time during the calendar year) if they are "in and doing business in" the United States. While the FBAR does not provide a definition of "in an doing business in" the United States, the IRS has recently published guidance on its website. According to the IRS website:

Whether a person is considered, for FBAR purposes, to be in, and doing
business in the United States is determined based on an analysis of the facts
and circumstances of each case. Generally, a person is not considered to be in,
and doing business in the United States unless that person is conducting business
within the United States on a regular and continual basis. Persons who are merely
visiting the United States or who sporadically conduct business in the United States,
are not in, and doing business in, the United States for FBAR reporting purposes.

With respect to entertainers and athletes, the IRS states that "artists, athletes and entertainers who are not citizens or residents of the United States and who only occasionally come to the United States to participate in exhibits, sporting events, or performances, do not have to file FBARs." Therefore, an entertainer or athlete who is neither a citizen nor resident of the United States may nevertheless have to file an FBAR disclosing all of his or her foreign financial accounts if he or she regularly comes to the United States to participate in exhibits, sporting events, or performances.

With the Obama administration cracking down on offshore tax havens and perceived abuses in the international banking arena, the IRS will most certainly closely scrutinize the disclosure of foreign financial accounts. The last thing any entertainer or athlete wants or needs is negative publicity, and even the appearance of an attempt to evade taxes or related reporting can cause an entertainer or athlete to lose favor with the public, which can be detrimental to his or her career. Therefore, it is imperative that entertainers and athletes seek professional tax advice to ensure that all U.S. reporting requirements are met.

Daniel Scott is an associate at Chadbourne & Parke LLP in New York. His practice focuses on domestic and international estate, tax and wealth planning for high net worth individuals, their families and businesses, including issues particular to entertainers and athletes.

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This page contains a single entry from the blog posted on May 20, 2009 2:57 PM.

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