NEW FBAR RELIEF FOR CANADIANS AND OTHER NON-RESIDENTS

On June 18, 2014, the IRS issued Notice IR-2014-73, which liberalizes the already generous FBAR relief for US taxpayers not residing in the US.

(“FBAR” means foreign bank account reporting, and “FBAR form” means FinCEN Form 114, which was previously Form TDF 90-22.1. “Nonresident” means a US citizen or green card holder who is not living in the US.)

By way of background, FBAR penalties arise if a taxpayer fails to disclose offshore bank accounts (by filing FBAR forms) and also fails to report the related income. (There are no FBAR penalties if the taxpayer reports all of the income on the offshore accounts.)

Under the new “streamlined procedure” for nonresidents, there will be no FBAR penalties if the nonresident taxpayer (i) files delinquent or amended US income tax returns for the prior three years and pays all delinquent taxes and interest, (ii) files delinquent FBAR forms for the prior six years, and (iii) files a three-page certification. The certification must include specific reasons for failing to report income on offshore accounts and file the related FBARs. Also, if the taxpayer relied on a professional advisor, his or her name, address, telephone number and summary of advice must be included. The delinquent income taxes will not be subject to the 20% accuracy related penalties under Code Section 6662.

In general, a nonresident is eligible for the streamlined procedure relief only if the failure to file FBAR forms was not willful. For example, failure to file is non-willful if due to negligence, inadvertence, mistake or a good faith misunderstanding of law. Also, the streamlined procedure relief is not available if the IRS has already initiated a civil examination of the taxpayer’s returns for any period.

The relief described above is more generous than that allowed to US residents. In addition to the steps at (i), (ii) and (iii) above, US residents must pay the “Title 26 miscellaneous offshore penalty” equal to 5% of the highest aggregate year-end balance in offshore accounts over the last six years.

Leave a Reply

Your email address will not be published. Required fields are marked *