New FBAR Deadlines and Penalty Relief available
The US Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act) has changed the filing date for the Report of Foreign Bank and Financial Accounts (FBAR), electronically filed with the Financial Crimes Enforcement Center (FinCEN) on Form 114, effective for reports for calendar year 2016 accounts due in 2017. The Act also extends the due date (as so modified) and provides for the possibility of penalty relief for first-time FBAR filers.
In general, and subject to certain exceptions, persons having either a financial interest (as defined) or signature authority (as defined) over a foreign bank, brokerage or other financial account during a calendar year must report it to FinCEN (not the IRS) electronically using the BSA E-Filing System on FinCEN Form 114 (which has superseded the prior Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts).) Questions on both corporate and personal income tax returns are designed to remind taxpayers of this requirement, but the filing of the FBAR is distinct and separate from the requirement to report ownership of foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets.
For years prior to the application of the changes made by the Act, FBARs are due to FinCEN on or before June 30 for reportable foreign financial accounts from the previous calendar year. For example, to report signature authority or financial interest in a foreign bank account for calendar year 2014, the FBAR was due to FinCEN by June 30, 2015. In addition, the June 30 deadline for FBARs for such years cannot normally be extended.
New FBAR reporting guidelines and New due date for Form 114
For calendar year 2015, the current due date of June 30, 2016, is expected to remain unchanged. For reports for calendar year 2016 accounts due in 2017 and subsequent years, however, the Act changes the due date from June 30 to April 15 following the year for which an FBAR must be filed, thereby aligning the timing of the reporting requirement with that for income tax returns filed by individuals and C-corporations.
Newly available extensions of time to file Form 114
In addition, the Act provides authority to grant a six-month FBAR filing extension period ending on October 15. Such an extension had not previously been available for filing of the FBAR forms. Although the Act states that the provisions for requesting an extension should operate “under rules similar to the rules in Treas. Reg. Section 1.6081-5,” the details on the mechanics are currently unclear.
Potential first-time filer penalty relief
The Act also calls for a potential penalty relief for those with the first-time requirement to file FBARs. It explicitly states that, “[f]or any taxpayer required to file [an FBAR] for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.”
The new accelerated deadline will create some complications for FBAR filers, not only for an individual with his or her own financial interests but also for US organizations with foreign bank accounts and US organizations with officers and employees holding signature authority over foreign bank accounts. The ability to request an extension, however, provides welcome relief and may mitigate some of these issues. FBAR filers will now have to determine by April 15, 2017, whether they will need an extension because they might have had a reportable financial interest in or signatory authority over a foreign account in the prior calendar year. Questions still remain on the extension, such as to what the request for an extension will look like, if it will be required to be filed electronically as the FBAR filing is, with what organization (i.e., FinCEN or the IRS) the extension may need to be filed, and whether third-party preparers filing signature authority FBARs on behalf of others will be able to apply for such extensions.
The grant of authority to waive penalties for first-time filers is welcome news. The details and the mechanism for requesting such relief, however, are unclear. Additionally, it is unknown how the first time waiver provision will interact with the current Delinquent FBAR Submission Procedures for taxpayers who currently qualify for penalty waiver.