The FBAR tax plight: The maddening implications of when Uncle Sam deems you have signing authority
One million American citizens in Canada face double tax troubles. Max Reed explores these challenges in a spring series.
The United States has two tools with which to collect information on accounts held by its citizens, FATCA and FBAR. Lots of attention has been paid to FATCA, less so to FBAR (Foreign Bank Account Reporting). FBAR targets accounts that U.S. citizens own as well as accounts over which U.S. citizens have signing authority.
The ownership piece is pretty straightforward. U.S. citizens in Canada are obliged to file an FBAR form if they have an ownership interest in “foreign” bank accounts, those outside the United States, which have a cumulative value of US$10,000 or more.
In an extreme scenario, this would even mean that if you have 10,000 bank accounts that each have one U.S. dollar in them you would have to report all of those bank accounts.
The rules are more complex for those who have signing authority over accounts they don’t own. All U.S. citizens must report all foreign accounts worth US$10,000 or more, even those owned by non-Americans, over which they have signing authority – that is, the ability to move money in and out of the account – even if they don’t have a financial interest.
Many different types of accounts have to be reported: bank accounts, commodity brokerage accounts, accounts that hold securities, accounts with a mutual fund, and certain insurance accounts that have a cash value. The few exceptions to the FBAR rules are unlikely to apply to any Canadian institutions.
The implications of these rules can be maddening.
Take this example. Fred, a U.S. citizen, is a Toronto-based broker managing money for hundreds of Canadian clients. Because he has the power to move money in and out of different accounts, he may be considered to have signing authority over them. Thus he would have to report all of these accounts to the IRS on his annual FBAR form.
Take another example. Jill is a U.S. citizen who serves on the board of a non-profit organization. Because she has the power to sign cheques on behalf of the organization, Jill would have to report the account on her FBAR form.
Jenny, a lawyer and U.S. citizen, has signing authority over the trust accounts that hold client funds. Jenny may have to list all these accounts on her FBAR form.
All three individuals are in a tight spot. U.S. law requires them to report this information, but Canadian privacy law may prevent them from doing so. The problem is exacerbated by the FBAR fines, which range from US$10,000 to US$100,000 per account, or 50 per cent of the total value of the account, if the failure to file is willful.
FBAR fines may be excused if there were good reasons why the form could not be filed. Importantly, the Canada Revenue Agency has indicated that it will not help the Internal Revenue Service collect FBAR fines.
To date, the IRS has not been enforcing the FBAR requirements rigorously, but the deadline to file is June 30.
There are some solutions. The obvious is to check to see if the signing authority you have over bank accounts is sufficient to necessitate their reporting. There is an amnesty program for delinquent FBAR forms.
A riskier option is to include a letter with your FBAR form indicating why, under Canadian law, you cannot report certain accounts.
