April 14, 2011 No. 2011-14
	IRS Softens New Financial Reporting for Canadians Many Canadian companies, their employees and individuals who do business in the United States should know that the IRS has issued regulations to provide guidance about who must file U.S. information report “Report of Foreign Bank and Financial Accounts”, commonly referred to as FBAR.  The definition of a U.S. person has been clarified to provide relief to Canadian companies, their employees and individuals doing business in the United States who were concerned that they would be swept into these provisions.  The regulations also clarify which entities must file and what accounts must be reported. However, certain U.S business entities owned by Canadian multinational corporations may be subject to these provisions and have to start reporting their non-U.S. bank and financial accounts to the IRS. This report is due by June 30, 2011 for accounts maintained in the 2010 calendar year. U.S. citizens and residents living in Canada previously were required to file an annual Report of Foreign Bank and Financial Accounts (FBAR)  must continue to file this form. In February 2011, the U.S. Department of the Treasury released final changes to the regulations that clarify FBAR reporting. This edition of TaxNewsFlash-Canada provides background on the reporting requirements, discusses changes made in the final regulations (based on rules proposed in February 2010) and considers how taxpayers can prepare for filing reports due June 30, 2011. Final FBAR regulations The rules apply to any entity organized or formed in the United States, including those that are disregarded for U.S. federal tax purposes. For example, Canadian multinationals that use U.S. domestic limited liability companies to finance non-U.S. affiliates are now required to report detailed information about all non-U.S. bank and financial accounts to the IRS. Background Generally, any “United States person” (U.S. person) who has a financial interest in or signature or other authority over any foreign financial account (including Canadian Registered Retirement Savings Plans (RRSP), Registered Education Savings Plans (RESP) and Tax-Free Savings Accounts (TFSA)) must file the FBAR if the aggregate value of the financial accounts exceeds US$10,000 at any time during the calendar year. The principal purpose for collecting the information is to assure maintenance of reports that may be highly useful in U.S. criminal, tax or regulatory investigations or proceedings. Although this FBAR form has been a required  filing for many years, the IRS proposed to expand the definition of “U.S. person” to include certain individuals who are neither citizens nor residents of the U.S. and to certain non-U.S. corporations. In response to public comments on the FBAR proposals, the IRS decided not to implement this expanded definition of “U.S. person”. Who must file? Reports of foreign financial accounts must be filed by citizens or residents of the United States as well as any entity organized or formed in the United States, including those that are disregarded for U.S. federal tax purposes. This includes a corporation, partnership, trust, or limited liability company. Who is exempt from filing? Previously, the IRS proposed to consider an individual “in and doing business in” the United States as a "U.S. person" for purposes of this requirement. However, these individuals are not required to file an FBAR, based on changes that the IRS announced in February, 2011. A Canadian entity, such as a commercial trust, partnership, or unlimited liability company, that elects to be treated as a U.S. corporation under the U.S. tax rules is not treated as a “U.S. person” for purposes of filing the FBAR. What is reportable? The following non-exclusive list of foreign financial accounts must be reported: · A savings deposit, demand deposit, checking, or other account maintained with a person engaged in the banking business, including time deposits · An account maintained with a person in the business of buying, selling, holding, or trading stock or other securities. · An account with a person in the business of accepting deposits as a financial agency · An insurance or annuity policy with a cash value · An account with a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association · An account with a mutual fund or similar pooled fund that must issue shares to the general public that have a regular net asset value determination and regular redemptions. The regulations clarify that an account containing non-U.S. securities or assets maintained with a financial institution located in the United States is not a foreign account subject to reporting. The treatment of investment funds other than mutual funds or similar pooled funds is “reserved” in the final regulations. Therefore, future regulations might provide a specific rule for these types of investments. Signature authority FBAR reporting is required by a U.S. person with signature or other authority over bank, securities, or other financial accounts in a foreign country. The final regulations clarify that an officer or employee that has supervisory control over a foreign financial account (i.e., can instruct others within the company to transfer or withdraw funds) is not required to report, as reporting is limited to those persons who have control over the financial account through direct communication to the person that maintains the account. In addition, only an individual (and not an entity) can have signature or other authority over an account. However, certain persons having signature authority (or other authority) over foreign financial accounts are exempt from having to file the reports. U.S. persons resident in Canada may face stiff U.S. civil and criminal penalties The FBAR form must be filed on or before June 30 of the year following the calendar year reported. No filing extensions are granted. Thus, the filing deadline for 2010 is June 30, 2011. Civil and criminal penalties, including, in certain circumstances, a fine of not more than US$500,000 and imprisonment of not more than five years, are provided for failure to file a report or supply information, and for filing a false or fraudulent report. Thus, it is important for Canadians to fully comply with these provisions if they are caught by the rules. Due to the severity of the penalties, all U.S. persons as defined by the FBAR provisions should ensure they properly comply. We can help Your KPMG adviser can help you determine whether you have filing obligations under these U.S. rules and can help you fulfill these obligations if necessary. For details, contact your KPMG adviser.
	Information is current to April 11, 2011. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500. KPMG LLP, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such. KPMG's Canadian Web site is located at http://www.kpmg.ca/ © 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.