Episode 71: “US Offshore Voluntary Disclosure” series — Understanding the US Offshore Voluntary Compliance Programs — Part 2

Release date: November 25, 2015
Guest: Chantal Farrell-Carter
Running time: 7:32 minutes

In this next episode of our “US Offshore Voluntary Disclosure” series, Chantal Farrell-Carter continues to discuss the offshore voluntary compliance programs, looking at the foreign reporting requirements and related forms that apply under the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures.

Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.


“US Voluntary Disclosure” series — Understanding the US Offshore Voluntary Compliance Programs — Part 2

You’re listening to another episode of PwC’s Tax Tracks at www.pwc.com/ca/taxtracks. This series looks at the most pressing technical and management issues affecting today’s busiest tax directors.

Alison: Hi, this is Alison Cumming of PwC Canada welcoming you to another installment of our US Voluntary Disclosure podcast series. This is the second of two podcasts addressing the options available under the offshore voluntary compliance programs.

Here with us today is Chantal Farrell-Carter, a Partner in our Toronto office. Chantal specializes in cross border tax compliance, helping individuals meet their tax filings and non-compliant US persons become current with their US tax matters.

Welcome back Chantal.

Chantal: Thank you Alison.

Alison: Chantal, you made mention in Part 1 to the fact that there are foreign information forms or returns that need to be filed. Can you provide some more information on these forms?

Chantal: Sure Alison. Along with the obligation to file an annual US income tax return, US individuals may also be required to file various foreign reporting forms. While there are several different forms, the most common ones are:

  • The FBAR (Foreign Bank and Financial Account Reporting) Form which is an annual filing by US individuals who have a financial interest in non-US accounts at any time in the year where the aggregate value in these accounts exceed US$10,000
  • Form 8938 (Statement of Specified Foreign Financial Assets), required by US individuals who own specified foreign financial assets over a certain threshold
  • Form 3520 and 3520A are also annual filings by US persons who have an interest in a foreign trust (e,g. RESPs and TFSAs)
  • Form 8621, a requirement for US individuals who own foreign mutual funds, and lastly
  • Form 5471, an annual filing for US individuals who have an interest in a foreign corporation.

Alison: Chantal, I understand that these additional forms may be applicable to US individuals, but clearly it would be rare that these forms would apply to most US persons, correct?

Chantal: Actually, Alison, that is not the case. In fact it is very simple to fall into scope of having to file these additional forms for US individuals who own foreign investments. Let’s look at a simple example.

Take a single US person living in Canada who owns an RRSP worth $300,000 and a TFSA which holds Canadian mutual funds worth $30,000. These simple facts will require that US person to file, with their annual income tax return, Form 8621 and the Form 8938. In addition, that person will have to file Form 3520, 3520A and the FBAR.

Alison: Interesting, Chantal, how owning an RRSP and a TFSA, which is very common for many Canadians, can create such additional filing requirements. However, surely as long as I file my US income tax returns and pay any US tax, it is okay to not bother with all these additional US forms?

Chantal: Unfortunately Alison, that is not correct. As I discussed in Part 1, each of these forms carry hefty penalties for failure to file. Many of the foreign reporting forms carry a $10,000 penalty for each violation. So potentially, in my above example, the US person could be subject to $40,000 in penalties for not filing these forms for one taxation year.

Alison: So Chantal, can these additional forms be included in my Streamline or OVDP submission, or is there a separate IRS program for me to come forward and file these forms?

Chantal: If you have not filed your US income tax returns or not reported some or all the income related to your non-US accounts you can proceed under the Streamline filing or OVDP program to disclose your foreign information returns.

Alison: What if I have been filing my US income tax returns every year, but not these additional forms. Can I still file them under those programs?

Chantal: Great question Alison. Actually, if do not need to use either the Streamline or OVDP programs, but failed to file the additional foreign reporting forms, there are 2 other options available to you; the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures.

These programs are available to US persons who have not filed the required FBARs or other foreign information returns.

Alison: That could be several years’ worth of forms, Chantal. Would it be a problem to just start filing those forms now for the current year and not bother with the past years I failed to file?

Chantal: Yes, that could pose a problem. You see, you run the risk of the IRS asking for the previous years’ forms, which subjects you to the penalties we discussed earlier. Once the IRS has contacted you about delinquent FBARs or information returns, you no longer qualify under the programs.

Alison: Okay, so although it may be a lot of work to go back and file prior US tax filings, clearly there are substantial benefits for US individuals to come forward under the IRS programs available and avoid substantial penalties.

Thank you for joining us today, Chantal, and providing additional information on the options for US individuals to become compliant with their US tax filing obligations.

Chantal: My pleasure Alison.

Alison: For any questions, Chantal’s contact details are available on our PwC podcast website www.pwc.com/ca/taxtracks or also on the page dedicated to information about US voluntary disclosure at www.pwc.com/ca/usdisclosure. I encourage our listeners to listen to all episodes in our US Voluntary Disclosure podcast series, which can be found on that webpage.

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