All U.S. citizens are required to file an annual FBAR for all qualifying foreign bank and financial accounts

Many Americans living overseas are required to file a Foreign Bank Account Report (FBAR). The FBAR is filed separately from your tax return with the Department of the Treasury (not the IRS) on FinCEN Form 114. The purpose of the FBAR is to prevent U.S. citizens living abroad or having foreign financial accounts from evading their tax obligations by hiding their wealth overseas. Not everyone is aware of this, leading to unintentional violations called non-willful failure to file. However, many choose to ignore the FBAR or deem it unnecessary which is referred to as willful failure to file.

The United States government has stepped up efforts to investigate and prosecute taxpayers who fail to report their foreign-held financial assets by filing an FBAR. This means that the risk of non-compliance with FBAR regulation is greater than ever before.

The Foreign Account Tax Compliance Act (FATCA) has been a significant contributing factor for the IRS to be able to find individuals who are not filing the FBAR when required to do so. FATCA requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the Department of the Treasury.

A recent milestone and a huge win for the Department of the Treasury is the 2021 U.S. court ruling that has set a new precedent in favor of the Department of the Treasury. The new decision held that the FBAR non-willful penalty is per account and not per form. This means that taxpayers who have intentionally not filed an FBAR can be penalized for every qualifying account that they have not reported on the FBAR for previous years.

Thankfully, there are plenty of easy ways to become or stay compliant (and off the Department of the Treasury’s radar!) with your FBAR requirements.

What Is the FBAR (Foreign Bank Account Report)?

If you’re a U.S. citizen (including resident aliens, trusts, estates, and domestic entities) with a foreign account balance of $10,000 or more in the calendar year, you need to file an FBAR.

Ignoring your FBAR requirements can draw the attention of the Treasury Department and result in expensive penalties reaching as much as $10,000 USD per foreign account for failing to file the FBAR. Other more severe legal consequences (possible jail time) are applicable in extreme cases. This requirement is triggered even if the balance hits $10,000 for just one day (or one minute!)

The FBAR filing threshold is also a collective amount – meaning, if you have multiple foreign accounts, the total balance of all your accounts is what would trigger a filing requirement. So, if you are thinking that keeping $4,000 in one account and $7,000 in another will enable you to avoid filing, this isn’t the case. All accounts must be reported on the FBAR.

This also applies to joint accounts with your spouse, signatory accounts, and many others. So, for example, if you were a signatory on one of your employer’s bank accounts, this account should be reported on your FBAR form. Check FBAR instructions to see which accounts apply.

All foreign bank accounts must be declared to the Treasury on FinCEN Form 114 each year on April 15th. You’ll use FinCEN 114 and submit it electronically through the BSA e-filing site.

Big Win for the Treasury as Non-Willful “Penalty per Account” is Challenged and Overturned in 2021 U.S. vs Bittner Case

In 2020 in the lower court of the Eastern District of Texas, the court sided with the taxpayer ruling the FBAR non-willful $10,000 USD penalty is per form and not per account.

However, on appeal at the end of November 2021, in the United States vs. Bittner Case of the Fifth Circuit in the State of Virginia, it overruled the lower court’s decision.

The new decision held that the FBAR non-willful penalty is per account and not per form.

Ka’Ching! That’s a big win for the Department of the Treasury!

Now that it has been overruled on appeal, U.S. taxpayers are left with greater anxiety over possible FBAR violations, especially if their case comes within the Fifth Circuit.

Bittner, the taxpayer in the above case, was hit with a hefty penalty involving 177 FBAR “violations” (thus, a penalty of US$1.77 million) since he had a financial interest in more than 25 accounts per year for each of three years.  

What Is the Penalty for not filing an FBAR?

Penalties fall under two categories, Willful Failure to File and Non-Willful Failure to file. As the names imply, individuals have either willingly chosen not to file or were unaware that they needed to file. The IRS does have some discretion in deciding who fits into these categories and if penalties apply.

FBAR Penalties for Willful Failure to File

Willful failure to file implies that a person was aware, or should have known, that they were required to file an FBAR, and made the choice not to. The standard penalty for willful failure to file is a hefty 50% of the balance of the bank account at the time of the violation or $100,000 (whichever is greater) for each year that a required FBAR wasn’t filed.

It can also result in a prison term of up to 10 years. If that doesn’t get your attention, the civil monetary penalties certainly will.

FBAR Penalties for Non-Willful Failure to File

A non-willful failure to file the FBAR means that a person wasn’t aware, or couldn’t reasonably be expected to know, that it was necessary for them to file an FBAR. The standard penalty for non-willful failure to file the FBAR is $10,000 (per account, per year) that a required FBAR wasn’t filed.

Recent court rulings have made it crystal clear that as of 2022, the Treasury is taking a per-account approach to imposing FBAR penalties. For example, if an individual failed to disclose their seven foreign accounts for two years that were required, they could be penalized for each separate account that they failed to disclose in that particular year. At a $10,000 penalty for seven accounts over two years, that would come to a total FBAR penalty of $140,000. (7 x $10,000 x 2 = $140,000.) 

Ouch! As you can see, if you are years behind in FBAR filing, penalties can add up quickly. 

Although not many people are prosecuted criminally, the IRS has ramped up imposing the civil penalties for willful and non-willful failure to file FBAR. The easiest solution for U.S. citizens living abroad or having money in foreign accounts is to get compliant and avoid the headache of the IRS tracking you down.

What happens if you never filed FBAR?

If you haven’t filed the FBAR for several years, you’ll need to report your foreign accounts for the years you’ve missed to avoid penalties for non-compliance. Depending on your situation, you can use the Streamlined Filing Program or the Delinquent FBAR Submission Procedures to get caught up penalty-free. These programs are not permanent and can be revoked at any time. Getting caught up now is the best chance to avoid the harsh penalties. 

Need Help Filing Your FBAR?

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Our reliable FBAR service gives you peace of mind that your FBAR filing will be 100% complete and accurate. Let us help you take care of your FBAR filing obligations hassle-free! Get started today. Click here or click Book an Appointment on our homepage navigation to schedule a consultation with BNC Tax.