Here at AGTax LLP we receive numerous calls on a daily basis regarding the Foreign Bank Account reporting form (FBAR), also known as the FinCEN Form 114. Due to recent changes in the acceptable filing methods for the FBAR, we thought it would be a good time to go over those changes in detail, as well as provide an overview of the filing requirements and penalties of the FBAR.
What has changed for FBAR?
In order to reduce government costs, improve the efficiency of Financial Crimes Enforcement Network (FinCEN), and provide regulators with better and more timely access to important financial information, on June 29, 2011, FinCEN announced that all FinCEN forms should be electronically filed (with some exceptions). At the time the FBAR was granted a general exemption from mandatory electronic filing. However, as of July 1, 2013 it is mandatory to electronically file FBARs using the E-Filing System maintained by the U.S. Department of the Treasury’s FinCEN. This rule also applies to amendments of previously filed FBARs submitted by individuals or entities on or after this date.
In previous years, the due date was June 30 each year. However, from tax year 2016 onward, the deadline is the same as for individual tax returns, i.e. usually April 15 (moving ahead to the following weekday if April 15 is a weekend or national holiday). For 2018, the FBAR filing date is April 17, 2018. An automatic extension of 6-months to October 15 is automatically granted to all taxpayers. FBAR is filed with the FinCEN and not with the IRS as a part of the federal income tax return.
Who must file?
A U.S. person, citizen, or resident, living within or outside the U.S. and/or any entity organized under United States laws, is required to file an FBAR, using FinCEN Form 114 This form is in respect to foreign financial accounts (Foreign bank and/or brokerage accounts, offshore mutual funds and pooled investments) that have a total value of more than $10,000 USD, and that the person had a financial interest in, or signature authority over, during the previous calendar year. AG Tax advises that this form be taken care of in a timely and accurate fashion, as the penalties can be quite severe.
How to e-file
FinCEN has established a website-based E-Filing System to support the electronic filing of Bank Secrecy Act forms, including the FBAR. An FBAR filer (an individual, whether filing with respect to a financial interest in a foreign account or with respect to signature authority over a financial account on the filer’s behalf) must enroll in the E-Filing System by completing a registration process through FinCEN’s website. An FBAR filer which is an entity may designate a “Supervisory User” to serve as the primarily responsible user of the E-Filing System for the entity. By using the E-Filing System, FBAR filers will be able to track the status of their FBARs, receive confirmations of receipt by FinCEN, and view information regarding prior filings.
What are the penalties?
FinCEN considers the filing of mandated reports in paper format to be non-compliant with the electronic filing mandate, and can reject an FBAR submitted on paper after June 30, 2013 considering it as invalid. As of now, the BSA E-Filing agency has not stated anything regarding the penalties. However, the usual FBAR civil and criminal penalties mentioned below are applicable for e-filing as well:
• Civil penalty for failing to file an FBAR is $10,000 for each non-willful violation, applicable on each account for each year
• The penalty for willful violation is either $100,000 or 50% of the amount in the foreign account for each violation (whichever is higher)
• Criminal penalties for FBAR violations involve monetary penalties up to $250,000 and prison for up to five years. If another tax law is violated in addition to the FBAR violation, the penalties could be raised to $500,000 and ten years in prison.
AGTax has found through inquiring with the BSA E-filing agency that, at present, the electronic filing system does not ask why an FBAR is being filed late nor does the e-filing software support the capacity to attach a letter or statement explaining why the FBAR is being filed late. Therefore, it is advised that taxpayers keep all supporting documents on file because normally the US Treasury’s FinCEN will ask for it.
Late FBAR filers should consider sending in a paper letter separately explaining the late filing and justify “reasonable cause”. The IRS has issued a Fact Sheet on this concept of “reasonable cause” for failing to file an FBAR. This is important since the e-filing system currently does not support the capacity to attach a letter or statement explaining why the FBAR is being filed late.
We at AGTax would like to stress that FBARs are important to the IRS enforcement efforts regarding foreign accounts and income tax compliance, thus the rules are likely to get more rigid in the near future, making it important for every US citizen, resident and entity to get their filings in place.
AG TAX LLP Can Help
Our international tax specialists at Aylett Grant Tax LLP are well versed in advising on a variety of situations dealing with foreign bank account reporting. With the changes made to acceptable filing methods it is even more important to consult with a tax advisor to ensure a timely and accurate filing to avoid any potential penalties and/or complications.
Furthermore, if you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.