Tax News
Is a Failure to File an FBAR Covered under the Tax Indemnity in a Stock Purchase Agreement?
July 11, 2014
Miscellaneous

Will this claim be covered under the typical SPA language? Let’s see. Is the FBAR a Tax Return within the most commonly used definition? Here is how this definition may read:
"Tax Return" means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
Now, this definition is not really that bad. It includes “information returns,” which the FBAR clearly is. The culprit here is “relating to Taxes.” In my mind, there is a pretty decent argument that an FBAR does not relate to Taxes. Let’s look at a typical definition of Taxes.
"Taxes" means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
Most definitions, as in the above definition, will include penalties and interest. However, again, the penalties imposed for failure to file FBARs are not together with Taxes, additions to Taxes, or in respect of Taxes or Income. They are assessed based on unreported account value. If you are lucky, some other part of the agreement may give you an out, but there is a reasonable argument that the typical boilerplate related to Taxes and Tax Returns would not cover this. All of this could be quite costly, or may be a non-issue. Nobody knows until a particular scenario plays out. However, some language along the below lines could have mitigated this predicament and possibly saved us from a few sleepless nights.
"Tax Return" means any return (including any schedule or attachment and any information return), report, statement (including but not limited to Form TD F 90-22.1, if applicable), declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information (including any amendment thereof) filed with or submitted to, or required to be filed with or submitted to, any Tax Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with applicable law relating to any Taxes.
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