FBAR Filing and Powers of Attorney:
The recently published “IRS Reference Guide on the Report of Foreign Bank and Financial Accounts (FBAR)” explains the purpose of the FBAR, who must file, and provides a host of definitions relating to the FBAR regulations. Perhaps most notably, the reference guide explains that those with “signature authority” on foreign accounts must file an FBAR. Significantly, the guideline indicates holders of durable powers of attorney may have FBAR filing responsibilities.
The purpose of the FBAR is to provide reporting requirements for individuals who have control over financial accounts in foreign institutions which may not have the same reporting requirements as domestic institutions, as well as aid in identifying individuals who may be using foreign financial accounts to circumvent United States law.
Any United States person that has a financial interest in, or signature authority over, a financial account outside of the United States with an aggregate maximum value in excess of $10,000 at any time during the calendar year must file an FBAR. Signature authority is defined by the reference guide as “the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.” An example provided by the guide explains that a United States resident who has a power of attorney over foreign accounts is required to file an FBAR if the power of attorney gives him or her signature authority over such accounts. Additionally, the example makes note that “whether or not the authority is ever exercised is irrelevant to the FBAR filing requirement.” Based upon the guide the holder of a power of attorney which gives the holder signature authority over a foreign financial account may face penalties for failing to file an FBAR even if they never exercised authority over the account.
Financial accounts are defined to include: bank accounts (savings or checking accounts or time deposits), securities (brokerage accounts, securities derivatives, or other financial instruments accounts), commodity futures or options accounts, insurance policies with a cash value (i.e., whole life insurance policy), mutual funds or similar pool funds, and “any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.” An account is considered foreign if it is located outside of any of the following: the United States, a United States territory or possession, Indian lands, or a United States military installation (even if said installation is located outside the United States).
The penalties for not filing an FBAR vary depending on the violation. Civil penalties range from up to $10,000 for a non-willful violation to the greater of $100,000 or 50% of the amount in the account at the time of the violation for willful violations. Criminal charges can also be pursued against nonfilers. A willful failure to file an FBAR can carry a sentence of up to ten years, and criminal fines of up to $500,000. A higher standard is used for willfulness in the criminal context than in civil matters. While criminal penalties are not universally pursued, the mere threat of such penalties can cause significant distress for all parties involved.
For more information, the complete reference guide may be found at:
Assisted by Laura Bartow, Law Clerk