Last week Congress passed, and the President signed, a bill entitled “The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.” While this legislation was primarily directed at extending federal funding for transportation projects, buried within the bill were several tax-related provisions that changed key filing deadlines. One of the most important passages in this new law changed the due date for an important information reporting form: the Report of Foreign Bank and Financial Accounts (commonly referred to as the “FBAR”).
Any U.S. taxpayer with a financial interest in, or signature or other authority over, a foreign bank account with a balance in excess of $10,000 is required to annually disclose the existence of such account(s) on the FBAR form. The deadline for filing the form is June 30, 2015, and no extension of that deadline was available under prior law. The FBAR is required to be filed electronically using the BSA e-filing system website.
Practitioners and taxpayers alike have complained for years 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. Congress finally heeded these calls for change, and last week’s legislation contains the following short, but critical, provision:
(11) The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.
This provision applies to returns for taxable years beginning after December 31, 2015.
As a result of this new legislation, the FBAR filing deadline will be April 15, starting with the 2016 tax year. Thus, for taxpayers required to file a 2015 FBAR, the deadline will remain June 30, 2016. For taxpayers required to file a FBAR for 2016 (and thereafter), the deadline will change to April 15, 2017. Importantly, taxpayers will also be able to request, for the first time, a six-month extension of the FBAR filing deadline, to October 15. (As noted above, previously taxpayers were unable to request any extension of the FBAR deadline, even if their income tax return was placed on extension.) We expect the Treasury Department to promulgate regulations setting forth the procedure for requesting an extension of the FBAR filing deadline. Note that 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.
The legislation 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.
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 welcome change.