U.S. Taxpayers With Overseas Bank Account Signature Authority Must Comply with FBAR Reporting Requirements
Each year, United States citizens and permanent residents are required by law to report all of their income to the Internal Revenue Service, no matter where it was derived. Under the tax code, any individual with an ownership or signature authority over a foreign bank account or other offshore financial asset with an aggregate value of at least $10,000 during the tax year is required to file a Report of Foreign Bank and Financial Accounts (“FBAR”). An American taxpayer who fails to timely file the FBAR faces potential fines as well as criminal prosecution.
In many ways, the FBAR reporting requirements can seem like a trap for the unwary. For example, an offshore bank account that is held jointly with or inherited from a family member may trigger a duty to file the FBAR. In addition, a taxpayer’s mere signature authority over an account that a parent or other loved one owns also can compel the taxpayer to disclose the asset using the FBAR. This includes a child who has a power of attorney over an aging parent’s foreign bank account, regardless of who actually enjoys the benefit of the funds. As a result, a U.S. citizen or other taxpayer may have an obligation to file the FBAR in a given tax year, even if he or she ultimately earned no foreign income.
Unfortunately, a taxpayer’s failure to timely file the FBAR can result in a penalty of up to one-half of the highest overseas account value and a prison sentence of 10 years. Because of this, it may be wise for a taxpayer with signature authority over another individual’s account to file late FBARs or enter into the IRS’s Offshore Voluntary Disclosure Program (“OVDP”). This program permits American taxpayers who previously did not report an offshore bank account or other financial asset to voluntarily comply with the requirements of the Internal Revenue Code in exchange for a reduced penalty. Since 2009, the IRS has collected over $6.5 billion in unpaid federal income taxes from at least 45,000 overseas financial account holders through the OVDP.
It is a good idea for all U.S. taxpayers with signature authority over a foreign financial asset to file an FBAR on an annual basis. If you have questions about your international income tax rights and responsibilities, a knowledgeable international tax attorney may be able to help. William D. Hartsock is a certified tax law specialist with more than 30 years of experience in advising clients across Southern California about their international income and other tax issues. To discuss your situation with a seasoned tax lawyer today, call Mr. Hartsock at (858) 481-4844 or contact him through his website.
Even Non-Owner Signers On Offshore Accounts Face FATCA And FBAR Risks, Robert W. Wood, Forbes
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