FBAR Reporting for Joint Accounts and Signature Authority

If you are a U.S. person, including a U.S. citizen or resident alien such as a green card holder, and hold a joint foreign bank account with your non-U.S. person spouse, parents, or siblings, under the FBAR joint accounts rule, you generally need to report not only your proportional share but also the entire account value. This is one of the most common mistakes made by U.S. taxpayers who hold foreign financial accounts. They assume that under FBAR, they only need to report the accounts that are solely theirs.

Considering this, FBAR reporting also applies when you have a financial interest (ownership) or signature authority (the ability to control the disposition of funds by communicating directly with the financial institution) in an account that you do not own. The situation remains the same: if at any point during the calendar year your aggregate maximum value of reportable foreign financial accounts exceeds $10,000, you must file an FBAR, subject to applicable exceptions.

Confused about how joint account ownership and signature authority impact your FBAR reporting? Read the blog and clear up all your doubts.

What Is a Joint Foreign Account for FBAR Purposes?

A joint foreign account is a financial account outside the U.S. held by a U.S. person together with one or more other persons, commonly parents, a spouse, or another family member. For FBAR purposes, being a joint foreign account owner means, like a sole owner, you hold a financial interest in that account.

This is important to consider: for joint foreign accounts, you need to include the entire maximum account value when calculating the FBAR threshold, not only your share.

Further, even if the other person on the joint account is not a U.S. person, you need to disclose the account and provide the required information about the other account holder, including their address and tax identification number when known, as required by the FinCEN instructions.

This was all about a joint foreign account for FBAR purposes. Moving ahead, let's know if a joint foreign account needs to be reported on the FBAR.

Do Joint Foreign Accounts Need to Be Reported on FBAR?

Yes, joint foreign accounts held by a U.S. person need to be reported on the FBAR if the aggregate maximum value of all reportable foreign financial accounts exceeds $10,000 at any point during the calendar year, subject to applicable exceptions.

During joint foreign account reporting on the FBAR, you need to report the entire maximum account value rather than your share. Additionally, you need to include the required information about the other account holders in FinCEN Form 114, as applicable under the FinCEN filing instructions.

So, yes, if you have a financial interest in or joint ownership of a foreign financial account and the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000, you need to report your foreign joint account on FBAR as well. Now, moving further, let's see how much joint account value you report on FBAR.

How Much of a Joint Account Value Do You Report on FBAR?

When reporting a joint account on the FBAR, U.S. citizens often report their proportionate share of the account. For instance, "I own only 50% of this account, so I will only mention that amount." Well, it is not correct. As mentioned earlier, regardless of your share in the joint foreign account, you generally need to report the entire value of the jointly owned account. These are clear instructions for FinCEN, a bureau of the U.S. Department of the Treasury, which administers the FBAR reporting system.

For instance, Rahul is a green card holder living in the US. In India, he holds a joint account with his father, in which he contributes only 30% of the funds. At the time of FBAR joint account reporting, he needs to mention the entire maximum account value, not his share, along with the required information about his father in the form.

In simple terms, you need to report the entire maximum value of the foreign joint account on the FBAR. Moving forward, let's review how accounts jointly owned with a spouse are reported.

How Are Accounts Jointly Owned With a Spouse Reported?

Married couples with FBAR reporting get a specific but limited spouse-filing provision that depends on specific eligibility conditions, not simply on where the spouses live. Confused? Let's understand this in detail.

When Can One Spouse File a Single FBAR for Both?

Under specific conditions, one spouse may file a single FBAR on behalf of both spouses. However, for this, they need to meet all three conditions:

• All foreign financial accounts reportable by the non-filing spouse should be jointly owned by the filing spouse, and they should be reported on the FBAR.
• The filing spouse should report the jointly owned foreign accounts on time on the FBAR portal.
• Both the filing and non-filing spouses should have completed and signed Form 114a.

When Must Spouses File Separate FBARs?

If you do not meet any of the three conditions mentioned above, you may need to file separate FBARs. Common situations that need separate FBAR filing include:

• Your non-US spouse has reportable foreign financial accounts that are not jointly owned with you.
• You have individual foreign accounts that you do not share with your spouse.
• The requirements for filing one FBAR on behalf of both spouses are otherwise not met.
• You have not properly completed and signed Form 114a.

So, depending on the situation, this is how foreign accounts jointly owned with a spouse are reported. Moving ahead, let's know about FinCEN Form 114a.

What Is FinCEN Form 114a?

FinCEN Form 114a is known as the "Record of Authorization to Electronically File FBARs." When the joint account holding applies, this form allows one spouse to file the FBAR on behalf of both. Further, when filling out the form, you need to consider the following points:

• Both spouses need to sign this form.
• No need to submit this form to FinCEN; it is retained by the filers for their records.
• This form is only applicable when the filing spouse jointly owns all of the reportable foreign financial accounts of the non-filing spouse, and the filing spouse needs to file the FBAR on time.

This was all about FinCEN Form 114a. Now, moving further, let's see what happens if you jointly own an Indian account with a parent.

What If You Jointly Own an Indian Account With a Parent?

If you jointly own an Indian account with a parent and are a U.S. person subject to FBAR reporting, you generally need to report it on FBAR when the applicable aggregate maximum-value threshold is met. Joint ownership generally creates a financial interest in the account; signature authority is a separate basis for FBAR reporting.

In contrast, if you do not have a financial interest or signature authority, and no other FBAR reporting rule applies to you, you generally do not need to report this account on FBAR.

In simple terms, if you jointly own an Indian account with a parent, then, for FBAR purposes, it is generally treated as a jointly owned foreign financial account. Further, for more information on which accounts are reported under FBAR, read our blog on NRE, NRO, FCNR, and PPF accounts on FBAR.

Moving forward, let's determine the signature authority for FBAR.

What Is Signature Authority for FBAR?

Signature authority in a foreign financial account means that you have authority to control the disposition of assets in that account by communicating directly with the foreign financial institution, although you do not own it. For instance, under signature authority, you can instruct the bank to withdraw or move the funds from the account that you do not own.

This was all about signature authority for FBAR. Moving ahead, let's see whether you can have an FBAR requirement without owning the account.

Can You Have an FBAR Requirement Without Owning the Account?

Yes, you can have an FBAR requirement without owning the foreign account through signature authority on it, subject to applicable exceptions. A few examples of this scenario include:

• You have signature authority to manage or operate your elderly parent's Indian bank account, although you do not own it.
• You are a finance manager at a company and have authority to instruct payments from the company's Indian bank account.
• You act as an authorized signatory or trustee for the bank account of someone else.
• You are an officer of a business that gives you authority to direct a bank on behalf of the company.

In the above scenarios, you may need to report the foreign financial accounts not because you own that money but because you have the authority to control the disposition of assets in the account, subject to applicable exceptions. Now, moving further, let's know the difference between joint ownership and signature authority.

Joint Ownership vs Signature Authority: What's the Difference?

The table below showcases the difference between joint ownership and signature authority:

This was all about the difference between joint ownership and signature authority. Moving forward, let's know: does online access to an account mean you have signature authority?

Does Online Access to an Account Mean You Have Signature Authority?

No, having online access to an account does not by itself mean you have signature authority on it. Having signature authority means you have the authority to control the disposition of assets in the account through direct communication with the financial institution.

There is a huge difference between checking the account balance, viewing bank statements, or getting SMS alerts and having authority to initiate or direct transactions. Holding a foreign financial account with mere visibility does not create a signature authority obligation on you. However, if your online access allows you to initiate or direct transactions or otherwise control the disposition of funds, further FBAR analysis may be required.

So, having online access to an account does not mean you have signature authority unless the access gives you authority to control the disposition of funds or otherwise direct transactions. Now, moving ahead, let's know how employer or company foreign accounts are reported under FBAR.

How Are Employer or Company Foreign Accounts Reported?

Some U.S. persons hold positions as directors, officers, or employees of a company or other organization that gives them the right to control a foreign bank account. For them, the same signature authority concept applies as for a U.S. individual holding signature authority in another person's account.

Considering this, if you have signature or some other authority over a foreign financial account maintained by your employer, then you may need to report it under FBAR even though you do not have any financial interest in it. However, for circumstances like this, certain exceptions are available under FBAR for officers or employees of qualifying entities and financial institutions. Given this, the employer's role and signature authority are also reviewed.

Furthermore, common FBAR exceptions apply to certain officers and employees of qualifying entities and financial institutions, including certain publicly traded companies.

Certain officers or employees of U.S. entities whose equity securities are listed on a national securities exchange in the United States may qualify for an exception, subject to the applicable requirements.

• Officers or employees whose signature authority is covered by an FBAR filed by the entity may qualify for an exception, subject to the applicable requirements.
• Employees or officers of certain U.S. financial institutions subject to federal banking regulations may qualify for an exception.
• Employees or officers of certain foreign governmental entities may also qualify for an exception under the applicable FinCEN rules.

For certain employees and officers working within the employer's account, specialized and modified rules apply. It is a fact-specific area, and in situations like this, it is advisable to consult a tax professional rather than take action on your own.

This was all about how employer or company foreign accounts are reported under FBAR. Moving further, let's find out whether the $10,000 FBAR threshold includes joint and signature-authority accounts.

Does the $10,000 FBAR Threshold Include Joint and Signature-Authority Accounts?

Yes, the $10,000 FBAR threshold includes joint and signature-authority accounts. Considering this, the $10,000 FBAR threshold applies to the aggregate maximum value of your reportable foreign financial accounts in which you have signature authority, financial interests, or both, subject to applicable exceptions.

Want to know more about the $10,000 FBAR threshold calculation in detail? Read our blog on "How to Calculate the $10,000 FBAR Threshold for Multiple Foreign Accounts" with examples and get your doubts cleared.

Now, moving forward, let's learn how to report a joint account on FinCEN Form 114.

How Do You Report a Joint Account on FinCEN Form 114?

When reporting a joint foreign financial account on FinCEN Form 114, you generally need the following things:

• The foreign account details and the name of every foreign financial institution where you held the joint account.
• The maximum value of every account during the calendar year.
• Information about the other joint account owners as required by the FinCEN filing instructions.
• The account you mentioned in the joint account section of the FinCEN Form 114 should follow the reporting instructions for jointly held accounts.
• This is how you report a joint account on FinCEN Form 114. Moving ahead, let's know how you report an account where you have signature authority only.

How Do You Report an Account Where You Have Signature Authority Only?

There is a separate section in the FinCEN Form 114 for reporting signature authority for foreign financial accounts. Further, if you have signature authority but no financial interest in 25 or more foreign financial accounts, you can use the applicable abbreviated reporting procedures. Though you still need to maintain a proper record of it and provide additional information if requested by FinCEN or the IRS.

So, this was all about how to report an account where you have signature authority only. Moving further, let's look at common FBAR mistakes made by NRIs involving foreign joint accounts and signature authority.

Common FBAR Mistakes With Joint Accounts and Signature Authority

Common FBAR mistakes made by NRIs involving foreign joint accounts and signature authority include:

• Instead of reporting the full joint account balance, only mention the proportional share.
• Not reporting the parent's account where you have signature authority, as you do not own it.
• Assuming filing a joint U.S. tax return automatically makes you eligible for a joint FBAR.
• Overlooking company or employer accounts where you have signature authority.
• When filing an FBAR joint account with spouse, forgetting to fill out Form 114a.
• Ignoring the foreign bank account that never generates any money.
• Considering online checking access to bank accounts as equivalent to signature authority.
• Applying Form 8938 signature authority rules to FBAR. There is a difference between how these two regimes treat signature authority, so you should analyze whether FBAR, Form 8938, or both apply to your situation rather than choosing one.

These are the common FBAR mistakes that NRIs should avoid when reporting joint and signature authority accounts. Moving forward, let's understand, with an example, how to report a joint family and employer account.

What If You Previously Failed to Report a Joint or Signature-Authority Account?

After reading the whole blog, if you realize that, because of a lack of information, you previously failed to report a joint or signature-authority foreign financial account and are considering reporting it under a late FBAR filing, then you must understand your situation. This is because the appropriate correction procedure depends on your facts, and filing a late FBAR does not automatically eliminate penalties.

Well, there are several options available to U.S. persons that may provide penalty relief or other compliance treatment in qualifying circumstances for failing to report on FBAR. This completely depends on your situation. Factors such as whether the failure was willful or non-willful, whether income was omitted, whether tax returns were filed, and whether you qualify for a specific IRS compliance procedure can affect the appropriate course of action. Want to know more about it in detail? Read our blog on "Missed FBAR Filings" and gather all the information.

Final Thoughts

Lastly, FBAR reporting does not only include the foreign financial accounts that you own completely; it also includes the foreign financial accounts that you own jointly or where you have signature authority. Considering this, if you hold a reportable foreign joint account and the applicable FBAR filing threshold is met, you need to report it under the FBAR joint accounts reporting section in the FinCEN Form 114. Additionally, you need to mention the entire maximum account value, not just your share.

Apart from this, if you have signature authority that allows you to control the disposition of funds in a foreign account you do not own, subject to applicable exceptions, you may also need to report this account on the FBAR.

Furthermore, if you are confused about how joint-held accounts and authorized accounts should be reported under FBAR, connect with Savetaxs. We help NRIs accurately classify joint and signature authority accounts, apply the spouse exception where applicable, and file FBAR on time and correctly.