Financial interest in an account
The FBAR rule defines financial interest for foreign financial accounts through ownership and certain relationships to legal owners. For a U.S. citizen, this term appears alongside signature authority in FBAR reporting, while IRS Form 8938 instructions use related but distinct language about an interest in specified foreign financial assets.
Definition under the FBAR rule
The U.S. regulation defines financial interest as ownership of record or legal title, or specified relationships to the person or entity holding title to a foreign account.[3]
A U.S. person has an interest when the account is held in that person's name, even if it is maintained for someone else's benefit. When an account is in more than one person's name, each U.S. person named has a financial interest under this rule.[3]
Relationships that can count
The regulation also treats certain accounts held by another person or entity as accounts in which a U.S. person has a financial interest. This depends on the account's legal owner and the person's relationship to that owner.[3]
- Another person holds legal title as the U.S. person's agent, nominee, attorney, or in another capacity on the U.S. person's behalf.[3]
- A corporation or partnership may qualify when the person's direct or indirect ownership exceeds 50 percent under the applicable voting, value, profits, or capital measure. The rule also covers certain other entities using specified ownership measures.[3]
- Trust rules include a grantor with an ownership interest for U.S. federal tax purposes, and a person with a present beneficial interest in more than half the assets or receiving more than half of current income.[3]
How it relates to reporting
The regulation places financial interest beside signature or other authority in its general FBAR reporting rule for U.S. persons with qualifying foreign accounts. Signature authority concerns control over disposition of account funds by direct communication, even where the person is not the account owner.[3]
An FBAR filing requirement applies when a U.S. person has a financial interest in or signature authority over foreign financial accounts whose combined value exceeds $10,000 at any time during the calendar year. The regulation has a special reporting provision for a person with financial interest in 25 or more accounts, requiring the account count and basic information, with detailed account information available upon request.[2]
The IRS uses a separate Form 8938 framework for specified foreign financial assets in which a specified person has an interest, subject to an applicable value threshold and exceptions. Its instructions state that filing Form 8938 does not remove an FBAR filing requirement that otherwise applies. Thus, financial interest is FBAR terminology, while Form 8938 instructions describe an interest in specified assets.[1]
Joint accounts and exceptions
For an account held jointly, the FBAR regulation treats every U.S. person named on it as having a financial interest. The IRS Form 8938 instructions separately give valuation rules for joint assets. Spouses filing a joint return report a jointly held account once on their single Form 8938; spouses filing separately each report its maximum value on separate forms.[1][3]
The FBAR regulation also lists exceptions for certain officers or employees who have authority but no financial interest in accounts owned or maintained by qualifying financial institutions or listed entities. It separately says that some beneficiaries need not report trust accounts when a U.S. trust, trustee, or agent files a report disclosing those accounts.[3]
Questions and answers
Does an account have to benefit me for me to have a financial interest?
No. The FBAR rule covers an account for which a U.S. person is the owner of record or holds legal title, whether it is maintained for that person's benefit or someone else's. It also covers each U.S. person named on a jointly maintained account.[3]
Can an account held by an entity count as my financial interest?
Yes, in specified circumstances. The rule includes certain entities where the U.S. person's direct or indirect ownership exceeds 50 percent, and specified interests connected to trusts.[3]
Is signature authority the same as financial interest?
The regulation treats them as separate grounds in its FBAR reporting provision. Signature or other authority concerns the ability to control disposition of account funds through direct communication with the account holder's financial institution.[3]
Does Form 8938 replace the FBAR?
No. IRS instructions say that filing Form 8938 does not remove an FBAR requirement that otherwise applies. Form 8938 uses its own specified foreign financial asset and reporting threshold rules.[1]
Related terms
- FBAR: The FBAR is the FinCEN report that U.S. persons file for qualifying foreign financial accounts. A filing requirement applies when the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
- Signature authority over an account: The FBAR rules define signature authority by the power to direct disposition of account funds through direct communication with the financial institution.
- Foreign financial account: Form 8938 treats an account outside the United States as a specified foreign financial asset. FBAR rules identify reportable accounts by type and location.
Related guides and articles
- FBAR Rules for Trust Beneficiaries: A reference for U.S. citizens on the FBAR value threshold, financial interests, signature authority, and the reporting rule for certain trust beneficiaries.
- How banks and trust companies work with trusts: Banks may maintain trust accounts or act as trustees. A trustee holds property for beneficiaries, and trust documents can define fiduciary duties and powers.
- Trust accounts: FBAR and Form 8938 overlap: Trust-related FBAR and Form 8938 reporting: foreign accounts and specified assets, ownership, signature authority, and where the two reports overlap and differ.
Related pages
Sources and data notes
- Internal Revenue Service, Instructions for Form 8938. https://www.irs.gov/instructions/i8938. Retrieved .
- FinCEN, Report foreign bank and financial accounts. https://www.fincen.gov/report-foreign-bank-and-financial-accounts. Retrieved .
- U.S. Government, 31 CFR 1010.350. https://ecfr.io/Title-31/Section-1010.350. Retrieved .
- Internal Revenue Service, FATCA summary. https://www.irs.gov/businesses/corporations/summary-of-key-fatca-provisions. Retrieved .
- U.S. Department of the Treasury, FATCA: agreements by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
- Internal Revenue Service, 26 CFR 1.1471-4. https://www.irs.gov/instructions/iw9. Retrieved .
Dates in this block record when each source was read for this page.