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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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).
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
