By now most U.S. taxpayers know about FBARs, the Report of Foreign Bank and Financial Accounts. Although the FBAR reporting requirements date back to the early 1970’s, only in recent years has the Justice Department and IRS began enforcing the law in earnest. With penalties for unreported foreign accounts up to the greater of $100,000 per account or the 50% of the highest historical account balance, everyone with a foreign account needs to understand the rules.
Much of the current confusion surrounds the need for filing FBARs if the taxpayer only has signature authority over an account. Obviously, having a financial interest in an account triggers reporting liability but for some folks, their only involvement in an account is the ability to write checks.
Who are these folks? In our experience, bookkeepers and finance people involved in a business with offshore accounts are the most common. A close second are family members who may have been added to a loved one’s accounts. In several instances, aging parents add their children to accounts to ease transfer of the account in the event of death and to allow children to help the parents pay care bills.
Do these folks have to file FBARs? The answer is a qualified “YES.”
Until 2010, there were no clear rules about signature authority liability. If a person could sign a check or authorize a transfer from an account, that person was deemed to have signature authority. It didn’t matter whether or not the person had an interest in the account.
In February 2011, the Financial Crimes Enforcement Network (FinCEN) released final regulations regarding signature authority and the need to file FBARs. Those regulations defined signature authority to include people with the ability to “to control the disposition of money, funds, or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.” If you can sign a check, authorize a wire or have online permission to transfer funds in your own name, you have “signature authority.”
Like all IRS and financial regulations, there are plenty of exceptions. Generally speaking, the largest exception is for employees of a business who can sign checks but have no personal interest in the accounts. That exception also requires the employee to reasonably believe that the employer was filing its own FBARs.
Because of the confusion over the new regulations – and the huge penalties – FinCEN has been repeatedly extending exemptions for folks who have signature authority but no ownership interest. Each year, FinCEN issues another extension. This year was no exception. (The current notice, 2013-1, was issued last December and extends reporting until June 30, 2015.)
These extensions and rules don’t mean that everyone is given an extension to file FBARs. Unfortunately, just certain employees who sign checks for a business but don’t own the business are covered by the extension.
Other FBAR filing exemptions include:
* Officers and employees of certain public companies;
* Officers and employees of federally regulated financial institutions;
* Officers and employees of larger domestic businesses with at least 500 shareholders; and
* Officers and employees of certain SEC regulated mutual funds and financial service businesses;
This is not an exhaustive list and some very technical rules apply. The list is provided for general informational purposes only. Remember also, that if an officer or employee has an interest in the account, then he or she still must file an FBAR.
For folks who are on their parents accounts, these special rules probably do not apply. The good news is that there are special amnesty provisions for folks added to an account without their knowledge or who have interest in a foreign account but have not accessed the account for their own use. The latter situation frequently occurs where relatives in the U.S. are added to an aging relative’s account to help that relative pay bills.
As we have said in previous posts, the IRS’ amnesty program is not for everyone. Often taxpayers can get a better deal outside of amnesty, although there are some risks.
Obviously, the rules regarding signature authority are quite complex. There are still many questions and even though FinCEN issued “final” rules several years back, new situations keep developing. Once such current controversy surrounds US taxpayers who have a contingent power of attorney over a foreign account belonging to a loved one.
The FBAR attorneys at Mahany & Ertl have helped many people worldwide with a variety of foreign reporting issues. From FATCA to FBARs to foreign real estate reporting, we can help. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author of this post, attorney Brian Mahany, can also be reached at or by telephone at (414) 704-6731. All inquiries are protected by the attorney-client privilege and kept in strict confidence.