The retroactivity of the new rule is provided in my first answer to you, at 76 FR 10234
, which provides under the heading Applicablility Date:
- This rule applies to reports required to be filed by June 30, 2011 with respect to foreign financial accounts maintained in calendar year 2010 and for reports required to be filed with respect to all subsequent calendar years.
As far as what the IRS states, they are highly motiviated to get taxpayers to report anything and everything to do with a "foreign financial account." However, until this new regulation was enacted, there was no express definition of the term, nor any case law expressly interpreting the term, which left the matter up in the air. That is probably the main reason for the revised rule: to remove the ambiguity.
Criminal law statutes must be interpreted in favor of a defendant, wherever ambiguity exists. This means that a court would have to dismiss an action against you under FBAR related to the annuity accounts, because the law did not clearly identify annuities as within the scope of the definition of a "foreign financial account." The REPORT TO CONGRESS §361(b) OF THE USA PATRIOT ACT (2002)
explains the problem as follows:
- [C]harging an FBAR count is considered unnecessarily complicated by some prosecutors because of the interplay between 31 U.S.C. 5314, the implementing regulations at 31 CFR 103.24, and the penalty provision at 31 U.S.C. 5322(d). Prosecutions for violation of 31 U.S.C. 5314 raise concerns about the burden of proof (i.e., whether specific intent must be shown) after Ratzlaff v. United States, 510 U.S. 135 (1994).12.
The 2008 version of TD f 90-22.1
provides the following definition of a financial account:
- This term includes any bank, securities, securities derivatives or other financial instruments accounts. Such accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). The term also means any savings, demand, checking, deposit, time deposit, or any other account (including debit card and prepaid credit card accounts) maintained with a financial institution or other person engaged in the business of a financial institution. Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.
You will note that neither the term annuity nor life insurance policy appears in the above-quoted definition.
Contrast this with the definition of the 2011 revision of TD f 90-22.1:
- A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
Suddenly, annuities and life insurance contracts are part of the definition. This is thanks to the newly-revised regulation.
That said, I've spent about as much time as I can on this very interesting and complex topic. If you wish to have others consider the matter, you can click Accept and then click the Second Opinion button.
Best of luck.