U.S. Citizens who have a financial interest in or signature authority over foreign bank accounts…
High Penalties for failure to file an FBAR: Not Really Enforced (yet)?
U.S. persons, including U.S. citizens, residents, corporations and estates, must report certain foreign financial accounts, including bank accounts, brokerage accounts and saving accounts to the U.S. Treasury department each year. If the aggregate value of the foreign financial accounts exceeded $10,000 at any time during the year, a ‘Foreign Bank Account Report’ (FBAR) must be filed. The FBAR is due on April 15 following the year reported (for example, an FBAR for 2019 is due on April 15, 2020). However, you are allowed an automatic extension to October 15 if you fail to meet the April 15 due date. You may be subject to penalties if you willfully or non-willfully fail to file your FBAR.
WILLFUL AND NON-WILLFUL CONDUCT
Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. If your failure to file is non-willful, there was no intention to not file and you were not aware you were required to file an FBAR. Willful conduct involves the voluntary and intentional violation of a known legal duty (i.e. not merely a mistake, ignorance, or negligence). Failure to file an FBAR because you disagree with the law is willful.
WHAT ARE THE PENALTIES?
If there is reasonable cause for the failure to file an FBAR and all information is properly reported, no penalty will be imposed. If the failure to file an FBAR is due to non-willful conduct, you may be subject to a penalty of $10,000 per violation. A person who willfully fails to file an FBAR or files an incomplete or incorrect FBAR, may be subject to a civil monetary penalty of $100,000 or 50% of the balance in the account at the time of the violation, whichever is greater. Willful violations may also be subject to criminal penalties.
The statute of limitations on the assessment of FBAR penalties is 6 years from the due date of the FBAR. For example, an FBAR for 2019 is due on April 15, 2020. The penalty assessment statute of limitations for failing to file an FBAR expires April 15, 2026.
I FAILED TO FILE AN FBAR. WILL I BE SUBJECT TO PENALTIES?
No, not really. In our experience, very very few of our clients will be subject to FBAR penalties.
If you failed to file an FBAR, you should still file it as soon as possible. The IRS will not impose a penalty for the failure to file a delinquent FBAR if you have properly reported the income from the accounts on your U.S. tax returns and have not yet been contacted by the IRS.
Larger account values or multiple accounts could lead to complications. In such cases, there are several voluntary disclosure programs to cure late or non-filing of FBARs., which should be seriously considered and explored.
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