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.