1015 / What is FBAR, and does a U.S. citizen living in Canada need to be concerned with FBAR requirements?

An “FBAR” is a Report of Foreign Bank and Financial Accounts (“FBAR”) that is prepared by a taxpayer and accompanies a tax return. In addition to having to file a U.S. tax return, U.S. citizens with a financial interest in a foreign bank account or brokerage account, for example, that has an aggregate value of over $10,000 during the calendar year is likely responsible for filing a FBAR FinCEN Form 114 with the IRS.¹ FBAR disclosure includes registered Canadian accounts such as RRSPs.

The U.S. Supreme Court recently resolved a split between the circuits over how non-willful foreign bank account report (FBAR) penalties should be applied. The IRS clarified that these penalties should apply on a per-report basis, rather than a per-account basis. It's important for clients to remember that the FBAR penalties are technically not a tax and, therefore, there is no amended return that can be filed for a refund. Going forward, these penalties will be assessed on a per-report basis. However, the IRS has yet to provide a procedure for clients to request a refund if past penalties were assessed on a per-account basis.²

The fact that a U.S. citizen resides in Canada does not alleviate the responsibility of an individual for filing a FBAR if the individual has a Canadian bank account or other Canadian financial accounts. Thus, U.S. citizens who are not compliant with U.S. filing requirements may want to consider becoming compliant by means of the IRS Offshore Voluntary Disclosure Program.³ However, the IRS eliminated this voluntary compliance program on September 28, 2018. The streamlined filing compliance procedures program (available to taxpayers who may not have been aware of their filing obligations) will continue in place, but the IRS has indicated that it may also be winding down in the future.

For most U.S. persons, the FBAR is due by April 15 (the federal income tax filing deadline) and filed along with their federal income tax return. However, taxpayers are entitled to an automatic six-month FBAR filing extension. Under the extension, taxpayers have until October 15 to report their foreignaccounts. Taxpayers are not required to request an extension to obtain the additional time to file. However, taxpayers who missed the filing deadline in prior years should consult with a qualified tax professional before taking an action in the current tax year. Taxpayers with outstanding FBAR filing obligations in prior years could face significant penalties and even a potential criminal investigation.

.http://www.irs.gov/pub/irs-utl/IRS_FBAR_Reference_Guide.pdf “IRS FBAR Reference Guide.”

2 See U.S. v. Boyd, 991 F.3d 1077 (9th Cir. 2021) and U.S. v. Bittner, USDC No. 4:19-CV-415 (E.D. Tex. Nov. 30, 2021).

3.https://www.irs.gov/individuals/international-taxpayers/offshore-voluntary-disclosure-program IRS: Offshore Voluntary Disclosure Program.