Many U.S. taxpayers are not fully aware of the foreign account and asset reporting required by the IRS. Two most commonly discussed are the Foreign Bank Account Reporting (FBAR) and Foreign Account Tax Compliance Act (FATCA). We would like to take some time to go over several of the specifics regarding these requirements.
The Foreign Bank Account Reporting (FBAR) requirements have been in place for a number of years. This form is submitted to the U.S. Treasury on an annual basis disclosing your foreign accounts.
Starting in 2011, the IRS starting requiring an additional foreign disclosure form, Foreign Account Tax Compliance Act (FATCA). This new form is for individuals, who meet the reporting thresholds, to disclose their foreign accounts and other foreign assets to the IRS.
Who must complete this filing requirement?
The two main FBAR requirements are:
- You are either a U.S. citizen, greencard holder, resident, or meet the substantial presence test; and
- You have financial interest or signing authority over accounts held outside the US with a total aggregate highest balance over $10,000 USD.
- The balance is determined by totaling the highest balance of all non-U.S. (foreign) accounts during the year.
The requirements for FATCA are a bit more involved and include:
- You are either a U.S. citizen, greencard holder, resident, or meet the substantial presence test; and
- You meet the filing threshold based upon the total aggregate highest balance of your foreign (non-U.S.) accounts:
- Single and Married Filing Separately
- US resident
- >$50k last day of year or,
- >$75k during year
- Non-US resident
- >$200k last day of year or,
- >$300k during year
- US resident
- Single and Married Filing Separately
- Married filing joint
- US resident
- >$100k last day of year or,
- >$150k during year
- Non-US resident
- >$400k last day of year or,
- >$600k during year
- US resident
When must the forms be filed?
FBAR:
The FBAR form is due on the same day as the individual income tax return, i.e. April 15. The following working day if it is a weekend or national holiday. An automatic extension is available until October 15.
FATCA:
The FATCA form is to be completed and filed with your U.S. tax return to the IRS. Extension are available as part of the extension for your U.S. tax return.
What are the penalties for failure to file?
FBAR Non-willfulness penalty:
A penalty, not to exceed $10,000, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements.
FATCA:
If you are required to file the FATCA form, the IRS can impose a $10,000 penalty for failing to file Form 8938 by the due date of the tax return (including any extensions), or for filing an incomplete or inaccurate form. If the IRS have sent a formal notice and the form has not been filed within 90 days, then the IRS could assess additional penalties of $10,000 for each 30-day period (or part of a period) that the form continues to be not-filed. The maximum additional for the continuing failure to file is $50,000.
What if you are late filing a FBAR or FATCA form?
FBAR Non-willfulness penalty:
The penalty should not be imposed if:
- The violation was due to reasonable cause, and
- The balance in the account was properly reported on an FBAR. This means that the examiner must receive the delinquent FBARs from the nonfiler in order to avoid application of the non-willfulness penalty
FATCA:
No penalty will be imposed if you fail to file or to disclose one or more specified foreign financial assets and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim.
The determination of whether a failure to disclose a specified foreign financial asset was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstances.
AG TAX LLP Can Help
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.
