Firm Seeks Exception From FBAR Reporting Requirement for Some International Organizations

To Whom It May Concern:

On behalf of the International Bank for Reconstruction and Development (the World Bank, hereinafter the "Bank"), we are writing to respond to the Internal Revenue Service's request for comments on the revised form TD F 90-22.1 Report of Foreign Bank and Financial Accounts ("FBAR") and its instructions. In particular, we request that the Internal Revenue Service address certain issues relevant to certain international organizations, as defined in section 7701(a)(18) of the Internal Revenue Code, and their staff members. International organizations and their staff enjoy privileges, exemptions and immunities under the International Organizations Immunities Act ("IOIA"),¹ the multilateral agreements establishing each organization to which the United States is a party (which, in the case of the Bank and certain other international organizations, are recognized as part of U.S. law), and various provisions of the Internal Revenue Code.

The World Bank is part of the World Bank Group. The other organizations in the World Bank Group are the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. Each of the World Bank Group organizations is an international, intergovernmental organization established pursuant to a separate multilateral agreement to which the United States is signatory. In addition to the immunities granted in the individual multilateral agreements and incorporated into U.S. law, each of the World Bank Group organizations has been designated by Executive Order as an international organization covered by the IOIA.

The organizations have offices in many of their member countries, and they are each headquartered in Washington, D.C. The staff of the World Bank includes citizens from most of the Bank's 186 member countries. The Bank regularly hires foreign staff directly into its Washington, DC office for terms of varying duration, and frequently transfers foreign staff for postings in Washington, D.C. from its other offices outside the United States. A staff member of an international organization designated under the IOIA, such as the World Bank, who is assigned to work in the United States, and is not already a U.S. citizen or legal resident, will be granted a G-4 visa to allow for entry into the United States for the specific purpose of international organization employment. The duration of the G-4 visa is limited to the period of employment with the international organization. A staff member holding a G-4 visa may not accept employment or remuneration for services other than from the organization requesting the G-4 visa. Immediate family members who join the staff member in the U.S. also hold a G-4 visa, and they may apply for special permits to work within the United States.

We would first like to request that the definition of the term "United States person" be clarified to exclude staff members of international organizations and their immediate family members who are present in the U.S. for purposes of international organization employment and hold G-4 visas, unless such individuals are properly classified as United States persons for some reason unrelated to employment with an international organization within the United States. Second, we request express guidance confirming that international organizations and their employees, who have signature authority over, but no financial interest in the international organizations' foreign financial accounts, do not have FBAR reporting obligations with respect to such accounts, including accounts maintained at third-party financial institutions.

Under this authority, the IRS recently revised the FBAR instructions in October 2008 to define a "U.S. person" as "a citizen or resident of the United States, or a person in and doing business in the United States." Prior to this revision, the definition in the FBAR instructions had been "(1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust." Announcement 2009-51, 2009-25 I.R.B. 1105 temporarily suspended the new broader definition of U.S. persons and requested comments on this definition.

The Bank respectfully requests guidance that, for FBAR purposes, the term "U.S. persons" does not include employees of international organizations (and their immediate families) solely by reason of their employment in the United States. Unless they are otherwise citizens or residents, employees of international organizations who conduct their employment in the United States are present in the U.S. on G-4 visas and classified as non-resident aliens under the Code (because they are not considered "present" in the United States under section 7701(b) of the Code), their compensation is exempt from federal and state taxation, and they are generally not required to file federal or state tax returns.³ This tax treatment is provided pursuant to the IOIA and, in the case of the World Bank, the obligations of the United States under the Bank's Articles of Agreement under which the Bank has been organized.⁴ The intent and effect of this tax regime is to treat such nonresident employees as if their employment was conducted outside of the United States. Thus, we ask the Service to expressly confirm that a non-resident alien's employment with an international organization that is carried out within the United States does not constitute "business in the United States" for FBAR purposes. We believe that a different interpretation would be contrary to the spirit of the IOIA and the multilateral agreements establishing each international organization, and inconsistent with other sections of the Internal Revenue Code. The effect of the requested guidance will be to exempt non-resident alien employees of international organizations (and their immediate family members who join them) who hold G-4 visas, unless there is an independent basis for such employees to be treated as doing business in the United States.

Because international organizations have various privileges, exemptions, and immunities under the IOIA and their governing charter, international organizations and their employees with signature authority over the international organizations' accounts should not be legally required to file the FBAR, or be subject to its civil and criminal penalties with regard to such accounts. In particular, the IOIA, 22 U.S.C. section 288a(c), provides that the "property and assets of International Organizations, wherever located and by whomsoever held, shall be immune from search, unless such immunity be expressly waived, and from confiscation," and that "[t]he archives of international organizations shall be inviolable." The "archives" of international organizations include records and information relating to financial accounts maintained by the international organization. Additionally, staff of international organizations, including U.S. staff, have immunity from suit and legal process in respect of acts performed in their official capacity, except insofar as such immunity may be waived by the international organization.⁵

Also, as a policy matter, the financial accounts of international organizations do not implicate the same bank secrecy, tax evasion, terrorist financing, and other financial crime concerns that the FBAR filing is meant to address. The United States is a member of all international organizations that are recognized under the IOIA, and the U.S. government can obtain information about the financial accounts maintained by international organizations through the designated U.S. representatives to the organizations, and pursuant to the organizations' policies on disclosure of information to member countries. Therefore, we respectfully request that the Internal Revenue Service issue guidance that international organizations and their staff members with signature authority over the organizations' financial accounts are not required to file a FBAR with respect to foreign financial accounts maintained by international organizations, including financial accounts for pension and other trust funds managed by international organizations.

² 31 U.S.C. § 5314.

³ Compensation paid to employees of international organizations (who are not citizens of the United States) is exempt from federal income tax. See section 893. These employees are generally not required to file federal tax returns unless they have earned sufficient U.S. source income (besides compensation from the international organization).

⁴ Compensation paid to the Bank's employees is not dependent upon the provisions of the internal revenue laws, but derives from article VII, section 9(b), of the Articles of Agreement of the International Bank for Reconstruction and Development. See Treas. Reg. § 1.893-1 (c).

⁵ 22 U.S.C. § 288d(b).