Owned or Signed on a Foreign Bank, Broker, or Other Financial Account?

Owning or having signatory authority over a foreign bank, broker, or other financial account can have significant implications for U.S. taxpayers. The Internal Revenue Service (IRS) requires certain individuals to report these accounts annually, and non-compliance can result in severe penalties.

Who Must Disclose Foreign Accounts

The obligation to disclose foreign financial accounts is governed by the Bank Secrecy Act (BSA), which mandates U.S. persons to file a Report of Foreign Bank and Financial Accounts (FBAR) if the total value of their foreign accounts exceeds $10,000 at any point during the year. This applies to U.S. citizens, residents, and entities like corporations and trusts. The FBAR is filed electronically with the Financial Crimes Enforcement Network (FinCEN) using Form 114, separate from the tax return.

The Foreign Account Tax Compliance Act (FATCA) imposes additional reporting requirements. U.S. taxpayers with specified foreign financial assets exceeding certain thresholds must report them on Form 8938, attached to their annual tax return. For instance, single taxpayers living in the U.S. must report if their foreign assets exceed $50,000 at the end of the year or $75,000 at any point during the year. Thresholds are higher for married taxpayers filing jointly and those residing abroad.

Non-compliance carries significant penalties. For FBAR violations, penalties can reach $10,000 for non-willful violations, while willful violations may incur penalties of up to the greater of $100,000 or 50% of the account balance. FATCA penalties start at $10,000 for failing to file Form 8938, with additional penalties for continued non-compliance.

Recognizing Signatory Authority

Signatory authority refers to the legal power to control the disposition of funds or assets within a foreign financial account. This authority can stem from being named on the account or having the power to direct transactions. For example, a U.S. executive who can authorize payments from a corporate account abroad may have signatory authority, even without ownership interest in the account.

The distinction between ownership and signatory authority is critical because it determines reporting obligations under U.S. law. Individuals with signatory authority must report the account, even if they derive no personal financial benefit. For instance, a U.S. citizen serving as a trustee for a foreign trust must assess whether their role grants them signatory authority, triggering reporting duties.

Identifying signatory authority requires examining account agreements, corporate governance documents, and the powers granted to individuals. The IRS defines signatory authority broadly to capture various forms of control over account transactions, aiming to ensure comprehensive reporting of foreign financial activities.

Types of Financial Accounts Abroad

Foreign bank accounts, including savings, checking, and time deposit accounts held with foreign financial institutions, are the most commonly recognized. These accounts may offer benefits such as currency diversification and higher interest rates.

Foreign brokerage accounts are another significant category, enabling investment in global markets and allowing individuals to hold stocks, bonds, mutual funds, and other securities. However, foreign brokerage accounts can introduce complexities in reporting and taxation. For example, foreign mutual funds may trigger Passive Foreign Investment Company (PFIC) rules, resulting in complex tax treatment under U.S. law.

Foreign retirement accounts, such as pension funds or Individual Savings Accounts (ISAs), further diversify the range of foreign financial accounts. These accounts often involve specific tax treaties between the U.S. and other countries, influencing how income and contributions are taxed. Understanding these nuances is essential for taxpayers seeking to optimize their retirement savings while staying compliant with U.S. tax laws.