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Power of Attorney

Ask the taxgirl: FBAR and Power of Attorney

August 25, 2009 · 1 comment

Taxpayer asks:

I was just reading about the rules for FBAR, and noticed that the IRS says that people who have Power of Attorney (POA) for elderly relatives with foreign bank accounts must submit FBAR reports if those accounts total over $10,000 at any point during the year.

As it happens, I have a POA for my mother. She’s almost 80, but she is still very sharp mentally and in amazing shape physically as well–she walks several miles each day. So the POA is just something I keep on hand for some indefinite point in the future when it might be needed. She manages her own financial affairs just fine, and keeps excellent records with clearly labelled filed in her beautiful handwriting. She has shown me where the records are, and she’s also given me information about her electronic bank accounts so I’ll be able to access those records if and when the need arises.

On a day to day basis, I don’t think about the POA, and it’s never occurred to me to ask how much money she has in her various different bank accounts. That seems unduly intrusive under the circumstances.

Fortunately, I do know that my mother does not have any foreign bank accounts, so I don’t need to ask her any further questions about balances.

Even so, thinking about our situation made me realize that many people who technically have POA for relatives filed away in a safe deposit box or in their relative’s attorney’s safe may not even remember that they have such a POA. If their relatives are still in good health and managing their own affairs successfully, they may have no idea of whether the relatives have foreign banks accounts and what the balances may be.

I think you’d be doing your readers a real service by reminding people like us who have POA, but who don’t much think about it, that they should ask the relative for whom they have POA about whether they have any foreign bank accounts, and, if so, what the balances are in those accounts. Depending on the circumstances, both the relative and the person with the POA could have an obligation to file an FBAR.

Taxgirl says:

You raise a couple of good points:

  1. Know what’s in the Power of Attorney. It may well be that the agent does not have the power to sign, etc., for foreign accounts. The rule that you’re referring to is applicable if the agent has signature or other authority over the accounts. Examples would include the power to withdraw funds or make distributions – the power to merely change the nature of the investments is not sufficient. Not every agent will have “control” over accounts – read the Power of Attorney to see what’s included.
  2. It’s also important to know what kind of Power of Attorney the agent holds. If it is a springing power (meaning only in force at the occurrence of a certain event, such as disability), then the agent would not be responsible for filing the FBAR until the power is in force. If it is an immediate power, there may be a requirement to file.
  3. A Power of Attorney is a big deal. We like to think it’s not because people sign them willy-nilly… But it’s a lot of power – the power to buy and sell houses and other property, the power to make distributions from accounts, the power to change your investments, the power to file tax returns and make gifts… A. lot. of. power.
  4. If you do have an immediate Power of Attorney, I think it is absolutely imperative that you do have a conversation with the person granting you the power about what it means. You need to know what kind of accounts the person holds and where – what good is having the power in the first place if, upon the disability or other event, you don’t know where to go or what to do? If someone trusts you enough to grant you the ability to manage their affairs, they need to trust you enough to confide in you about those affairs.
  5. With that in mind, as a Power of Attorney, it is clear that an agent who holds a Power of Attorney which allows for signature power or other powers of control over a financial account abroad does have the responsibility to file the FBAR, so long as the account otherwise qualifies – that means hitting that $10,000 threshold, for example.
  6. Think before you sign a Power of Attorney – and if you’re the agent, think before you accept. It’s a great deal of responsibility and if you accept, you can’t just walk away later. If it’s too much for you to handle, just say no. It’s okay to say no (tell ‘em taxgirl said so).

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirl

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Does the IRS discriminate against unmarried couples?

March 6, 2008 · 1 comment

Does the IRS discriminate against unmarried couples?

I’m specifically referencing same sex couples in this post because, while traditional unmarried couples may encounter the same kinds of difficulties with the Service, they have an “out” that same sex couples don’t have: marriage.

At my firm, we represent same sex couples in a number of tax and estate planning matters. It is an interesting practice because state laws vary from New Jersey to Pennsylvania – they are much more favorable to same sex couples in New Jersey. And though we often preach to “not let the tax tail wag the dog”, it often does. Since NJ has recognized same sex couples who register as domestic partnerships as “married” for tax and benefit purposes, I know same sex couples who have packed up and headed across the river in search of better circumstances.

It is difficult for me to wrap my head around the idea of suburban NJ as more progressive than Philadelphia. But with respect to taxes, it definitely is.

And yet, despite the classifications of same sex couples in New Jersey and other states as domestic partnerships or marriages, the feds view same sex couples the same way as they do all unmarried adults: as strangers.

Hold your fire… I’m not even talking about extending the economic benefits of married couples to same sex couples (that’s another post for another day). I’m talking about the most simple of tasks: just talking to the IRS.

There is a form (federal form 2848) that allows for another person to talk to the IRS on your behalf. The IRS requires any person who is speaking on your behalf or providing information – including your attorney or tax preparer – to execute this form. It makes sense.

But what doesn’t make sense are the limitations on who may act as your agent in front of the IRS. While a traditional Power of Attorney will allow any person to act on your behalf, the IRS imposes limits on who may interact with the IRS on your behalf.

The limitations are:

a) Attorney—Enter the two-letter abbreviation for the state (e.g., “NY” for New York) in which admitted to practice.
b) Certified Public Accountant—Enter the two-letter abbreviation for the state (e.g., “CA” for California) in which licensed to practice.
c) Enrolled Agent—Enter the enrollment card number issued by the Office of Professional Responsibility.
d) Officer—Enter the title of the officer (e.g., President, Vice President, or Secretary).
e) Full-Time Employee—Enter title or position (e.g., Comptroller or Accountant).
f) Family Member—Enter the relationship to taxpayer (must be a spouse, parent, child, brother, or sister).
g) Enrolled Actuary—Enter the enrollment card number issued by the Joint Board for the Enrollment of Actuaries.
h) Unenrolled Return Preparer—Enter the two-letter abbreviation for the state (e.g., “KY” for Kentucky) in which the return was prepared and the year(s) or period(s) of the return(s) you prepared.

I am particularly struck by item (f) which allows a spouse, parent, child or sibling to act on a taxpayer’s behalf – but no one else. I can’t quite get the public policy argument behind limiting a taxpayer’s right to ask any person to correspond with the IRS on his or her behalf. Clearly, this affects taxpayers other than domestic partners but the limitations (and the agents’ interpretation of same, trust me on this) seem to directly impact same sex couples disproportionately.

I’m baffled as to the reasoning behind such limitations. In any relationship, it is often true that one person is more “in the know” than the other about finances. It is also not unthinkable that a taxpayer may not be available due to incapacity, travel or other circumstances that would enable taxpayer to respond timely to IRS notices – many of which are deadline specific. You would think that IRS would do everything in its power to facilitate taxpayer’s resolution of outstanding matters rather than limit taxpayer’s options.

The restrictions imposed on this form – and the resulting interpretations and actions by many agents – inhibit, not help, taxpayer in the resolution of outstanding tax issues. I just don’t get it. Do you?

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