If a U.S. citizen lives in a foreign country and purchases a prepaid electronic toll card (a “PETC Card” --- similar to an EZ Pass), does the U.S. citizen need to report this card on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”)?
[The short answer is that you probably do not need to include the account on your FBAR, but you might want to spend the extra two minutes to include it in any case, just to be extra cautious.]
At first glance, one might say:
“Isn’t the FBAR only for accounts in excess of $10,000? If the PETC Card account balance never even comes close to $10,000, why do I care?”
The FBAR instructions provide that the form must be filed for foreign financial accounts “if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.” If one or more accounts push the aggregate value in excess of $10,000, then all foreign financial accounts must be reported.
The PETC Card is an account, and the account is with a foreign person. It is therefore a “foreign account.” The question is whether it is a “financial” account. The FBAR instructions define a financial account as follows:
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.
The first two sentences in the definition define a financial account by example:
- bank account,
- securities account,
- securities derivatives account,
- other financial instrument account, or
- commingled fund (including mutual funds).
The third sentence provides that a financial account includes “any . . . account maintained with”:
- a financial institution, or
- a person engaged in the business of a financial institution.
In parenthesis, the third sentence specifically refers to prepaid cards. The PETC Card is a prepaid card.
An analysis must be performed of the government agency (or the outsourced company) that administers the PETC Card to determine whether it is either a financial institution or a person engaged in the business of a financial institution. If yes, the PETC Card must be reported on the FBAR. The FBAR instructions do not include a definition of a financial institution or what is required for a person to be engaged in the business of a financial institution.
The Treasury Department recently issued proposed regulations regarding the FBAR. These proposed instructions slightly modify the definition of an “other financial account.” Under these proposed regulations (which are not yet binding), the term ‘‘other financial account’’ means:
- An account with a person that is in the business of accepting deposits as a financial agency;
- An account that is an insurance policy with a cash value or an annuity policy;
- An account with a person that acts as a broker or dealer for futures options transactions in any commodity on or subject to the rules of a commodity exchange or association; or
- An account with— (A) Mutual fund or similar pooled fund. A mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions; or (B) Other investment fund. [RESERVED]
One might wonder whether the agency or company that administers the PETC Card is “accepting deposits” each time a credit card is charged to replenish the account. Also, what is a “financial agency”? Is it the same as a “financial institution”?
This blog posting is long enough. As indicated at the beginning of this post, if you are a U.S. citizen with a foreign PETC Card, the short answer is that you probably do not need to include the PETC Card account on your FBAR. It seems likely that the agency or company that administers the PETC Card would likely not be considered a financial institution or financial agency. However, rather than performing an investigation into the activities of the government agency or the outsourced company, it is likely much more expedient to spend the extra two minutes to include the account on the FBAR.