Do you have signature authority over any foreign accounts which you do not own or have a financial interest in? If the answer is yes, get ready to file an FBAR.
“Signature authority” is defined 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.”
It does not matter whether your name is on the account designation itself or included on bank signature cards. Control of the funds is the key element in this situation. If you can communicate with a bank or financial institution to withdraw money out of a foreign account, you have signature authority. If the aggregate of all foreign accounts in which you have a financial interest and/or have signature authority exceeds $10,000 at any time during a calendar year, then you must file an FBAR.
Examples of Signature Authority
Signature authority is often present with company accounts where employees have access to, or control over, the administration of the account and the funds for business operations abroad. If you are a U.S. employee of a company that has foreign accounts, and you have signature authority over those accounts, you may have FBAR filing obligations which are independent of your employer. There are limited exceptions to this general rule, which can be found in the latest instructions to FinCEN 114.
Another common situation involving signature authority, but no financial interest, occurs when a U.S. individual is a signor on foreign financial accounts of a dependent, extended family member or friend. This is a major pitfall for individuals who file FBARs because they do not realize that these foreign accounts have to be reported on their FBAR even though they have no ownership of the accounts (such accounts, however, do not have to be reported on Form 8938, which is discussed below).
In December, the Treasury Financial Crimes Enforcement Network (FinCEN) made the following announcement:
To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. (Please note: The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017, consistent with the Federal income tax due date.)
Therefore, at least for 2016 calendar year FBARs, there is no reason to panic if they electronically filed by the extended due date of October 15, 2017. The FBAR extension is automatic and not contingent on filing a federal tax return extension by April 18th. The Treasury announcement also seems to indicate that for future years, six-month extensions would be automatic; however, there may be future announcements or more clarification provided by FinCEN later regarding this point.
Don’t Forget to Check for Form 8938 Filing Requirements
Many people are still unaware of the Form 8938, Statement of Specified Foreign Financial Assets, and it is often confused with FBARs. Form 8938 has separate and distinct filing thresholds from FinCEN 114, and the Form 8938 must be included with your federal income tax return if it is required. Unlike the FBAR, the definition of specified foreign financial and other assets is broader. It can include not only foreign financial accounts, but also ownership of foreign entities, trusts, loans or obligations.
There will be more information regarding Form 8938 in the next post. For now, just remember that filing an FBAR does not excuse you of filing Form 8938 if it is required, and filing Form 8938 does not excuse you from filing an FBAR.
You may think you have all your income tax and FBAR filings taken care of, but have you doubled-checked for FBAR signature authority and Form 8938 filing requirements closely enough?
Separate from the FBAR, the penalty for failure to file Form 8938 on time can result in a civil penalty of $10,000. The fine increases by $10,000 every 30 days until it is filed up to $50,000. The penalty exposure alone is not worth the risk, so it is always a good idea to double check whether you must file Form 8938 with your income tax return when you file an FBAR.