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  1. John, thanks for your insightful analysis. As I further go through 26 USC 7701(b), it seems that there is one case where the student is a nonresident for FBAR purposes but files a resident tax return. This is when the student is present in the US for more than 5 years but is manifestly not planning to reside permanently in the US (for the sake of argument, let us assume that the student only looks for jobs outside the US and leaves the US on finding one late that year) during that year and follows the visa regulations. In that case, it would seem that 26 USC 7701(b)(5)(E)(ii) would ensure that the student is, in fact, treated as an exempt individual if the Secretary is remotely reasonable (which, of course, he may not be). This would declare him/her to be a non resident by the logic of 26 USC 7701(b).

    Okay, this is straightforward so far – our student is a nonresident. However, if s/he is married to a resident (assume that the spouse is a resident alien under the substantial presence test but that s/he also permanently left the US that year), s/he can elect to file a joint return as a resident alien. However, as determined earlier, his/her status is still a nonresident for FBAR purposes so that s/he does not have to file it (assuming, of course, that the Secretary is remotely reasonable) since the requirement is an individual one. If you were the student, would you be willing to take this gamble (assume that the facts show clearly that the student not just planned to not permanently reside in the US, but actually both planned to leave and actually permanently left the US during the year in question)?

    However, for the student to be sure, s/he must be certain that the Secretary will determine that s/he was not planning to reside permanently in the US (however plain the facts might be). How can s/he do so? For the income tax filing this is done using the 8843 but there does not seem to be anything equivalent for the FBAR.

    It looks like this rule really was not through for many practical situations.

  2. Phil,

    A good effort on explaining who must file a FBAR.

    You correctly point out that in the original statute (the Bank Secrecy Act of 1970) the Congress pretty much left it up to the whim and caprice of the Secretary of Treasury to arbitrarily decide what reports he wanted under the BSA about what and from whom.

    Accordingly, the original enabling regulations (31 CFR §103.24) promulgated by the Treasury Department pursuant to that statutory authority “defined” the class of persons obligated to file the FBAR as “each person subject to the jurisdiction of the United States” – whatever that meant.

    When the first FBAR form came out it was a TAX form that had to actually be filed with a tax return. The form was Form 4683. The instructions to that form further defined a United States Person as follows:

    “The term ‘United States person’ means (1) a citizen or resident of the US, (2) a domestic partnership, (3) a domestic corporation, and (4) a domestic estate or trust.”

    Form TD F 90-22.1 replaced the original Form 4683 in 1977 but its instructions retained the original definition of “US person” from 1970.

    That definition remained unchanged in the instructions to subsequent iterations of TD F 90-22.1 until the fateful year of 2008.

    In October 2008 – after 5 years of Herculean and no doubt agonizing effort to redesign the form – the IRS produced the current version of TD F 90-22.1.

    With the new form came new instructions and a substantially altered definition of “US person”. From henceforth an individual “US person” would mean “a citizen or resident of the US, or a person in and doing business in the US”.

    Simultaneously with the new form the IRS announced that in its zeal to use the FBAR as a cudgel to expand the number of targets of opportunity by including for the first time non-resident aliens who had the temerity to be in the US doin’ bidness.

    Tax lawyers and CPAs dutifully and predictably reacted with shrieks of warning aimed at their NRA clients warning them of the perils of the FBAR and the dire necessity of hiring them to prevent the US from stealing whatever of theirs that might be within the grasp of the revenooers – i.e. their US investments.

    Simultaneously, commentators wondered aloud at what numbskull in Treasury was responsible for threatening foreign investors (incoming capital) with FBAR penalties when the real purpose of FBAR was to punish US investors for exporting capital.

    After 6 months of mounting hysteria from the lawyers and CPAs accompanied by futile IRS attempts to explain what, exactly, “in and doing business” meant, the IRS threw in the towel. On June 5, 2009 the IRS (Announcement 2009-51) said it was suspending the FBAR filing requirement for NRAs and that the old definition of “US person” in the pre-October 2008 instruction would henceforth apply until “additional guidance” could be provided.

    In February 2010 that guidance came in the form of Treasury’s proposed comprehensive changes (75 Fed.Reg. 8844) to the regulations governing FBARs that included an amendment to 31 CFR 103.24 mentioned earlier. It proposes a new subsection 103.24(a)that eliminates the hopelessly vague “subject to the jurisdiction. . . ” language and adds a new subsection 103.24(b) that adopts the definition of “resident” found in the tax code (26 USC 7701(b) and the regulations (Reg 301.7701 et seq.).

    In other words, after the merry chase and sturm and drang following the IRS’s Keystone Cop effort to shoot Uncle Sam in the financial foot in October 2008, we’re pretty much back to where we began in 1970 with respect to determining who has an obligation to file this obscene thing.

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.