FBAR Penalties Can Still Be Steep, Even With New IRS Caps

Over the past several years, the IRS has put increasing emphasis on enforcing foreign account reporting laws and tracking down U.S. taxpayers who fail to report their offshore accounts. New interim guidance from the IRS caps the penalties for those with unreported foreign bank accounts, but even with those new caps, the consequences can be harsh.

Who Needs To File An FBAR?

Any U.S. taxpayer with foreign bank accounts worth $10,000 or more must report those accounts to the IRS using a form commonly known as FBAR, or Report of Foreign Bank and Financial Accounts. The FBAR requirement applies to anyone with foreign accounts whose cumulative value equaled at least $10,000 at any point during the year - even if no single account exceeded that threshold, and even if the threshold was no longer met by year's end.

Penalties For Nondisclosure Of Foreign Accounts

People who fail to file an FBAR when required to do so under U.S. tax law face different ranges of penalties depending on the circumstances of the violation. Specifically, those who are found to have willfully violated the FBAR law are generally penalized more harshly than those whose violations are found to be nonwillful.

In cases involving willful FBAR violations, the recent IRS guidance states that the penalty may be as high as 100 percent of the highest aggregate balance of the unreported accounts during the year or years in question. However, in most cases, the penalty amount will be limited to 50 percent of that amount. IRS examiners are given the discretion to recommend penalties above or below the 50 percent mark depending on the individual facts and circumstances involved in each case.

For nonwillful violations, the penalties are reduced but still may be quite steep. Under the new IRS guidance, nonwillfull FBAR violations are penalized according to the following structure:

  • Standard penalty: $10,000 for each year of noncompliance
  • Lenient penalty: $10,000 total for all years of noncompliance
  • Strict penalty: $10,000 per account for each year of noncompliance

As with the penalties for willful violations, the three-tiered structure for nonwillful violations allows IRS examiners to exercise discretion in recommending penalties for nonwillful violators based on the specific facts and circumstances involved.

Seek Legal Counsel For Offshore Account Concerns

If you have questions or concerns about potential fines or criminal charges regarding your offshore accounts, be sure to seek legal advice from an attorney with experience in matters of tax law.