Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (the “FBAR”) with the U.S. Department of Treasury if two conditions apply.
The first condition is that the U.S. person must have either a financial interest in or signature authority (or other comparable authority) over one or more financial accounts in a foreign country. Several clarifications are necessary in order to understand the applicability of this first condition. First, for the purposes of the FBAR, the definition of a “U.S. person” includes U.S. citizens, U.S. residents, and persons in, and doing business in, the United States. “Person” is defined to include not only individuals, but also all forms of business entities, trusts, and estates.
Second, the term “financial account” itself is defined fairly broadly and includes: bank accounts (saving and checking), mutual funds, brokerage accounts, securities derivatives accounts, accounts where the assets are held in a commingled fund and the account owner holds an equity interest in the fund, and other similar types of financial accounts. A financial account is considered to be foreign if it is located outside of the United States and its territories (Northern Mariana Islands, American Samoa, Guam, Puerto Rico, U.S. Virgin Islands, and Trust Territories of the Pacific Islands).
Third, the term “financial interest” is defined as account for which the U.S. person is the owner of record or has legal title, whether the account is maintained for his own benefit or for the benefit of others, including non U.S. persons. Even where the owner of record or holder of legal title is a person acting as an agent, nominee, or in some other capacity on behalf of a U.S. person, the financial interest in the account exists and the agent may need to file the FBAR as well. Note, however, that the agent may need not file the FBAR if he is not a U.S. person. Furthermore, the definition of a financial interest in an account encompasses a corporation in which a U.S. person directly or indirectly owns more than 50 percent of the total value of the shares of stock.
It is important to understand that a U.S. person who has no financial interest in a foreign account, but retains a signature authority (or other comparable authority) may still be required to file the FBAR. A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained.
The second condition for filing the FBAR is that the aggregate value of all of these foreign financial accounts exceeds $10,000 at any time during the calendar year. Notice the word “aggregate” – this means that if, for example, a person has one foreign bank account of $6,000 and another of $5,000, then he still needs to file the FBAR with the U.S. Department of Treasury, because the aggregate amount of both accounts exceeds the required minimum of $10,000.
If a person is required to file the FBAR and fails to do so, it is still generally recommended that he files a delinquent FBAR, because, if the Internal Revenue Service (IRS) discovers this failure earlier, severe civil and criminal penalties may be imposed. Sherayzen Law Office can help you deal with this difficult situation and make sure that you fully comply with the U.S. tax laws.