Late-Filing Penalties on Both Sides of the Border: What the IRS and CRA Charge, and the Information-Return Penalties That Dwarf Them

Late-filing penalties on income tax returns are proportionate: a percentage of the unpaid tax, growing monthly, capped. A cross-border filer who owes nothing on the return owes no late-filing penalty on it in either country. The penalties that matter for cross-border filers are the ones on information returns, which apply whether or not any tax is due and are measured in fixed dollar amounts or percentages of the account or gift value: $10,000 for a missed Form 5471 or 8938, up to 25% of a gift for a missed Form 3520, $2,500 for a late T1135. These are the penalties that turn a clean file into an expensive one.

Key takeaways

• IRS income tax: failure to file is 5% of the unpaid tax per month up to 25%, with a minimum of about $525 if more than 60 days late and tax is due; failure to pay is 0.5% per month up to 25%; interest runs from the due date. No tax due, no penalty.
• CRA income tax: late filing is 5% of the balance owing plus 1% per month up to 12 months (10% plus 2% per month up to 20 months for a repeat within three years); interest runs from April 30. No balance owing, no penalty.
• US information returns: FBAR up to about $16,000 per non-willful violation (inflation-adjusted, per report); Form 8938 $10,000 plus $10,000 per month after IRS notice up to $50,000; Form 3520 5% per month of the gift or trust amount up to 25% (35% for certain trust transactions); Form 5471 $10,000 per form plus $10,000 per month after notice; Form 8621 no fixed penalty but the statute stays open; Form 8833 $1,000 for a missed treaty disclosure.
• Canadian information returns: T1135 $25 per day up to $2,500 (more for knowing failure); T1134 $25 per day up to $2,500; NR4 and other slips $100 to $7,500 depending on count; Section 216 return late means the NR6 undertaking fails and the agent is liable for gross withholding.
• Reasonable cause and voluntary disclosure: both agencies abate penalties for reasonable cause; the IRS streamlined procedures and the CRA Voluntary Disclosures Program eliminate penalties for qualifying late filers who come forward before contact.

US income tax penalties

The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month the return is late, up to 25%; if the return is more than 60 days late, the minimum is the lesser of about $525 or 100% of the tax. The failure-to-pay penalty is 0.5% per month up to 25%, reduced to 0.25% under an installment agreement. When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount. Interest accrues on tax and penalties from the due date. An extension avoids the failure-to-file penalty but not failure-to-pay or interest. Taxpayers abroad get an automatic two-month extension to file but not to pay without interest.

Canadian income tax penalties

The late-filing penalty is 5% of the balance owing at the due date plus 1% for each full month late, up to 12 months. A repeat failure (a late-filing penalty in any of the three prior years and a CRA demand to file) raises it to 10% plus 2% per month up to 20 months. Interest compounds daily from April 30 at the prescribed rate plus 4%. There is no extension. Quebec's late-filing penalty mirrors the federal one.

The information-return penalties

FBAR. Non-willful: up to about $16,000 per violation (inflation-adjusted), and after the Supreme Court's Bittner decision, per report rather than per account. Willful: the greater of about $160,000 or 50% of the account balance, per year. Assessed by FinCEN through the IRS; not tax-deductible; a six-year statute of limitations.

Form 8938. $10,000 for failure to file, plus $10,000 for each 30 days after IRS notice, up to $50,000. The statute of limitations on the entire return stays open until the form is filed.

Form 3520. For a gift or inheritance from a foreign person: 5% of the amount per month, up to 25%. For a foreign trust transaction: 35% of the gross value transferred or received; for a missed Form 3520-A, 5% of the trust's gross value. The IRS revised its practice in late 2024 to consider reasonable cause before assessing, but the exposure remains.

Form 5471. $10,000 per form per year, plus $10,000 per 30 days after notice up to $50,000; a 10% reduction in foreign tax credits; the statute of limitations on the whole return stays open.

Form 8865, 8858, 926. Similar fixed penalties for foreign partnerships, disregarded entities, and transfers to foreign corporations.

Form 8621. No fixed penalty, but the statute of limitations on the return stays open and the PFIC default regime applies.

Form 8833. $1,000 per missed treaty-based return position ($10,000 for corporations).

T1135. $25 per day up to $2,500; $500 per month up to $12,000 for knowing or grossly negligent failure; $1,000 per month after demand.

T1134. $25 per day up to $2,500 per foreign affiliate; more for knowing failure.

T1141, T1142 (foreign trusts). $25 per day up to $2,500.

NR4. $100 to $7,500 depending on the number of slips; failure to withhold Part XIII makes the payer liable for the tax plus 10% (20% repeat).

Section 216. A late Section 216 return after an NR6 undertaking makes the agent liable for the difference between net and gross withholding.

Gross negligence and repeated failures

The CRA's gross negligence penalty is 50% of the tax understated; the IRS's accuracy-related penalty is 20% (40% for undisclosed foreign financial asset understatements). Repeated failures escalate both.

Relief

IRS. First-time abatement for the failure-to-file and failure-to-pay penalties if the prior three years were clean. Reasonable cause for information returns, argued in writing. The Streamlined Foreign Offshore Procedures (abroad) waive all penalties for non-willful filers; the Streamlined Domestic Offshore Procedures (in the US) impose a 5% penalty on the highest year-end balance of undisclosed foreign assets. Delinquent FBAR and international information return submission procedures for filers who reported all income.

CRA. Taxpayer relief (fairness) requests for penalties and interest caused by circumstances beyond the taxpayer's control, within ten years. The Voluntary Disclosures Program eliminates penalties (and some interest) for disclosures made before CRA contact, with a general and a limited track depending on the conduct.

Worked example

A Canadian who moved to Florida in 2022 and became a US resident filed 1040s each year but never filed FBARs, a Form 8938, or a Form 3520 for the $150,000 her mother gave her in 2023 from Toronto. Her Canadian accounts total $600,000.

• Income tax. No late-filing penalty; the returns were on time.
• FBAR. Three years missed; non-willful exposure up to about $16,000 per year, roughly $48,000.
• Form 8938. Three years missed; $10,000 per year, $30,000, plus the open statute.
• Form 3520. 25% of $150,000: $37,500.
• Total exposure. Over $115,000 on a file with no tax owing.
• Fix. Delinquent information return submission with reasonable cause statements (income was reported; no unreported income) before any IRS contact; realistic outcome, no penalty on the FBARs and Form 8938, and a reasonable-cause argument on the Form 3520.

Official sources

"The penalty is 5% of the tax due (less any tax paid on time and available credits) for each month or partial month the return is late. The penalty accrues up to a maximum of 25%. [...] If the return is more than 60 days late, the minimum penalty is the amount listed below or 100% of the underpayment, whichever is less." The minimum penalty for returns due after December 31, 2025 is $525. — Internal Revenue Service, Failure to File Penalty, https://www.irs.gov/payments/failure-to-file-penalty

"5% of your 2025 balance owing, plus 1% of your 2025 balance owing for each full month late (up to 12 months)." For a repeated failure: "10% of your 2025 balance owing, plus 2% of your 2025 balance owing for each full month late (up to 20 months)." — Canada Revenue Agency, Late-filing penalty, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/interest-penalties/late-filing-penalty.html

"A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year." — Financial Crimes Enforcement Network, Report of Foreign Bank and Financial Accounts (FBAR), https://www.fincen.gov/report-foreign-bank-and-financial-accounts

Practitioner note

The penalties cross-border clients fear are the wrong ones. Late income tax returns with no balance owing cost nothing; late information returns with no tax owing cost tens of thousands. We file the information returns first, on every file, every year, and when a client arrives with years of missed ones we use the delinquent submission or streamlined procedures before the IRS or CRA writes.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the annual information returns in both countries, the reasonable-cause and voluntary disclosure filings where prior years were missed, and the penalty abatement requests. See cross-border pricing or book a call.