Providing much-needed relief to individuals with foreign bank accounts, the Treasury Department announced December 16 that filers of Reports of Foreign Bank and Financial Accounts (commonly known as the “FBAR” form) may now take advantage of an automatic six-month extension of the annual filing deadline. The FBAR for calendar year 2016 is due to be filed by April 18, 2017, but filers may defer that filing for six months, until October 16, should they wish with no action required on their part. (The individual tax return deadline is Tuesday, April 18, because April 15 fails on a Saturday, and the next business day, April 17, is a federal holiday in the District of Columbia. October 15 is a Sunday, so the extended deadline moves to Monday, October 16.)
Any U.S. taxpayer (including both individuals and entities) with a financial interest in, or signature or other authority over, foreign bank accounts that exceed $10,000 in the aggregate are required to file the FBAR form annually disclosing information regarding such accounts to the Internal Revenue Service. Historically, the deadline for filing the FBAR form was June 30 of each year, and no extensions of that deadline were permitted. The FBAR is required to be filed electronically using the BSA e-filing system website.
Pursuant to a provision contained within the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41, Congress changed the FBAR due date to April 15 to coincide with the federal income tax filing season. That law also authorized a maximum six-month extension of the filing deadline. In its December 16 announcement, Treasury stated that in order to implement the statute with minimal burden to the public and the government, filers failing to meet the FBAR annual due date of April 15 will be granted an automatic extension to October 15 each year. Specific requests for this extension are not required.
Practitioners and taxpayers had long complained that the deadlines for filing tax returns (April 15 for individuals) and the FBAR (June 30 for all taxpayers) were not aligned, and that no extension of the FBAR deadline was available. The new April 15 FBAR filing deadline applies to all types of taxpayers, not just individuals. Thus, corporate taxpayers that file on March 15 will also have an April 15 deadline for filing their FBAR forms (and can similarly utilize the automatic six-month extension provision).
The legislation that changed the FBAR deadline also provides the opportunity for penalty relief for first-time filers. This is significant because the FBAR statute provides for substantial penalties for taxpayers who fail to file, or file false, FBAR forms. Willful failure to file the FBAR is a felony that can subject the taxpayer to criminal prosecution and/or civil penalties in the amount of 50 percent of the highest balance of the unreported bank account(s). Negligence penalties can also apply, at a rate of up to $10,000 per unreported account per year. Treasury has not yet issued guidance on implementation of the statutory penalty relief provision.
Changing the FBAR filing deadline to April 15, to align with the Form 1040 income tax return deadline, is a positive and much-needed development. Taxpayers, and return preparers, will now be able to focus on income tax and FBAR reporting at the same time and, more importantly, will be able to seek a six-month extension of the FBAR deadline if necessary. Given the difficulties that taxpayers often experience in obtaining account records from offshore financial institutions, the ability to seek an extension is a positive development.