Joint Foreign Accounts and Spouses: When One FBAR Covers Both of You

Married couples abroad tend to share everything: the apartment, the car, the bank account. FinCEN recognizes that and gives couples a shortcut. One spouse can file a single FBAR that covers both of them. But the shortcut has conditions, and couples who use it without meeting them end up with one spouse who never filed at all.

Here is how the rule works.

The general rule: each spouse files

The FBAR obligation in 31 CFR 1010.350 belongs to each United States person individually. A married couple is two people. If each spouse has a financial interest in foreign accounts whose aggregate maximum value exceeded $10,000 during the year, each one has a filing obligation.

For jointly owned accounts, FinCEN's instructions say that when both spouses file separately, each spouse must report the entire value of the jointly owned accounts. You do not split a joint account in half for the FBAR. If the joint account peaked at $30,000, it goes on each spouse's FBAR at $30,000.

That also means a joint account counts in full toward each spouse's $10,000 aggregate test. Two spouses with a single $12,000 joint account each have a filing obligation.

The exception: one FBAR for both

FinCEN's instructions provide that the spouse of an individual who files an FBAR is not required to file a separate FBAR if three conditions are met:

• All of the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse.
• The filing spouse reports the jointly owned accounts on a timely filed FBAR, electronically signed.
• The couple has completed and signed Form 114a, Record of Authorization to Electronically File FBARs, and keeps it with their records.

If any one of those conditions fails, both spouses must file separate FBARs.

Form 114a is not sent to FinCEN. You keep it. The instructions note that completing it with both spouses signing is what permits one spouse to sign a single report for both instead of filing two.

Where couples trip

The first condition is the one that gets people. It says all of the accounts the non-filing spouse must report are joint. Not most. All.

• A separate savings account. The non-filing spouse has a joint checking account with the filing spouse and a small savings account in their own name. The shortcut fails. The non-filing spouse files their own FBAR.
• Signature authority at work. The non-filing spouse is a signer on an employer's foreign account and no exception applies. That account is not jointly owned with the filing spouse. The shortcut fails.
• A foreign pension or investment account. If it is in one spouse's name only and is a reportable account, the shortcut fails for that spouse.

The second condition matters too. The joint FBAR must be timely. A couple who files late cannot rely on the joint filing exception for that year, and each spouse should be analyzed separately.

The mixed-nationality couple

Many Americans abroad are married to someone who is not a U.S. person. The FBAR obligation belongs only to United States persons. A nonresident alien spouse has no FBAR obligation of their own.

But the American spouse does. If the American has a financial interest in a joint account with a non-U.S. spouse, the American reports the entire value of that account. The account does not get cut in half because the other owner is not a U.S. person.

FinCEN's form asks for information about the principal joint owner. You will need the non-U.S. spouse's name and, if known, identifying information. That surprises some foreign spouses, who may not love having their name on a U.S. government filing. It is still required.

This also comes up when couples consider the election to treat a nonresident spouse as a U.S. resident for income tax purposes. That election, discussed in the nonresident alien spouse guide, changes income tax treatment. Whether it also creates FBAR obligations for the foreign spouse is a question to analyze before you make it, because the FBAR's definition of a U.S. resident is tied to the tax residency rules of 26 U.S.C. 7701(b).

Valuing a joint account

The valuation rules are the same as for any other account. FinCEN's instructions call for the maximum value of the account during the calendar year, which is a reasonable approximation of the greatest value in the account during the year. Periodic statements can be used if they fairly reflect that maximum. Convert to U.S. dollars at the Treasury rate for the last day of the year and round up to the next whole dollar. For a joint account, each filing spouse uses the whole account's maximum value, not a share of it.

How the IRS divides a penalty between co-owners

If a joint account goes unreported, the IRS does not treat the couple as one violator. IRM 4.26.16.5.2 directs examiners to make a separate determination for each co-owner: was there a violation, and if so, was it willful or non-willful. For each co-owner who is penalized, the penalty is based on that person's ownership percentage of the highest balance of the account. If the examiner cannot determine the percentage, the highest balance is divided equally among the co-owners.

That matters in mixed situations. One spouse may have handled the family finances and known about the FBAR. The other may have had no idea. The IRS is supposed to look at each one separately, and the facts for each spouse deserve to be presented separately.

Three quick examples

Example one. Two U.S. citizen spouses in Spain have one joint checking account and one joint brokerage account, and nothing else. Both accounts are joint, so the first condition is met. They complete Form 114a and one spouse files a timely FBAR listing both accounts. One FBAR covers both of them.

Example two. Same couple, but the wife also has a small savings account in her own name from before the marriage. The first condition fails for her, because not all of her reportable accounts are joint with her husband. Each spouse files a separate FBAR, and each reports the full value of the joint accounts.

Example three. A U.S. citizen in Japan has a joint account with his Japanese wife, who is not a U.S. person, plus a retirement savings account in his own name. Only he files. He reports the full value of the joint account and his own account, and he lists his wife as the principal joint owner on the joint account.

Children and family accounts

Do not forget the kids. FinCEN's instructions treat minor children as United States persons. A U.S. citizen child with foreign accounts over the threshold has an FBAR obligation, and the parent files if the child cannot. The spousal joint filing exception does not cover a child's accounts. Each child is a separate filer.

Form 8938 works differently

Do not assume the FBAR rules carry over to Form 8938. For FATCA purposes, married couples filing a joint income tax return file a single Form 8938 and count jointly owned assets only once toward a higher joint threshold, under 26 CFR 1.6038D-2. Couples filing separately use different rules. The Form 8938 threshold guide covers it.

A clean annual routine

• In January, list every foreign account each spouse and each child owns or can sign on.
• Mark which accounts are joint between the spouses.
• If the non-filing spouse has even one reportable account that is not joint with the filing spouse, plan on two FBARs.
• If the shortcut applies, complete and sign Form 114a and keep it with your tax records.
• File before October 15.

Married life overseas is complicated enough. The FBAR does not have to be. If you are unsure whether the shortcut has been working for you, or one of you never filed, let's talk.