“FBAR” Reporting Obligations for U.S. Executives of Canadian Companies Sometimes Overlooked

United States citizens and "green card" holders who live abroad have long been subject to U.S. tax reporting obligations. In recent years, most have also become aware of an additional obligation under U.S. banking law to report certain interests in foreign financial accounts on the Report of Foreign Bank and Financial Accounts, commonly known as the "FBAR."

Very generally, the Bank Secrecy Act requires U.S. persons who have financial interests in or signature authority over financial accounts located outside the United States to report certain information regarding these accounts. The purpose is to prevent U.S. persons from circumventing U.S. law. In particular, the FBAR helps the U.S. government trace funds used for illicit activity and discover unreported income. But foreign financial accounts used for legitimate purposes must also be reported. For example, a U.S. citizen working in Canada must report a financial interest in a Registered Retirement Savings Plan whose value exceeds a minimum threshold.

Although the general requirements of the FBAR may be familiar, less well known are the reporting requirements for U.S. persons who acquire "signature authority" over foreign financial accounts of their employers. Signature authority is the authority to control the disposition of money or other assets in a financial account by directly communicating with the person maintaining the account, such as the bank or broker.

For example, a U.S. citizen who is an officer of a Canadian company and who has signature authority over a foreign financial account of the company generally must report this account on the FBAR, even though the company itself is not required to file the FBAR. Moreover, the officer must file the FBAR even if she or he has no financial interest in the account and never exercises the authority to control assets in the account.

Exceptions are available for some U.S. executives, depending on the status of the employer. For example, an officer or employee of a corporation whose shares are listed on a U.S. national securities exchange is not required to report signature authority over a foreign financial account of the corporation, assuming that the executive has no financial interest in the account.

The deadline for filing the FBAR for the 2013 calendar year is June 30, 2014. Because penalties for failing to file the FBAR can be severe, U.S. persons working in Canada are encouraged to consult an adviser.