On January 23, 2019, CBC posted an article on its website reporting that CRA has transferred 600,000 banking records per year to the IRS after the information sharing agreement was signed in 2014. In total 1.6 million Canadian banking records have been shared with the IRS so far.
We have recently been made aware of U.S. citizens residing in Canada being assessed heavy penalties by the IRS for late or deficient US information returns such as Forms 3520 and 3520-A regarding foreign (Canadian) trusts (such as TFSAs) and Form 5471 dealing with certain foreign (Canadian) corporations. We have also recently seen a penalty for a late-filed Form 5472, the information return for a foreign (Canadian) owned U.S. corporation. While there have been news reports in the past of large penalties assessed for failure to comply with the stringent reporting requirements of these forms as well as the foreign bank account reporting (FBAR) requirements, we had not witnessed these penalty assessments first hand. In the last month we have seen several assessments of these penalties.
The IRS may assess penalties for failure to file these forms or for filing these forms late or with incomplete or inaccurate information. The minimum penalty may be US$10,000, $20,000, or $25,000 for each form, depending on the particular form. The penalty does not depend on the value of the account or corporation or the amount of income in the account or corporation. In the situations we became aware of the penalties assessed were out of proportion compared to the related failure.
If you are a U.S. citizen with foreign bank accounts, investments or holdings in foreign trusts or corporations we recommend you consult with a qualified cross border tax adviser to ensure all of your required filings are complete and made on a timely basis in order to avoid these penalties and a costly fight with the IRS to try to get them abated.
Please don’t hesitate to contact your trusted Catalyst Advisor if you have any questions. You can reach Jeff at (403) 767-1503 or James at (403) 767-1511.