FBAR Penalties

Foreign Bank Account Report (FBAR) filing is a critical requirement for U.S. taxpayers with financial interests in foreign accounts. Not everyone is aware of the reporting requirements, which can lead to costly financial penalties and even potentially criminal penalties in certain cases. The Orange County criminal tax lawyers at Evolution Tax and Legal are diving into these various FBAR penalties and examining the consequences for both willful and non-willful failures to file, as well as providing the options available under streamlined compliance procedures and delinquent FBAR submission procedures for those who failed to meet the reporting requirements.

What Are the Penalties for Not Filing an FBAR?

The FBAR, or Foreign Bank Account Report, is a form used to report financial accounts that are held outside of the United States. The goal of the FBAR is to ensure that Americans do not avoid tax obligations by hiding sums of money overseas. Any United States citizen or Green Card holder that has an aggregate value of more than $10,000 in an overseas account at any point during the tax year must report this account to the government. This includes any person who has a financial interest in or signature authority over any account, and the $10,000 total includes the sum of all foreign-held accounts. The penalties for not filing an FBAR can be substantial, and they vary depending on whether the failure is deemed willful or non-willful.

FBAR Penalties for Willful Failure to File

Individuals that are determined to have been aware of their requirement to file the FBAR but chose not to file will face penalties for willful failure to do so. A willful failure to file an FBAR can result in severe consequences. The penalties may include both civil and criminal repercussions:

• Civil Penalties: Civil penalties are often monetary penalties and fines imposed upon an individual who has willfully failed to file. The IRS may impose a penalty of up to $100,000 or 50% of the total balance of the foreign account per violation, whichever is greater. This penalty can apply for each year an FBAR is not filed.
• Criminal Penalties: An individual may also face criminal prosecution. Willful failure to file an FBAR can lead to criminal charges, including substantial fines and potential imprisonment. The severity of the penalties depends on the circumstances and the intent behind the failure to comply.

FBAR Penalties for Non-willful Failure to File

If it is determined that an individual was unaware of the requirement to file or accidentally failed to include certain information on their FBAR, they will face penalties for non-willful failure to file. Even for non-willful failures to file an FBAR, penalties can be significant. The penalties are primarily financial and can include civil monetary penalties. The IRS may impose a penalty of up to $10,000 per violation for non-willful failures. Unlike willful failures, this penalty is applied per violation and not based on the account balance.

Criminal FBAR Penalties

Criminal FBAR penalties are reserved for willful violations and can lead to both fines and imprisonment. Individuals found guilty of willful failure to file an FBAR can face criminal fines of up to $250,000 or 5% of the value of the foreign accounts per violation, whichever is greater. In addition to fines, criminal convictions for willful FBAR violations can result in imprisonment for up to 5 years.

What to Do if You Failed to File an FBAR When Required

If you discover that you failed to file an FBAR when required, it’s essential to take prompt action to rectify the situation and mitigate potential penalties. The IRS provides options for taxpayers who wish to come into compliance:

Streamlined Compliance Procedures

The Streamlined Filing Compliance Procedures are designed for taxpayers who have non-willfully failed to report their foreign financial assets. This program allows individuals to catch up on their filing obligations without facing the full extent of FBAR penalties. Key features of the streamlined compliance procedures include:

• Reduced Penalties: Under the Streamlined Procedures, eligible taxpayers may benefit from reduced penalties compared to the standard FBAR penalties.
• Certification of Non-willfulness: Participants must certify that their failure to file was non-willful. This involves providing a statement detailing the reasons for the late filing.
• Filing Delinquent FBARs and Tax Returns: As part of the program, participants must file any delinquent FBARs and amend any tax returns to report income from foreign financial assets.

Delinquent FBAR Submissions Procedures

For taxpayers who have not filed an FBAR but have reasonable cause for the failure, the Delinquent FBAR Submission Procedures offer a potential avenue for compliance. Key features include:

• Submission of Delinquent FBARs: Taxpayers can submit the delinquent FBARs along with a statement explaining the reasons for the late filing.
• No Penalties for Reasonable Cause: If the IRS accepts the reasonable cause explanation, no penalties will be imposed for the delinquent FBAR submissions.
• Review by the IRS: The IRS reviews each submission to determine whether the taxpayer had reasonable cause for the failure to file the FBAR.

Filing an FBAR is a crucial responsibility for U.S. taxpayers with foreign financial interests. The penalties for failing to comply with FBAR reporting requirements can be severe, ranging from substantial monetary fines to criminal prosecution and imprisonment. Understanding the distinctions between willful and non-willful failures and exploring options under the Streamlined Compliance Procedures or Delinquent FBAR Submissions Procedures can help individuals rectify the situation and come into compliance with IRS regulations.

The team at Evolution Tax and Legal understands the intricacies of filing the FBAR and coming back into compliance if you have previously failed to file. Contact the team today to learn more about how we can help you prepare for tax season.