Tax Law Center Blog

The FinCen 114 Foreign Bank Account Report (FBAR) continues to be one of the most aggressively enforced international tax reporting requirements, and U.S. taxpayers with offshore financial accounts must be acutely aware of the severe penalties for non-compliance. At Patel Law Offices, we regularly assist clients who find themselves facing FBAR penalties, and recent developments make understanding these risks more important than ever.

A significant shift occurred when the IRS announced it would no longer mitigate non-willful FBAR penalties, meaning taxpayers may now face the full $10,000 penalty for each year of non-willful failure, even if the mistake was inadvertent. We covered this important update in our article, IRS FBAR Penalties Are Now Unmitigated.

The difference between non-willful and willful FBAR violations can be life-changing. As explained in IRS Announces New Rules for FBAR Penalties, non-willful violations carry penalties of up to $10,000 per year, while willful violations can result in the greater of $100,000 or 50% of the highest account balance, with potential for criminal prosecution.

Unfortunately, courts have upheld these steep penalties, even when taxpayers were unaware of the filing requirements. In one alarming case we analyzed in Significant FBAR Penalties Upheld by Court, a taxpayer was assessed nearly $700,000 in willful FBAR penalties, reinforcing the IRS’s hardline approach.

One of the most common misunderstandings is what qualifies as “willful” conduct. In our article, How to Defend Against FBAR Penalties, we explore how even reckless disregard for reporting obligations may be enough for the IRS to assert willful penalties. The courts have consistently ruled that a taxpayer’s failure to seek advice or pay attention to obvious reporting requirements can meet the willfulness standard.

Some taxpayers attempt to correct mistakes by quietly filing amended returns or late FBARs, but as discussed in Correcting Common FBAR Errors, so-called “quiet disclosures” can be dangerous and often lead to higher penalties if discovered.

Fortunately, taxpayers who can demonstrate non-willful conduct may still have options. The Streamlined Filing Compliance Procedures offer a path to compliance with reduced penalties, often limited to 5% of the highest account balance over the applicable period.

It’s also important to understand the broad scope of accounts subject to FBAR reporting. For example, many foreign pension accounts are reportable, despite common misconceptions. We break this down in Foreign Pension Accounts Reporting on the FBAR, where we advise taxpayers to err on the side of caution.

Taxpayers often overlook accounts where they have signature authority but no ownership interest. As clarified in Financial Interest or Signature Authority in a Foreign Account, individuals with control over an account—even without a direct financial interest—are still obligated to file FBARs.

With the IRS expanding its international enforcement efforts and courts upholding large FBAR penalties, the risks of ignoring these obligations are higher than ever. For taxpayers with unreported foreign accounts, seeking legal counsel immediately can help avoid life-altering penalties and provide a clear path to compliance.

At Patel Law Offices, we have guided thousands of clients through FBAR disclosures, defenses, and penalty negotiations. The rules are complex and the consequences severe—but with proper guidance, taxpayers can resolve these matters and avoid the bad outcomes.