- A power of attorney is a legal document that gives another person or institution, like an agent, the authority to act on your behalf, and that likely includes signature authority
- Anyone with signature authority on a foreign account needs to file an FBAR, so consider if you want your agent to have that responsibility
- A few FAQs about signature authority and FBAR reporting:
- Who needs to file an FBAR?
- When does someone with power of attorney need to file an FBAR?
- Do I have to file an FBAR if I have financial interest in an offshore account?
- Does signature authority mean having a financial interest in an FBAR?
- What are the thresholds for FBAR reporting?
- Is any type of foreign account reportable under FBAR?
- What are the exceptions to FBAR reporting?
- How do I file an FBAR for my offshore accounts?
- What records do I need to keep for FBAR?
- A few FAQs about signature authority and FBAR reporting:
- Common pitfalls of FBAR reporting include assuming someone with signature authority doesn’t have to file or not reporting the maximum value of the account
The IRS strives to ensure all U.S. taxpayers report their offshore assets and pay all the taxes they owe. The Bank Secrecy Act implemented requirements for filing an FBAR (Report of Foreign Bank and Financial Accounts) each year.
Any required American will use the Financial Crimes Enforcement Network (FinCEN) Form 114 to report their offshore assets if they meet the thresholds.
These laws and requirements can become complicated quickly when you are working with an agent who acts as your power of attorney and has signature authority on your foreign financial accounts.
You may be wondering, what is signature authority in FBAR? Does my power of attorney need to file an FBAR? How does FBAR signature authority work?
This guide walks through everything you need to know about how the law works when you have an agent acting as your signature authority for offshore accounts. The post also covers helpful information about general FBAR reporting requirements.
What Is a Power of Attorney for an Offshore Account?
A power of attorney for an offshore account is a legal document that grants an individual or institution the authority to act on behalf of another person or entity in managing their non-U.S. financial accounts.
This power can include making investment decisions, signing contracts, and accessing account information. Note that you may be working with an agent who has power of attorney for your foreign accounts.
Granting a power of attorney to another person or institution means the account holder can delegate decision-making authority and financial management responsibilities without losing ownership of their financial accounts.
This is often useful for individuals who have foreign financial accounts but are unable to manage them due to travel schedules, physical incapacity, or distance.
A power of attorney can be used to facilitate communication and transactions with offshore financial institutions. It allows the designated individual or institution to access the account, view balances, and make transactions, reducing the need for the account holder to always be available.
Note that the power of attorney must be granted voluntarily by the account holder, and the designated individual or institution must act in accordance with the account holder’s wishes and best interests. The power of attorney must be executed with proper legal documentation and witnessed by an authorized notary or attorney to ensure its legal validity.
A power of attorney provides a legal mechanism for the delegation of financial management responsibilities and decision-making authority while allowing account holders to maintain ownership of their offshore financial accounts.
It can be a valuable tool for individuals who want to manage their offshore accounts in a more efficient and effective way.
What Is a Signature Authority for an Offshore Account?
FBAR signature authority refers to the ability of an individual or entity to sign agreements or terms on behalf of an account holder. They are able to control the disposition of account funds and sign documents.
This authority is usually given to individuals in positions of authority, such as executives or officers, or to those who have access to an institution’s financial accounts. Agents with power of attorney may have signature authority.
FBAR signature authority is an important responsibility that comes with legal and financial implications. Anyone with signature authority on foreign accounts must file an FBAR. The FBAR must be filed accurately and on time, or it can result in significant penalties and legal consequences for both the signatory and the financial institution or account holder.
It is essential that individuals with FBAR signature authority understand the requirements and obligations of filing an FBAR and ensure compliance with all regulatory rules and guidelines.
You could, however, restrict what you grant to an agent with power of attorney for your foreign financial accounts. The signature authority wouldn’t be present this way, and the agent wouldn’t be responsible for filing the FBAR or taking on other account management roles.
Consider the types of responsibilities you want your agents to have for your offshore assets.
FAQs about Signature Authority and FBAR Reporting
There are many moving parts to consider when you’re dealing with FBAR reporting. They can become especially complicated when you’re working with an agent and are unsure if they also need to file an FBAR each year.
The following frequently asked questions will help you break everything down and meet all your requirements:
1. Who Needs to File an FBAR?
The IRS states that any “U.S. person,” which includes citizens, residents, corporations, partnerships, limited liability companies, trusts, and estates, must file an FBAR if they:
- Have a financial interest in or signature or other authority over a financial account located outside the U.S.
- Have a total value in those accounts over $10,000 at any time during the applicable year
2. When Does Someone With Power of Attorney Need to File an FBAR?
Your agent acting under a power of attorney may have signature authority over your foreign accounts, as most powers of attorney do. Anyone with signature authority needs to file an FBAR for the applicable accounts and may face penalties for failing to take this step. This is true even if the power of attorney has never exercised their signature authority.
3. Do I Have to File an FBAR if I Have a Financial Interest in an Offshore Account?
Yes. Any qualifying U.S. taxpayer must file an FBAR if they have a financial interest in an offshore account. Financial interest can arise from direct ownership, indirect ownership, or beneficial ownership.
4. Does Signature Authority Mean Having a Financial Interest in an FBAR?
Signature authority means having the power to control the disposition of funds, such as the authority to make deposits or withdrawals. Anyone with signature authority must file an FBAR to meet reporting requirements.
5. What Are the Thresholds for FBAR Reporting?
Anyone with financial interest in or signature authority over at least one offshore financial account must file an FBAR to report those accounts if they’re more than $10,000 in aggregate value.
6. Is Any Type of Foreign Account Reportable Under FBAR?
Most are. The IRS states that “Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for FBAR purposes.”
7. What Are the Exceptions to FBAR Reporting?
You don’t have to report some types of assets under FBAR. The IRS lists the following as foreign financial accounts you don’t need to report:
- Correspondent or Nostro accounts
- Accounts owned by the government
- Accounts owned by an international financial institution
- Accounts maintained by a military banking facility
- Accounts held in an IRA that you are the beneficiary or owner of
- Accounts held in another retirement plan that you’re a participant or beneficiary of
- Accounts that are part of a trust that you’re a beneficiary of, if a U.S. person files an FBAR that reports these accounts
You also don’t need to file an additional FBAR if all of your foreign accounts are consolidated on one FBAR or if you own your accounts jointly with your spouse and your spouse reports the accounts on another FBAR.
8. How Do I File an FBAR for My Offshore Accounts?
The only way to file an FBAR is through the electronic system from FinCEN, known as the BSA E-Filing System. Note that you do not send the FBAR with your annual tax return. It is, however, due on the tax deadline—normally April 15—in the year following the year you’re reporting on.
Failing to meet this deadline usually means you will get an automatic extension until Oct. 15 of the same year, according to the IRS.
9. What Records Do I Need to Keep for FBAR?
You will need to keep detailed, updated records for all your foreign accounts. This ensures you have everything you need to file an FBAR. You’ll need the name on your account, the account number, the type of account, the foreign bank’s name and address, and the highest value the account reached during the year you’re filing for. The IRS says you need to keep these records from five years after the FBAR deadline.
Take the time to learn your obligations when you have any type of offshore asset. Your best bet when dealing with an agent on your foreign accounts or filing an FBAR is to meet with a tax attorney. Legal professionals understand the laws you need to follow and how to avoid any issues with the IRS.
Common Pitfalls of FBAR Reporting and Signature Authority
There are a few common mistakes individuals make when filing an FBAR while working with an agent on foreign financial accounts. Here are a few to consider:
- Assuming someone with signature authority doesn’t have to file: Remember that anyone with a financial interest in or signature authority over an account needs to file an FBAR for that account. You or your agent will face a penalty if you fail to do so and your accounts are over $10,000.
- Failing to report the correct maximum account value: You must report the maximum value of your foreign accounts during the reporting period. Some taxpayers may fail to accurately determine the maximum value of their accounts or may fail to convert foreign currency to U.S. dollars correctly.
- Not reporting all foreign accounts: Don’t forget or fail to report all of your foreign accounts on your FBAR, including foreign bank accounts, brokerage accounts, and mutual funds.
- Insufficient recordkeeping: Detailed records of all foreign accounts and transactions must be maintained. Failure to keep adequate records can lead to errors and omissions on the FBAR report.
- Incorrectly reporting joint accounts: Taxpayers who have foreign accounts jointly with someone else must report their share of the account on their FBAR. There may be times when taxpayers may incorrectly assume their joint account holder will file the FBAR report.
Knowing about these common missteps will help you prepare to report your foreign assets. It’s important to work with a skilled tax professional and thoroughly understand FBAR filing requirements and where your agent fits in.
Contact a Tax Expert at Silver Tax Group
Filing an FBAR and understanding your agent’s signature authority is crucial for individuals who hold financial assets overseas. Make sure you comply with all IRS regulations to avoid penalties and issues.
You need to stay informed and seek professional advice when necessary to ensure the proper reporting and compliance of foreign accounts.
Silver Tax Group is ready to help you navigate these requirements. We help you understand reporting requirements for any offshore assets you hold and how your agent’s signature authority will impact FBAR reporting.
Reach out to Silver Tax Group to speak to a tax expert about signature authority for foreign accounts and FBAR reporting requirements.