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Investment Management Group Expresses Support for Proposal to Expand Employee Exception to FBAR Filing Requirement


Investment Management Group Expresses Support for Proposal to Expand Employee Exception to FBAR Filing Requirement

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Internal Revenue Service

 

Attn: CC:PA:LPD:PR (Notice 2009-62)

 

Room 5203

 

P.O. Box 7604

 

Ben Franklin Station

 

Washington, D.C. 20044

 

 

Financial Crimes Enforcement Network

 

Department of the Treasury

 

P.O. Box 39

 

Vienna, VA 22183

 

 

Date: October 5, 2009

 

 

Re: Form TD F 90-22.1

 

 

T. Rowe Price Group, Inc. and its affiliates ("T. Rowe Price")1 appreciate the opportunity to submit comments in response to the request set forth in Notice 2009-62, and to provide the perspective of an investment adviser and trustee whose employees may have signature authority over foreign financial accounts in which neither they personally, nor their employer, have any beneficial interest.

Our comments do not focus on the technical issues relating to the scope and application of the signature authority rule, as they have been well-addressed by the Investment Company Institute's January 15, 2009 letter (the "ICI Letter"). Instead, we wish to highlight the extraordinary operational burden that will be placed on investment advisers and trustees, their employees, and the Internal Revenue Service ("IRS") if the current guidelines remain in place. For example, due to the signature authority rule, an estimated:

  • 32,000 Forms TD F 90-22.1 would be filed by T. Rowe Price employees for the 2008 year alone (resulting in 64,000 total Forms being mailed because of the requirement to send Forms to two addresses),2

  • 3.37 million foreign financial accounts would be reportable in 2008 by T. Rowe Price employees, none of whom holds a beneficial interest in these accounts.

 

It is because of this extraordinary burden, coupled with the fact that the filings would duplicate those required by the beneficial owners under the rules, that T. Rowe Price (i) requests guidance clarifying that employees of registered investment advisers and their affiliates are excluded from the signature authority rule, and (ii) supports the proposal set forth in the ICI Letter as it relates to T. Rowe Price's role as an investment advisor to registered investment companies.

Practical Implications of the Signature Authority Rule

T. Rowe Price sponsors approximately 80 mutual fund products that invest internationally (the "Funds"), serves as investment adviser or trustee to approximately 560 US-domiciled separate accounts, sub-advised investment funds, and common/collective trusts3 that invest abroad (the "Investment Accounts"). T. Rowe Price also serves as recordkeeper and directed trustee to a large number of U.S. retirement plans (the "Plans"), a number of which invest in the Funds, Investment Accounts, and/or hold common stock issued by a foreign affiliate of the employer of employees covered by the plan.

The Funds, the Investment Accounts, and the Plans all hold their foreign cash and/or securities accounts with a custodian bank. In our experience, most custodian banks establish both a cash and a securities account in virtually every jurisdiction in which the beneficial owner might invest, whether currently or in the future, and where the custodian has a sub-custodial relationship. Therefore, many accounts may be opened in the name of the Funds, Investment Accounts, and Plans, even though no investing takes place in the foreign jurisdiction. T. Rowe Price believes, however, that the practice of advance opening of accounts in foreign jurisdictions fosters operational efficiencies and the ability to promptly invest in a particular foreign jurisdiction when investment opportunities are present.

For valid operational reasons, certain T. Rowe Price employees have authority to direct and transfer funds in all of the foreign cash or securities accounts beneficially owned by a Fund or Investment Account. Other employees and officers within T. Rowe Price may have signatory authority over the common/collective trusts and/or non-discretionary signatory authority over the Plans' investments in foreign employer securities, the Funds, and/or the Investment Accounts. However, neither the employees, nor the officers, nor T. Rowe Price itself have any beneficial interest in these accounts (except for very occasional instances where T. Rowe Price might hold an interest in a Fund as a seed investment). As the ICI has pointed out, these employees and officers arguably are not covered by the existing officer and employee exception for publicly traded companies because they are employed by an affiliate of the publicly traded company and not by the beneficial owner of the account.4

To explain the numbers further, approximately 50 employees of T. Rowe Price hold signature authority over the Funds and Investment Accounts, and there are approximately 640 US-domiciled Funds and Investment Accounts that invest abroad. If each employee has to file, a total of 32,000 TD F forms will be sent to the IRS (50 x 640 = 32,000). As stated above, this means that 64,000 forms will be sent total.5 We also estimate that over 2,000 TD F forms would be required by employees or officers of T. Rowe Price holding non-discretionary signature authority over the Plans.

Each Investment Account holds a foreign currency account and a mirror securities account, often as we understand in all markets in which the custodian bank can operate. According to custodial practice, each Investment Account has 60 currency and 60 securities accounts. Assuming 560 Investment Accounts in 2008, T. Rowe Price accounted for a total of 67,200 foreign financial accounts (120 accounts x 560 Investment Accounts). Given the 50 employees with signature authority, that amounts to 3.36 million reportable accounts (67,200 accounts x 50 employees).6

Clearly, in this scenario, the number of accounts required to be reported directly to the IRS or documented internally is staggering. It is important to note that each one of these accounts is held in custody by a third-party custodian bank that is required to report the same information to the IRS on the same form, as well as the beneficial owner itself. In fact, because outside custodians are used for all of the Investment Accounts, all of the information submitted on T. Rowe Price's employees' forms will come directly from the custodian, who actually holds the bank account data. That said, with respect to 2008, we estimate that the IRS could receive at least 104 identical Forms TD F 90-22.1 for each Fund or Investment Account ((50 employees + beneficial owner + custodian bank) x 2). This number does not include any officer or employee filings required by other service providers on these same accounts.

It is not just the volume of duplicative forms required to be filed that poses an administrative problem. Because of the documentation procedures, T. Rowe Price would, on behalf of its employees, be required to solicit account addresses and maximum values on approximately 70,000 Funds and Investment Accounts annually from the various custodians holding such accounts. This is, to be understated, a large task, as there is no automated procedure for collecting this information. Again, the information would only serve to duplicate what is already required to be archived internally by the custodian bank.

Request

T. Rowe Price is sympathetic to the purpose behind the signature authority rule, and fully supports the policy goal of deterring illegal money laundering and fraudulent tax evasion. However, applying the rule to companies such as T. Rowe Price that provide investment advisory and trustee services would only serve to inundate the IRS with FBAR forms that exponentially replicate the forms required to be filed by the beneficial owner and custodian of the account itself.

For this reason, we support the proposal outlined by the ICI Letter as it relates to our role as an investment adviser to registered investment companies, such as the Funds. In addition, because our role as an investment adviser extends beyond registered investment companies and because of our role as trustee, we respectfully request that the IRS issue guidance clarifying that all employees of a registered investment adviser and its affiliates are exempt from the FBAR filing.

We appreciate the opportunity to comment on this issue, and we are grateful for your consideration of our views. If you would like to discuss anything further or would like additional information, please contact me at 410-345-8472.

Respectfully submitted,

 

 

Gregory K. Hinkle

 

Vice President and Funds Treasurer

 

T. Rowe Price Group, Inc.

 

Owing Mills, Maryland

 

FOOTNOTES

 

 

1 T. Rowe Price is a global investment management organization with $315.6 billion in assets under management as of June 30, 2009. The organization provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. For purposes of this letter, "T. Rowe Price" includes the following entities: T. Rowe Price Associates, Inc., which serves as investment adviser for the Price Funds (other than the international funds); T. Rowe Price International, Inc., which serves as investment adviser for the international Price Funds; T. Rowe Price Investment Services, Inc., which serves as principal underwriter and distributor for the Price Funds; T. Rowe Price Services, Inc., which acts as the Price Funds' transfer and dividend disbursing agent and provides shareholder and administrative services for the Price Funds; T. Rowe Price Retirement Plan Services, Inc., which provides recordkeeping, sub-transfer agency, and administrative services for employer-sponsored retirement plans investing in the Price Funds; and T. Rowe Price Trust Company, which sponsors common/collective trusts for retirement plans and which provides non-discretionary trustee services for employer-sponsored retirement plans and IRAs.

2See http://www.irs.gov/newsroom/article/0,,id=210174,00.html.

3 The common/collective trusts for which T. Rowe Price serves as trustee are group trusts intended to qualify under Revenue Ruling 81-100.

4See Form TD F 90-22.1 (Rev. 10-2008) p. 6 ("Exceptions").

5 For the common/collective trusts that are within the 560 Investment Accounts, even more filings would appear to be required since each of the over 100 Vice Presidents of T. Rowe Price Trust Company, trustee of the common/collective trusts, also has legal authority to act for the trustee, and thus the common/collective trusts themselves.

6 Plus more for the common/collective trusts per footnote 5.

 

END OF FOOTNOTES
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