May 11, 2009 - Phil Hodgen

FBAR requirements apply to nonresidents too

The U.S. government requires “U.S. persons” to file Form TD F 90-22.1 (PDF) to report ownership or control of financial accounts located outside the United States.

Nonresidents of the United States will be pleased to know that stealth changes to this Form now may also impose this filing requirement on them. A “U.S. person” is now includes “a person in and doing business in the United States.” (See the instructions for Form TD F 90-22.1).

So who might be included?

  • A U.S. company has a director who is a nonresident of the United States. The director comes to the United States every now and then on company business. “Doing business in the United States?” Maybe.
  • A non-U.S. company has a full time employee in the United States. That non-U.S. company is probably doing business in the United States and therefore must file Form TD F 90-22.1

There are endless variations on this theme.

What should you do?

The new form has gone from a relatively straightforward application (it is easy to figure out whether you are a U.S. resident or a U.S. citizen) to a fuzzy application (the question of “am I engaged in business in the United States?” is exceedingly problematic).

A cynic would think that the Federal government is trying to govern by FUD. FUD works in the short term, but over the long term is fails. Over the long term this is going to push business activities away from the United States. Why would a nonresident of the U.S. deliberately put his head in the bear’s mouth?

Suggestions for nonresidents with business interests in the U.S.:

  • Direct business activity in the United States by a foreign company is no longer advisable. In the tax trade, the jargon we use is “branch operations.” This exposes you to the “5 years in prison and $250,000 penalty” rules that apply to Form TD F 90-22.1.
  • You would be well advised to look exceedingly carefully at the travel of non-U.S. employees to the United States, and what they do when they are here. You could inadvertently cause the foreign business to be accused of “doing business” in the United States.
  • Pay attention to the definition of “engaged in trade or business in the United States” when it comes to hiring independent contractors and agents. This is a perennial favorite of the U.S. government. You think you hired an outside agent to do business for you. The U.S. government begs to differ, and says that the outside agent is really just an extension of your business.

I’m just saying that now a foreign taxpayer is at the mercy of an eager bureaucrat who looks to build a reputation and career, or an eager politician who aspires to higher office. Before, the downside of getting things wrong meant you paid some tax. Now the downside is that you may get a threat of criminal tax prosecution.


Over the long term, this will cause a significant change in the U.S. economy. These regulatory changes are hidden trade barriers. Slowly, our Federal government is closing the door to shut out the rest of the world. The rest of the world will not suffer. We will.

Latest from the government

In the May 8, 2009 American Bar Association Section of Taxation meeting in Washington, DC , Steven Musher, IRS associate chief counsel (international) was asked about this. Tax Notes Today, at 2009 TNT 88-16, reported he was asked:

whether an FBAR must be filed for a company’s foreign directors who come to the U.S. four or five times a year to sit in on board meetings and who have signatory authority from the foreign entities over the foreign entities’ bank accounts.

Musher said an alert added to the IRS Web site in February provides some guidance on what it means to do business in the United States. He acknowledged, however, that the headliner probably does not answer all questions.

“We are giving serious considerations to these issues,” he said, adding that practitioners have raised several “fair” questions, such as what to do if a company has a U.S. branch but also has foreign accounts that have nothing to do with the U.S. branch, or what to do when there’s a U.S. partnership and the parent company has nothing to do with the partnership.

Tax Notes Today is behind a paywall otherwise I would give you a hyperlink to the article.

Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure