In the overview of the series, we advised that in addition to filing income tax returns, U.S. citizens residing outside the U.S. need to file various reports in respect of foreign holdings. Failure to file these reports can result in onerous penalties. In part I of the series, we will discuss the requirements to file the FBAR Form 114.
I. Foreign Bank and Financial Account Report, FBAR -Form 114
II. Statement of Foreign Financial Assets, Form 8938
III. Interest in Foreign Canadian Corporation, Form 5471
IV. Interest in Foreign Partnerships, Form 8865
V. Interest in Foreign Trust, Form 3520
VI. Interest in Mutual Funds, Form 8621
The following is a brief overview of when a taxpayer needs to file FBAR Form 114, along with the information that should be provided.
Foreign Bank and Financial Account Report
(FBAR -Form 114)
Firstly, taxpayers should be aware that the FBAR Form 114 is not an IRS tax form. This form is a reporting required pursuant to the Bank Secrecy Act which requires a U.S. person to report foreign financial accounts yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
Who must file the FBAR?
U.S. citizens or residents who have authority over or a financial interest in financial accounts outside the U.S. that in total exceeds a balance of $10,000 at any time during the year need to file this report with the U.S. Treasury Department.
When and where does a taxpayer file the FBAR?
In previous years, the due date was June 30 each year without the option for extension. 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. The FBAR is filed electronically through FinCEN’s BSA E-Filing System. However, it is not filed with a federal income tax return.
Which foreign assets need to reported on the FBAR?
Financial accounts include bank accounts of any type; RRSP’s, TFSA’s, security accounts, in addition to any other type of financial account. They also include commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund.
Keep in mind that a foreign financial account is one that is located outside the U.S., even if it is a branch of a U.S. financial institution.
Furthermore, accounts in which the U.S. person has signature authority, as well as those in which he/she has a financial interest, must be reported. Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in the foreign financial account.
What information needs to be provided on the FBAR?
The name of the account holder, number or other designation of the account, name and address of the foreign financial institution that maintains the account, the type of account, and the maximum account value of each account during the reporting period need to be reported on the FBAR.
In addition, this record should be retained for a period of 5 years to support the amounts reported.
What is the penalty in case of FBAR filing failure ?
Finally, those required to file an FBAR, who fail to properly file a complete and correct FBAR, may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
With this in mind, it is important to be aware of the deadlines to avoid significant penalties. Be sure to contact us if you have any additional questions on filing form FinCEN 114.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. We are a team of highly experienced tax professionals with extensive knowledge of U.S. and Canadian cross-border compliance as well as U.S. and Canadian tax laws.
Furthermore, as a full service accounting firm, AG Tax is dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. 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.
