Willful FBAR Penalties

U.S. Citizens who have a financial interest in or signature authority over foreign bank accounts that hold an aggregate amount greater than $10,000 are required to report the accounts to the IRS each year by filing a Report of Foreign Bank and Financial Accounts (FBAR). Taxpayers must file the FBAR annually and the last day to timely file is at end of the day on June 30th of the year after the calendar year for which the accounts are being reported. The FBAR is not filed with your federal tax return.

Taxpayers who willfully file an FBAR late or not at all will be subject to high penalties for willful FBAR violations. A taxpayer will be considered willful if there is evidence that filing the FBAR late or not at all was voluntary and intentional. Evidence must be shown by the government of the taxpayer knowing a reporting requirement exists and consciously not filing the FBAR. The burden of proof is with the government.

The penalty incurred applies for all years not reported. For violations occurring after October 22, 2004, a Taxpayer will be penalized the greater of $100,000 or 50% of the balance in the account at the time of the violation. After May 12, 2015, usually, the total penalty amount for all years is limited to 50% of the highest aggregate balance of all unreported foreign accounts during the years under examination. The date of violation is the date the examiner first requests records. This means the penalty is calculated for the balance in the account on the date the examiner first requests records. The actual amount of penalty is up to the discretion of the examiner and examiners may recommend a penalty amount depending on the circumstances. Willful violations may also result in criminal penalties of a fine and up to five years of imprisonment.

In our experience, the FBAR willful penalty is rare, however the high penalty warrants careful legal planning and avoidance.

Taxpayers who have foreign accounts or have been sent a violation for failure to file an FBAR should contact Patel Law Offices. Over the years, our office has successfully assisted numerous taxpayers regarding their FBAR and tax compliance issues.

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