Legal Minute
POWERS OF ATTORNEY
How to Avoid Potential Agent Liability with a Quick Fix
By Loraine M. DiSalvo
Morgan & DiSalvo, P.C.
[email protected]
U
nder the Federal Bank Secrecy Act, the U.S. Treasury
Department was given the authority to collect
information about financial accounts held anywhere
outside of the United States. Financial accounts are broadly
defined, covering bank or brokerage accounts, commodities,
futures and options, mutual funds, and many other kinds of
securities, insurance policies with a cash value, and any other
accounts which are held with a foreign financial institution.
The Act was aimed at ensuring that U.S. law enforcement
and tax agencies could acquire information about accounts
which might be used for illegal purposes, such as money
laundering, drug or weapons trafficking, and tax evasion.
However, to accomplish this goal, the Act casts an extremely
broad net. The Internal Revenue Service is authorized by
the Financial Crimes and Enforcement Network (FinCEN)
to collect this information and administer penalties to those
who fail to comply with the Act.
Megan, who holds power of attorney over her elderly parents’
Canadian accounts. The example states that the power of
attorney gives Megan signatory authority over the accounts
and thereby creates the need for her to file the FBAR and
report her parents’ accounts, even if she never exercises the
power of attorney.
Under the Act, U.S. persons who have a financial interest
in or just signatory authority over foreign accounts with a
total combined value of $10,000 U.S. in any given year are
required to file FinCEN Form 114, Report of Foreign Bank and
Financial Accounts, known as the “FBAR.” The FBAR form
must provide extensive information about each account, and
it is generally due by June 30 of the following year, with no
extensions available. Failing to file the FBAR properly and
report all accounts can result in draconian penalties. Each
separate account which should have been reported counts
as a separate violation. Penalties for non-willful violations
are up to $10,000. If the violation is determined to have been
willful, the civil penalty can be up to the greater of $100,000
or 50% of the value of the assets in each unreported account,
and criminal penalties of up to $250,000, 5 years in jail, or
both, can also apply. If multiple parties all have powers over
or interests in the same account, each individual party has
an independent obligation to report it. Compliance by one
party does not excuse failure on the part of other parties.
The IRS has not issued anything which clarifies the extent to
which lack of knowledge may protect agents from penalties
for failing to file required FBARs, or how broadly the term
“power of attorney” will be interpreted with regard to foreign
financial accounts. There are many good reasons to hope
that this situation will be resolved, and it is generally desirable
to ensure that a general power of attorney gives the agent
authority over as many assets as possible. However, until the
IRS provides more information about how this new example
will be interpreted and penalties applied, estate planners
need to consider how to address this issue and reduce
the risk of creating big problems for innocent agents. The
simplest option may be to have powers of attorney explicitly
state that the agent is not to be given any