Tax Tip[] FinCEN Form 114

Report of Foreign Bank and Financial Accounts (FBAR) FinCEN Form 114

Extended Filing Deadline

The requirement to file the U.S. Report of Foreign Bank and Financial Accounts (better known as an FBAR) is not new, and yet many U.S. persons are still unaware of the need to file this form.  The requirement to file an FBAR is not pursuant to the U.S. Internal Revenue Service (IRS) but instead pursuant to the U.S. Bank Secrecy Act (BSA). The BSA was originally passed by the U.S. Congress in 1970 and signed into law by President Richard Nixon on October 26, 1970.

When must FinCEN Form 114 be filed?

Historically, the FBAR must have been filed by June 30th for the prior calendar year.  There was no ability to file an extension.  The FBAR must have been received by June 30th, not postmarked by June 30th.

As of tax year 2016, the deadline was changed to April 15th (consistent with the original tax return due date for taxpayers who are resident in the United States).  However, there is an automatic extension of the due date to October 15th.   No extension application needs to be filed. Again, the October 15th deadline is consistent with the extended due date for U.S. personal tax returns.

We wish to make two observations.  First, though the requirement to file an FBAR is under the BSA and not the Internal Revenue Code, many (if not the vast majority of) taxpayers do not differentiate, it is all part of their annual personal tax filings.  Making the filing deadlines consistent between the two pieces of legislation removed any unnecessary confusion.

Second, if there is an automatic extension to October 15th, and the fact that no application needs to be filed, what is the point of the April 15th deadline?  In our opinion, it would have been simpler just to state that the filing deadline is October 15th and be done with it!

How do I file my FBAR?

The FBAR must be filed electronically.  It cannot be paper filed.  Many third party software providers facilitate the filing of the FBAR.  The form may also be filed on the BSA E-Filing System directly.

What needs to be reported?

U.S. citizens and residents with a financial interest in or authority (signing or other) over foreign bank accounts or “foreign financial accounts” with an aggregate value of U.S. $10,000 or more must file an FBAR.  What is important to note, is that account ownership is not the only criteria, it is the control and flow of funds that is relevant.   As such, accounts of which the individual is a signing officer (corporate director, trustee, etc.) need to be reported.

What happens if the FBAR is not timely filed?

Technically, there is no set late filing penalty, only non-filing penalties, and the IRS can assess the non-filing penalties if you file even one day late. Penalties can be assessed based on whether the violation was “Willful” vs. “non-willful”

Willfulness is “whether there was a voluntary, intentional violation of a known legal duty”. Basically, did you knowingly not file your FBAR? If you are non-willful, it means you had no knowledge of this filing requirement. 

What are the penalties?

If it is determined that you were willful in non-filing, the penalty is the greater of 50% of the account value or U.S. $100,000. The maximum non-willful penalty is $10,000 per occurrence.  As a means of enforcing compliance, the IRS have actively imposed the willful penalties on taxpayers who were knowingly committing tax fraud.

As such, given the potential magnitude of the penalties we encourage all taxpayers to take the filing of an FBAR seriously and to ensure that they have filed their FBAR by the extended due date of October 15th.  Though many consider the filing of this form as an invasion of privacy, unless you have something to hide the severe nature of the potential penalties should be considered.

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Foreign Bank Account Reports – Make Sure to File Them

A United States person is required to file FinCEN Form 114, “Report of Foreign Bank and Financial Accounts”(“FBAR”),  whenever that person has

  • A financial interest in a foreign financial account; or
  • Signing authority over a foreign financial account; or
  • Any authority over a foreign financial account

and the aggregate value of all accounts (not each account separately) exceeds US $10,000 at any time in year.   Reportable accounts would include, among others, corporate accounts where the taxpayer is a signing officer (even if not a shareholder) and trustee accounts.

The FBAR is not an income tax form. As such no guidance is found under the Internal Revenue Code nor its accompanying Regulations (which is one of the reasons the IRS brought out Form 8938, “Statement of Specified Foreign Financial Assets”).

Instead, the requirement to file an FBAR is created under of the U.S. Bank Secrecy Act of 1970.  The legislation was brought in to combat money laundering but its use has expanded over the years.

There have been a number of developments that taxpayers should be aware:

  • For 2016 and subsequent years, the due date has been changed from June 30th to April 15th, to coincide with the Federal income tax filing due date.
  • A maximum six-month extension of the filing deadline is now available. For the 2016 filings, FinCEN will grant filers, failing to meet the annual due date of April 15th an automatic extension to October 15th each year.  No specific request for the extension are required (that is nothing has to be filed).
  • Under the U.S. Foreign Account Tax Compliance Act (“FATCA”) and the Canadian Intergovernmental Agreement (“IGA”), Canadian financial institutions have been sharing (via the CRA) information on their U.S. customers with the U.S. Internal Revenue Service (“IRS”).

Recently, the U.S. Justice Department sued a U.S. citizen / Canadian resident the equivalent of Cdn $1.1 million for failing to file his FBAR form.

The penalties for not timely filing an FBAR can be prohibitive.  The penalty for a willful violation is the greater of (i) US $124,588 (inflation adjusted)  or (ii) 50 percent of the balance of the account at the time of the violation.  These penalties are imposed on each account and for each year that the FBAR was not filed.  In addition, criminal penalties can be imposed and could include a fine up to US $250,000 or 5 years in jail or both.

While the filing of the FBAR can feel intrusive and one can object, in principle, to it, the penalties don’t justify the risk.  With the IRS now getting financial information from Canadian financial institutions, they are better positioned to catch delinquent filers.  Given that the IRS has had various amnesty programs, going back to 2009, the may not feel inclined to waive any penalties.

As such, make sure you timely file a properly completed FBAR.

The above  information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of U.S. Treasury Department Circular 230. The contents of this document are intended for general information purposes only.