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Dear Tax Talk,
Regarding FBAR filing requirements for foreign bank accounts: If my employer made me just an authorized signatory on the company account for which I have no interest and it’s based outside the United States, do I need to report this? Thank you.
Here is the way it works: If the value of the account exceeded $10,000 at any time during the year, then yes, you will have to file the FinCen Form 114 (formerly referred to as the “FBAR”).
The Financial Crimes Enforcement Network, or FinCen, requires that any “financial interest in or signature authority over foreign financial accounts” must file what was formerly the FBAR if the “aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.” The form must be electronically filed through the FinCen BSA E-Filing System.
Signature authority is defined as that of an individual that can control the “disposition of assets” held in a foreign financial account by direct communication, orally or otherwise. Section IV of the actual FinCen Form 114 is where you will report “Information on financial account(s) where filer has signature or other authority but no financial interest in the account(s).” Here you will be required to provide details of the type of account, financial institution name, account number, address, city and country/region, as well as the maximum account value, if known.
If there was more than $10,000 in the account at any time during the year, the next step is for you to check with your employer for the highest balance in the account during the year. Then you must convert it to U.S. dollars using Dec. 31 conversion rates for the currency. If the amount isn’t known to you for some reason, there is an option to check the box “Maximum account value unknown.”
What does this reporting requirement accomplish?
Tracking money in foreign financial accounts helps thwart criminal activity. In 1 case, this data provided leads that helped identify a multimillion-dollar Ponzi scheme originating in Boston. Some 42 victims lost more than $10 million after being promised 8% returns on real estate investment loans. Instead, their money was being used to fund a lavish lifestyle for the perps. The criminals were indicted before the victims even knew they had been duped, and some of the money was recovered. The main operator of this scheme was sentenced to serve 10-12 years in prison.
These regulations are enforced by the IRS, and the foreign bank accounts have become easier to track given the new, more stringent, bank reporting requirements. If a taxpayer is responsible for filing with FinCen Form 114 and does not, the taxpayer may face severe penalties.
Thanks for the great question and all the best to you.
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