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Financial interest/signature authority & foreign accounts

The Report of Foreign Bank and Financial Accounts (FBAR) might not be on your radar, but maybe it should be. FBARs, technically FinCEN Form 114, are used to disclose foreign accounts valued at $10,000 or more at any point in a year.

While the international account disclosure requirement has been around for 45 years since the enactment of the Bank Secrecy Act, it has only recently gotten significant attention. What type of interest or authority triggers the need to file a FBAR?

 

What is a Foreign Financial Account?

An account located in New York at the local branch of a German bank doe snot need to be reported. Contrast this with a U.S. Bank, but an account located in Frankfurt at a German branch, which does need to be reported.

Some other examples of financial accounts include:

  • Securities, mutual funds or brokerage accounts 
  • Commodity futures and options accounts
  • Life insurance policies or annuities that carry a cash value – i.e. whole life policies

Are credit cards considered accounts? Not generally, unless a cardholder makes some advance payment and then treats the account as a debit or checking account. A safe deposit box is also not usually considered an account.

Agent or signature authority

A U.S. person cannot get around the reporting requirement by having an agent open an account on his or her behalf. For example, Anna cannot ask her cousin Jonathan who is a Swiss citizen to open a brokerage account on her behalf to avoid U.S. tax and the FBAR filing requirement.

Signature authority means a bank of financial institution will act at your direction whether you exercise the power or not. Aging relatives who live in another may grant this authority. A power of attorney could mean you need to report a foreign account. 

Because the civil penalties start at $10,000 for a non-willful violation and can go up to $100,000 or 50 percent of the balance on willful violations, it’s important to investigate whether you need to report. When you have questions about international accounts, take proactive measures to get things right or fix past mistakes.

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