There are untold numbers of US citizens who have lived in Canada for many years. Most have never filed US tax returns and (because of the US foreign tax credit) owe no US tax. Nor have they filed FBAR Form 90-22.1 to report their “offshore” (i.e., Canadian) accounts.
One might intuitively view this as a “no harm no foul” situation. Guess again. The US civil penalties for failure to file Form 90-22.1 are prohibitive, and range from 5% to 50% of the account balance. Criminal prosecution is also possible.
Finally, there is tangible relief under IRS Internal Release 2012-65, which was issued June 26, 2012 and becomes effective on September 1, 2012. Continue reading
The IRS has just issued the following “fact sheet” on reasonable cause for delinquent filing of Form TDF 90-22.1. The main thrust is that FBAR penalties will usually be abated when no income tax (or a “deminimis” amount) is owing on the delinquent Forms 1040. A detailed analysis of Fact Sheet 2011-13 will be provided in the next post.
According to an article published December 2, 2011 in The Globe and Mail, a Canadian periodical, the IRS might be lenient on US citizens (and green card holders) living in Canada who didn’t disclose their “offshore” accounts by filing Form TDF 90-22.1. (This form is sometimes known as the “FBAR” form, based on an abbreviation for “foreign bank account reporting.”) David Jacobson, the US Ambassador to Canada, was quoted as saying that “if … you don’t owe taxes to the US, and you file your return[s] and they show you don’t owe taxes, there aren’t going to be any penalties for having filed late.” He reportedly also said the IRS position would be published within “weeks.” Presumably he means there will be no penalty for late filed FBAR forms so long as late filed Forms 1040 demonstrate that no tax is due.
Reporting obligations for “offshore” accounts (including RRSP and RRIF accounts in Canada) have been expanded by the Foreign Account Tax Compliance Act (“FATCA”), which is codified at Sections 1471 – 1474 and 6038D of the Internal Revenue Code. Sections 1471 – 1474 apply to “foreign financial institutions,” and Section 6038D applies to US persons having offshore accounts.