The Financial Institution Definition, US & Foreign: 31 CFR 1010

The Financial Institution Definition (Domestic & Foreign) 

When it comes to determining whether a US person has certain FinCEN reporting requirements, such as US persons with foreign bank and financial accounts (FBAR), one of the most important preliminary considerations is whether or not the foreign entity qualifies as a financial institution under the U.S. Code and Regulations definition of ‘financial institution’. Whether the entity is domestic or foreign, the regulations provide a detailed summary and definition of what is considered a financial institution. Let’s take a look at the definition of what is your financial institution in addition to the specific corresponding definitions of 31 CFR 1010.100(t).

• (t) Financial institution.

  • Each agent, agency, branch, or office within the United States of any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the capacities listed below:

    • (1) A bank (except bank credit card systems);

    • (2) A broker or dealer in securities;

    • (3) A money services business as defined in paragraph (ff) of this section; (4) A telegraph company;

    • (5) (i) Casino. A casino or gambling casino that: Is duly licensed or authorized to do business as such in the United States, whether under the laws of a State or of a Territory or Insular Possession of the United States, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, a casino operating on the assumption or under the view that no such authorization is required for casino operation on Indian lands); and has gross annual gaming revenue in excess of $1 million. The term includes the principal headquarters and every domestic branch or place of business of the casino. (ii) For purposes of this paragraph (t)(5), “gross annual gaming revenue” means the gross gaming revenue received by a casino, during either the previous business year or the current business year of the casino. A casino or gambling casino which is a casino for purposes of this chapter solely because its gross annual gaming revenue exceeds $1,000,000 during its current business year, shall not be considered a casino for purposes of this chapter prior to the time in its current business year that its gross annual gaming revenue exceeds $1,000,000. (iii) Any reference in this chapter, other than in this paragraph (t)(5) and in paragraph (t)(6) of this section, to a casino shall also include a reference to a card club, unless the provision in question contains specific language varying its application to card clubs or excluding card clubs from its application;

    • (6) (i) Card club. A card club, gaming club, card room, gaming room, or similar gaming establishment that is duly licensed or authorized to do business as such in the United States, whether under the laws of a State, of a Territory or Insular Possession of the United States, or of a political subdivision of any of the foregoing, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, an establishment operating on the assumption or under the view that no such authorization is required for operation on Indian lands for an establishment of such type), and that has gross annual gaming revenue in excess of $1,000,000. The term includes the principal headquarters and every domestic branch or place of business of the establishment. The term “casino,” as used in this chapter shall include a reference to “card club” to the extent provided in paragraph (t)(5)(iii) of this section. (ii) For purposes of this paragraph (t)(6), “gross annual gaming revenue” means the gross revenue derived from or generated by customer gaming activity (whether in the form of per-game or per-table fees, however computed, rentals, or otherwise) and received by an establishment, during either the establishment’s previous business year or its current business year. A card club that is a financial institution for purposes of this chapter solely because its gross annual revenue exceeds $1,000,000 during its current business year, shall not be considered a financial institution for purposes of this chapter prior to the time in its current business year when its gross annual revenue exceeds $1,000,000;

    • (7) A person subject to supervision by any state or Federal bank supervisory authority;

    • (8) A futures commission merchant;

    • (9) An introducing broker in commodities; or

    • (10) A mutual fund.

31 CFR 1010.100” Specific Definitions

Here are some further specific definitions from the regulation for each paragraph identified above:

Bank

• Each agent, agency, branch or office within the United States of any person doing business in one or more of the capacities listed below:

  • • (1) A commercial bank or trust company organized under the laws of any State or of the United States;

    • (2) A private bank;

    • (3) A savings and loan association or a building and loan association organized

    • under the laws of any State or of the United States;

    • (4) An insured institution as defined in section 401 of the National Housing Act;

    • (5) A savings bank, industrial bank or other thrift institution;

    • (6) A credit union organized under the law of any State or of the United States;

    • (7) Any other organization (except a money services business) chartered under the banking laws of any state and subject to the supervision of the bank supervisory authorities of a State;

    • (8) A bank organized under foreign law;

    • (9) Any national banking association or corporation acting under the provisions of section 25(a) of the Act of Dec. 23, 1913, as added by the Act of Dec. 24, 1919, ch. 18, 41 Stat. 378, as amended (12 U.S.C. 611-32).

Broker or dealer in securities

• • • Broker or dealer in securities. A broker or dealer in securities, registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, except persons who register pursuant to section 15(b)(11) of the Securities Exchange Act of 1934.

Money services business

• • • Money services business. A person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(7) of this section. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.

    • A person wherever located doing business,whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(7) of this section. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.

Casino

• • • A casino or gambling casino that: Is duly licensed or authorized to do business as such in the United States, whether under the laws of a State or of a Territory or Insular Possession of the United States, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, a casino operating on the assumption or under the view that no such authorization is required for casino operation on Indian lands); and has gross annual gaming revenue in excess of $1 million. The term includes the principal headquarters and every domestic branch or place of business of the casino.

Card club

• • • Card club. A card club, gaming club, card room, gaming room, or similar gaming establishment that is duly licensed or authorized to do business as such in the United States, whether under the laws of a State, of a Territory or Insular Possession of the United States, or of a political subdivision of any of the foregoing, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, an establishment operating on the assumption or under the view that no such authorization is required for operation on Indian lands for an establishment of such type), and that has gross annual gaming revenue in excess of $1,000,000. The term includes the principal headquarters and every domestic branch or place of business of the establishment. The term casino, as used in this chapter shall include a reference to card club to the extent provided in paragraph (t)(5)(iii) of this section.

Person

• • • An individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.

Futures commission merchant

• • • Futures commission merchant. Any person registered or required to be registered as a futures commission merchant with the Commodity Futures Trading Commission (CFTC) under the CEA, except persons who register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2).

Mutual fund

• • • Mutual fund. An investment company (as the term is defined in section 3 of the Investment Company Act (15 U.S.C. 80a-3)) that is an open-end company (as that term is defined in section 5 of the Investment Company Act (15 U.S.C. 80a-5)) that is registered or is required to register with the Commission under section 8 of the Investment Company Act (15 U.S.C. 80a-8).

Proper Reporting & Disclosure are Important

It is important for taxpayers to keep in mind that the definition of a financial institution is all-encompassing. There are many different types of entities that may be considered institutions of which a taxpayer may not initially presume that that type of institution is in fact considered a financial institution under the regulations. Especially for US taxpayers who have foreign accounts and foreign mutual funds, they should be careful to stay in compliance to avoid fines in penalties — and if they are out of compliance to consider using one of the offshore amnesty programs to see if we get back into compliance or into compliance for the first time.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.

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