Penalties for failure to file a Foreign Bank Account Report (FBAR) can be either criminal (as in you can go to jail), or civil, or some cases, both. The criminal penalties include:
- Willful Failure to File an FBAR. Up to $250,000 or 5 years in jail or both.
- Willful Failure to File an FBAR while violating another "law of the United States" or as part of a pattern of any illegal activity involving more than $1000k in a 12 month period. Up to $500k or 10 years in jail or both.
On top of the fines and jail time, the willful failure to file an FBAR is a felony which can result in collateral consequences such as:
- The loss of the right to vote;
- Revocation of professional licenses such as those for CPAs, attorneys, and doctors;
- The loss of the right to bear arms;
- Loss of employment; and
- Deportation of a green card holder AFTER jail time has been served.
In addition to criminal penalties, there are onerous civil penalties. There is a three-tier system for these civil FBAR penalties. For willful violations occurring after October 22, 2004, the maximum civil penalty is the greater of $100,000, or 50 percent of the balance of the account at the time of the violation. 31 USC 5321(a)(5). For example, if the account balance is $6,000,000, the maximum penalty would be $3,000,000. However, for each year the FBAR is not filed, the penalty can be imposed again. Therefore, it is quite possible for the maximum FBAR penalty to be several times the balance in offshore accounts. In a 2014 civil case, brought against Carl Zwerner, an 87-year-old Florida man, a jury returned a verdict upholding three separate 50% penalties in the approximate amount of $2.2 million.
In 2015, the IRS issued guidelines stating that the maximum amount of the civil FBAR penalty it would seek to enforce would be no more than 100% of the highest balance in the offshore bank accounts. The guidelines indicate that in "most cases" the penalty would be limited to 50% of the maximum balance in the foreign bank accounts. Our criminal tax attorneys have speculated that these guidelines may have been issued in response to concerns that higher penalties would be subject to challenge under the 8th Amendment of the United States Constitution which prohibits "excessive fines."
If the holder of an offshore financial account can successfully convince the IRS that the failure to file the FBAR was not willful, then the penalties would be limited to $10,000 per violation. However, the IRS takes the position that a separate violation occurs for each bank account that is not listed on the FBAR. So for example, if an offshore bank account holder has 6 separate accounts, the FBAR penalties can be imposed for multiple years so that the total of these penalties can easily grow into the hundreds of thousands of dollars.
It is only if the holder of an offshore account can convince the IRS that the failure to file an FBAR is due to "reasonable cause" that the FBAR penalty will be waived. Generally speaking, the IRS has been intransigent on this topic and it is the rare case where the IRS will agree that there is reasonable cause for failure to file an FBAR. In appropriate cases, the only way to relief may be through litigation. Our tax litigation attorneys have found that there are two types of cases where the IRS may be willing to agree that the failure to file an FBAR is due to reasonable cause. One fact pattern involves the increasingly rare situation where the taxpayer has notified his tax preparer such as a CPA or enrolled agent that a foreign financial account exists, but the preparer did not prepare an FBAR or otherwise inform the client of the need to do so.
The other fact pattern where the IRS may agree that there is a reasonable cause is in the case of immigrants to the U.S. who have poor English communication skills, are relatively unsophisticated in financial matters and may have been educated outside of the United States.
It is worth noting that someone who didn't file an FBAR may be subject to other civil penalties based upon related conduct. Thus, for example, someone with certain types of foreign assets, including financial accounts, must also file a Form 8938, Statement of Specified Foreign Financial Assets. The failure to file the Form 8938 will result in a penalty of $10,000. In instances where the IRS requests the Form 8938 and the taxpayer continues to neglect to file it, additional FBAR penalties at the rate of $10,000 per month to a maximum of $50,000 can be imposed. The IRS doesn't need to demonstrate that the failure to file Form 8938 was willful, and the penalty can only be avoided by demonstrating reasonable cause.
FAQs
Penalties for failure to file a Foreign Bank Account Report (FBAR) can be either criminal (as in you can go to jail), or civil, or some cases, both. The criminal penalties include: Willful Failure to File an FBAR. Up to $250,000 or 5 years in jail or both.
What is the penalty for failing to file an FBAR? ›
The penalties for failing to file an FBAR can be severe. For willful violations, the penalty can be as high as the greater of $100,000 or 50% of the account balance. Non-willful violations carry a penalty of up to $10,000 per violation. In some cases, criminal charges can also be filed.
What happens if you miss the FBAR deadline? ›
The amount of the civil penalty generally depends on whether the late filing was willful or non-willful. For willful penalties, the IRS may assess by statute up to 50% of the account balance in the foreign account or $100,000 (adjusted for inflation), whichever is greater.
What is the penalty for 10 000 non-willful failure to file an FBAR? ›
31 U.S.C. § 5314; 31 C.F.R. §§ 1010.350(a), 1010.306(c). Taxpayers can be assessed a maximum FBAR penalty of $10,000 for a non-willful violation of their obligation to report their interests in foreign accounts.
What is the penalty for not reporting a foreign bank account? ›
On February 28, 2023, the U.S. Supreme Court, in a narrow 5-4 opinion, determined that taxpayers who non-willfully fail to file annual Foreign Bank Account Reports (FBARs) face a maximum $10,000 penalty for each report they failed to file.
What is the largest FBAR penalty? ›
Specifically, Section 5321(a)(5) of the Bank Secrecy Act (“BSA”) authorizes the Treasury to impose a civil penalty for any non-will failure to file FBARs “not to exceed $10,000.” 31 U.S.C.
What is an example of FBAR penalty? ›
For example, say you have $50,000 in your foreign bank accounts, and the IRS determines that you have committed a willful FBAR violation. Your penalty can be $144,886. If you have $3 million in your foreign accounts, the FBAR willful violation penalty can be up to $1.5 million.
Does late FBAR filing trigger an audit? ›
Will this action automatically get you audited by the IRS? Short answer: no. However, not filing an FBAR may increase the risk of an audit.
How many years can you be audited for FBAR? ›
If you have fulfilled the FBAR (foreign bank accounts reports) reporting requirements up till now then the IRS has 3 years to audit your expat returns. If it's not up to date then the 3 years are extended to 6 years.
What is the statute of limitations on FBAR? ›
And, while the statute of limitations for a civil tax fraud investigation may have no expiration, the FBAR is 6-years. This time-limit often helps taxpayers who are being investigated. “Failure to file FBAR report (either willful or non-willful): 6 years from the due date of the FBAR report.
If the IRS suspects that you have $10,000 or more in one or more foreign financial accounts and have not filed a Foreign Bank Account Report (FBAR), or if they believe you misreported assets and income on the FBAR, you may be subject to audit.
Do non US citizens need to file an FBAR? ›
Who files an FBAR? U.S. persons (U.S. citizens, Green Card holders, resident aliens, and dual citizens) are required to file an FBAR if the combined balance of all the foreign accounts you own or have a financial interest or signature authority is more than $10,000 at any point during the calendar year.
Can we file FBAR for previous years? ›
Do I need to file FBAR for previous years? If you are required to FBARS then you should file delinquent FBA R S for the years open under the Statute of Limitations to prevent the IRS from assessing FBAR penalties. There are several voluntary disclosure programs to file late FBA R s.
How does IRS know about foreign bank accounts? ›
Through FATCA, the IRS receives account numbers, balances, names, addresses, and identification numbers of account holders. Americans with foreign accounts must also submit Form 8938 to the IRS in addition to the largely redundant FBAR form.
Will the IRS find your foreign bank account? ›
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
What is delinquent FBAR filing? ›
The delinquent FBAR submission procedures are for taxpayers who have unfiled FBARs but do not need to go through a voluntary disclosure because they do not have risk to criminal exposure.
How many years does the IRS look at in an audit? ›
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years.
What amount triggers IRS audit? ›
High income
Audit rates of all income levels continue to drop. As you'd expect, the higher your income, the more likely you will get attention from the IRS as the IRS typically targets people making $500,000 or more at higher-than-average rates.
Is the FBAR deadline extended for 2023? ›
FBAR Deadline for 2022 FinCEN Form 114 is October 2023
Unless the IRS modifies the deadline, the FBAR automatic extension should still be valid — which means the FBAR filing due date is still on automatic extension until October. Technically, the FBAR is due to be filed in April.
What if my foreign bank account is less than 10000? ›
It's a common misconception that an overseas account with less than $10,000 doesn't need to be reported. However, if the combined highest value of all foreign accounts on any day in the tax year exceeds $10,000, then all accounts must be reported on the FBAR.
Under the law
The statute of limitations for assessing civil FBAR penalties for FBAR violations is six years. It begins to run on the date that the FBAR is due.
What happens if you miss the audit deadline? ›
Penalties for Late Audits
The penalty for missing the deadline comes in the form of a fee. You can receive penalties from both the IRS and the Department of Labor for a late ERISA audit. The IRS typically charges $25 per day until the day you file with a maximum penalty of $15,000.
Can the IRS see my foreign bank account? ›
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
How much money triggers an audit? ›
High income
Audit rates of all income levels continue to drop. As you'd expect, the higher your income, the more likely you will get attention from the IRS as the IRS typically targets people making $500,000 or more at higher-than-average rates.
Can the IRS audit you after 7 years? ›
How far back can the IRS go to audit my return? Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years.
