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IRS says FBAR penalties not collectible under Canada-US Treaty?

Does the Canada-United States Tax Convention (the “Treaty”)1 require the Canadian government to assist the US government in collecting penalties for failure to file the Foreign Bank Account Report (“FBAR”)?2 The Canadian Ministry of National Revenue thinks not. More importantly, however, on January 23, 2012 the Ministry said that the Internal Revenue Service (“IRS”) agrees. The Ministry even said so in a statement recorded in the Parliamentary Record.

Has the IRS really conceded this issue (ignoring for the moment the US Constitutional issues)?

The short answer is “no.” Both the Canada Revenue Agency (“CRA”) and the IRS informed us that there are no documents, briefing papers, talking points, or other memoranda that would support the Ministry’s statement.

The CRA’s argument is based on the fact that the Treaty applies to taxes imposed under the Canadian Income Tax Act and the US Internal Revenue Code.3 The Treaty obligates both Canada and the US to assist one another in the collection of the taxes, interest, and penalties.4 The obligation to file the FBAR does not arise under the Internal Revenue Code, but under the 1970 US Bank Secrecy Act.5 Hence, the argument is that the FBAR filing obligation is not based upon tax covered by the Treaty and Canada is therefore not obligated to enforce the penalties imposed thereon.

Statement in the Parliamentary Record

On January 26, 2012 Mr. Mai, a member of the Canadian Parliament, posed question Q-412 to several Canadian Ministries, which was entered into the Parliamentary Record (relevant portion here). In response, on March 13, 2012 the Ministry of National Revenue wrote the following (relevant portion here):

“…The IRS agrees that the Report of Foreign Bank and Financial Accounts (FBAR) penalties are not covered by the Canada-United States Income Tax Convention (“the Treaty”), therefore the CRA will not be collecting on behalf of the IRS…”

“Access to Information Request” and “Freedom of Information Act Request”

In order to get to the bottom of the rhetoric our office immediately contacted both the CRA with an Access to Information request and the IRS with a Freedom of Information Act request. We asked for all documents, including briefing papers and talking points, regarding the Ministry’s statement. We recently received written responses to our requests.

We received the CRA’s response on May 1, 2012. In sum, the CRA’s response indicates that no documents exist to support the statement and that the Ministry’s statement was based on a “verbal response to a question in a meeting with the Internal Revenue Service in 2011.” The CRA does not indicate who made the statement, the parties present at the meeting, the context in which the statement was made, or any other details.

We received the IRS’s response on July 18, 2012. The IRS indicates that it could not find any documents that would support the statement. The response does not mention any statements made by the IRS that would support the Ministry’s assertion.


Most US tax lawyers would probably agree that the Treaty may not compel the Canadian government to enforce FBAR penalties, though the analysis is nuanced and technical. Shortly we will be publishing an article that provides a detailed analysis of the issue.

1. Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital, Sept. 26, 1980, US – Can., 1469 U.N.T.S. 189, as amended by the Protocols signed on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997, and September 21, 2007.

2. Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.

3. Article II of the Treaty.

4. Article XXVI A of the Treaty.

5. 31 U.S.C. 5311.