Let’s Understand Filing FBARs

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The jurors in the Paul Manafort case had questions regarding the complex Foreign Bank Account Reports (FBARs) regulations.  This was evidenced by the jury’s questions to the judge addressing the responsibility to file an FBAR if a person owns less than 50 percent of the account and does not have signature authority but is authorized to disburse funds.  Paul Manafort was accused of failing to file    FBARS for 2011, 2012, 2013 and 2014, but was only convicted on one count (calendar year 2012).

The FBAR form is used to report:

  • A financial interest in, or signature or other authority over, one or more financial accounts in foreign countries.
  • No report is required if the aggregate value of the accounts does not exceed $10,000.

Having an interest in a foreign financial account can be a:

  • Financial interest:  the US Person is the owner of record or holder of legal title; the owner of record or holder of legal title is the US Person or their representative; the US Person has a sufficient interest in the entity that is the owner of record or holder of legal title.

OR

  • Signature authority: the US Person has authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.

The Financial Crimes Enforcement Network (FinCEN) implements the regulations regarding the FBAR. The FBAR filing requirements are authorized under one of the original provisions of the Bank Secrecy Act (BSA) and have been in place since 1972.  Here are the guidelines:

Who is a US Person?

  • A citizen or resident of the United States;
  • An entity created or organized in the United States or under the laws of the United States. The term “entity”
  • includes but is not limited to, a corporation, partnership, and limited liability company;
  • A trust formed under the laws of the United States; or
  • An estate formed under the laws of the United States.

What is a Financial Account?

  • Bank accounts; savings accounts, checking accounts, and time deposits
  • Securities accounts; brokerage accounts and securities derivatives or other financial instruments accounts
  • Commodity futures or options accounts
  • Insurance policies with a cash value (whole life insurance policy),
  • Mutual funds or similar pooled funds
  • Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

What is a Financial Interest?

  • The United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for benefit of the United States person or for the benefit of another person, including non-United States persons.
  • The owner of record or holder of legal title is a person acting as an agent, nominee, attorney, or a person acting on behalf of the United States person with respect to the account.
  • The owner of record or holder of legal title is a corporation in which a United States person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock; or (ii) more than 50 percent of the voting power of all shares of stock.
  • The owner of record or holder of legal title is a partnership in which the United States person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (distributive share of partnership income taking into account any special allocation agreement); or (ii) an interest in more than 50 percent of the partnership capital.
  • The owner of record or holder of legal title is a trust of which the United States person: (i) is the trust grantor; and (ii) has an ownership interest in the trust for United States federal tax purposes.
  • The owner of record or holder of legal title is a trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year.
  • The owner of record or holder of legal title is any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

What is Signature Authority?

Signature authority is 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.

On February 24, 2011, FinCEN released the Final Rule on Foreign Bank and Financial Accounts Report (FBAR) Responsibilities which included this definition: “The test for determining whether an individual has signature or other authority over an account is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account. The phrase ‘‘in conjunction with another’’ is intended to address situations in which a foreign financial institution requires a direct communication from more than one individual regarding the disposition of assets in the account”.

Don’t be a victim of your own making

If you are a US Person with a financial interest in foreign financial accounts with an aggregate value of $10,000 or more – or – an officer in an Entity with no financial interest, but with bank signing authority, consult your tax specialist now.  

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