Apr 19, 2021
As you may know, we have supported a request to the CRA to extend the April 30 deadline to June 15. But if the deadline is NOT extended, here are some practical tips to reduce the burden of a COVID tax season.
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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Cadesky U.S. Tax Ltd. is a full service advisory and compliance firm. We monitor U.S. tax news that may be of interest to our readers and share our thoughts in U.S. Tax Tips.
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The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.