Recklessness FBAR Noncompliance Leads to Willful Penalty 2026

Reckless Disregard FBAR Standard  – Willful, But Not Really

Reckless FBAR Explained

One very common misconception about foreign bank and financial account (FBAR) penalties is that to become subject to IRS willful penalties, the taxpayer must have acted intentionally — but that is incorrect. In some instances, even if the taxpayer does not act with intent, they may still be found to have acted willfully and thus become subject to the 50% maximum account value penalty. One of the lower standards of willfulness that taxpayers should be aware of is the concept of ‘recklessness.’ With recklessness, a taxpayer does not intentionally fail to file the FBAR, but based on their actions or lack thereof, the government’s position is that the Taxpayer essentially had every opportunity to become aware of the reporting and file the form timely and accurately. In the recent case of Reyes, the United States Court of Appeals for the Second Circuit affirmed the lower court’s ruling that a finding of recklessness is sufficient to be considered willful in the realm of FBAR non-compliance. Let’s take a look at how the court reached this conclusion by reviewing some of the excerpts from the court’s ruling.

First, How is Reckless FBAR Defined?

Recklessness is essentially a form of ‘risky behavior.’ The Internal Revenue Manual provides a good summary:

• • • “Reckless violation. Willfulness is also shown when a person recklessly disregarded the FBAR reporting and recordkeeping requirements. Recklessness is evaluated using an objective standard, not by looking at whether a person subjectively believed that he or she was not required to accurately report the account on a timely filed FBAR or keep required records.

    • The objective standard looks at whether conduct entailed an unjustifiably high risk of harm that is either known or so obvious that it should be known. The harm in the FBAR context is that the reporting or recordkeeping requirements are not being met. A person recklessly violates the FBAR reporting or recordkeeping requirements when the person clearly ought to have known that there was a grave risk that the requirements were not being met and the person was in a position to very easily find out for certain whether or not the requirements were being met.”

It is important to note that the key phraseology is that an ‘objective standard’ is used to assess recklessness. It is not based on a person’s subjective intent. And, to determine if someone is reckless, it is based on the specific facts and circumstances of the particular matter. 

United States v. Reyes

• • • “The district court (Margo K. Brodie, C.J.) entered summary judgment for the United States upon completion of discovery. The court determined that the undisputed evidence established that the Reyeses had willfully failed to file an FBAR. It did so on the basis that willful as used in the statute encompasses reckless conduct in addition to intentional conduct.”

Failure to Notify Their Accountant of Foreign Accounts

• • • “In the years relevant to this litigation, the Reyeses’ Swiss bank account contained just over two million U.S. dollars ($2,053,423.00 in 2012). Joint App’x 618. That value comprised at least 75%, and up to 90%, of the couple’s total assets. The Reyeses had their accountant Sidney Yoskowitz prepare their tax returns and, upon completion of the returns and after a review for accuracy, the Reyeses signed them. Yoskowitz, as a matter of course, requested that his clients fill out a “Client Organizer,” in which he asked if the filer had any interest in a foreign bank account. The Reyeses nevertheless did not return the client organizer, and never otherwise disclosed the Lloyds account to Yoskowitz. For the years 2010, 2011, and 2012, the Reyeses reported to the IRS that they had no interest in any foreign financial account.”

Key Practice Point

It was not as if taxpayers simply failed to report a small balance in a dormant account. Rather, taxpayers failed to report an account that comprised a large portion of the taxpayers’ assets.

VDP and Withdrawal from the Program

• • • “Eventually, the Reyeses requested that the funds be transferred from Lloyds Bank to their J.P. Morgan account in the United States. Dr. Reyes testified that he first became aware of the FBAR requirement when he brought the money from Switzerland into the United States in late 2013. After consulting with a U.S. lawyer, the Reyeses filed amended tax returns for 2010, 2011, and 2012. Initially, the Reyeses considered participating in the IRS’s Offshore Account Voluntary Disclosure Initiative, which would have permitted them to “regularize” their accounts and “resolve any and all reporting issues in the United States” by filing amended returns for the years in question and paying associated penalties. Joint App’x 217. They ultimately decided to withdraw from the program because the penalty of approximately $600,000 was “too high.”

Key Practice Point

Taxpayers had previously submitted to the voluntary disclosure program, so they were already on the IRS’s radar. By removing themselves from OVDP, they put themselves in a precarious position regarding penalties.

IRS Findings

• • • “The IRS contacted the Reyeses in July of 2018 and informed them that they were liable for civil penalties under 31 U.S.C. § 5321 for willfully failing to report their ownership of the foreign bank account. The IRS concluded that the conduct of each was willful on the basis that they held a “significant amount of [their] financial assets” in the foreign bank account in a country with which they have no ties, used credit cards linked to that account, and neither informed their accountant nor reported to the IRS that they had any interest in a foreign bank account. Joint App’x 740, 758. As to Dr. Reyes, the IRS noted also that he is 9 “highly educated and has been in the U.S. for more than 40 years.” Joint App’x 740.”

Explaining Reckless Disregard in the Context of Willfulness 

• • • “Although “‘the term recklessness is not self-defining,’ the common law has generally understood it in the sphere of civil liability as conduct violating an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’” Id. at 68 (quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)). In Safeco, the Supreme Court cited with approval the formulation of the Second Restatement of Torts that conduct is reckless where the actor “does an act or intentionally fails to do an act which it is his duty to the other to do, knowing or having reason to know of facts which would lead a reasonable man to realize, not only that his conduct creates an unreasonable risk . . . but also that such risk is substantially greater than that which is necessary to make his conduct negligent.” Id. at 69 (quoting Restatement (Second) of Torts § 500 (1963)); see also Restatement (Second) of Torts § 500 cmt. g (1965) (explaining that whereas negligence denotes “mere inadvertence, incompetence, [or] unskillfulness,” recklessness “requires a conscious choice of a course of action.”).

    • Every court of appeals to consider the construction of “willful” in Section 5321 of the Bank Secrecy Act has determined that civil liability lies where the United States proves the defendant acted at least recklessly. In United States v. Hughes, the Ninth Circuit held that “Safeco’s reasoning applies equally to civil FBAR penalties.”. 113 F.4th 1158, 1161 (9th Cir. 2024). Similarly, the Third Circuit has determined that willfulness in 31 U.S.C. § 5321 encompasses recklessness, joining the “general consensus among courts.” Bedrosian v. U.S. Dep’t of Treas., IRS, 912 F.3d 144, 152 (3d Cir. 2018). The Ninth and Third Circuits are joined by the Fourth, Sixth, Eleventh, and Federal Circuits. See United States v. Horowitz, 978 F.3d 80, 88 (4th Cir. 2020); United States v. Kelly, 92 15 F.4th 598, 603 (6th Cir. 2024); United States v. Rum, 995 F.3d 882, 889 (11th Cir. 2021) (per curiam); Kimble v. United States, 991 F.3d 1238, 1242 (Fed. Cir. 2021).”

Key Practice Point

It has been well established over many years in different circuits that reckless disregard or reckless conduct qualifies as a willfulness — at least in the civil arena. Taking the position that recklessness does not qualify as willfulness is an argument that most practitioners would still make, but based on the recent rulings and interpretation by the different courts across the nation, this particular court sided with the generally accepted rule that reckless behavior qualifies as willfulness.

The Court Rejects Reyeses’ Arguments 

• • • The Reyeses’ contrary arguments are unconvincing. To support their theory that “willful” in 31 U.S.C. § 5321(a)(5)(C) refers only to intentional conduct, they point to United States v. Granda, in which the Fifth Circuit addressed the use of “willfully” in a statute imposing criminal penalties for the illegal transport of monetary instruments and determined that the term required “proof of the defendant’s knowledge of the reporting requirement and his specific intent” to commit a violation. 565 F.2d 922, 926 (5th Cir. 1978). The Fifth Circuit’s construction of a criminal statute has little persuasive weight in this context given the Supreme Court’s guidance in Safeco regarding the meaning of the term “willful” in the civil context. As the Supreme Court explained in Safeco, the common-law meaning of the term willful “is different in the criminal law,” where courts “have regularly read the modifier as limiting liability to knowing violations.” 551 U.S. at 57 n.9. The stricter construction of the term in the criminal context follows from the fact that there, the term is “characteristically used to require a criminal intent beyond the purpose otherwise required for guilt.” Id. By contrast, the use of the term in the context of civil liability “presents neither the textual nor substantive reasons for pegging the threshold of liability at knowledge of wrongdoing.” Id.

    • The Reyeses argue that because 31 U.S.C. § 5321(a)(5)(B)(ii) excuses violations committed “due to reasonable cause,” willful should not be understood here to apply to non-intentional conduct. That conclusion does not follow from the structure of the statute. Subsection (5)(A), which permits the Secretary of Treasury to “impose a civil money penalty on any person who violates” a provision of Section 5314, contains no mens rea requirement. 31 U.S.C. § 5321(a)(5)(A). Subsection (B)(ii) clarifies, however, that “no penalty shall be imposed under subparagraph A with respect to any violation if such violation was due to reasonable cause,” and if “the amount of the transaction or the balance in the account at the time of the transaction was properly reported.” Id. § 5321(a)(5)(B)(ii). Subparagraph (B) thus creates a defense to what otherwise might be read as a strict liability provision. That is confirmed by the fact the reasonable cause exception applies “except as provided in subparagraph (C),” which authorizes elevated penalties for willful violations. Id. § 5321(a)(5)(B)(i). In effect, Congress created a sliding scale: (i) violations 17 committed with reasonable cause but where the balance or transaction is properly reported are not penalized; (ii) violations committed without reasonable cause or without a contemporaneous report are subject to the standard penalty; and (iii) violations committed recklessly or knowingly are subject to an enhanced penalty.

    • That Congress created an exception to the penalty provision where there was “reasonable cause” for the violation and the amount of the transaction or the balance in the account was properly reported is in no way inconsistent with an enhanced penalty when a violation was reckless. In fact, it would be incongruous to hold that Congress’ exception of certain actions taken for reasonable cause would encompass actions taken recklessly, which definitionally are not reasonable.

Other Cases (Pre-2026)

Here are a few other cases that support the position that reckless conduct qualifies as willfulness in the context of FBAR penalties:

United States v Kelly (Court of Appeals)

In the case of US vs. Kelly, the Sixth Circuit Court of Appeals affirmed the lower court ruling that the taxpayer’s reckless non-compliance with FBAR reporting under the BSA amounts to a willful violation. Some of the important facts regarding non-compliance include:

• • • The account was opened in Switzerland and designated as a numbered account.

    • Taxpayer intentionally diverted his investments from U.S. Securities which would have required him to submit a form W 9

    • He never inquired as to whether the foreign account needed to be reported.

    • He entered into the OVDP program but did not complete the process.

    • When he submitted a form 433-A under penalty of perjury he did not disclose his foreign asset account at one of the foreign financial institutions with a large balance.

FBAR Reckless Conduct

The court provides the following summary of how it concluded that the Taxpayer was reckless (and willful).

• • • Based on the above authorities, we hold that, for purposes of an FBAR civil penalty, a willful violation of the FBAR reporting requirements includes both knowing and reckless violations. In so holding, we join every other circuit to have addressed this issue. See United States v. Rum, 995 F.3d 882, 889 (11th Cir. 2021) (per curiam); Kimble v. United States, 991 F.3d 1237, 1242 (Fed. Cir. 2021); United States v. Horowitz, 978 F.3d 80, 88 (4th Cir. 2020); Bedrosian v. United States, 912 F.3d 144, 153 (3d Cir. 2018).

    • Reckless conduct in the civil context involves conduct that violates “an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’” Safeco, 551 U.S. at 68 (citing Farmer v. Brennan, 511 U.S. 825, 836 (1994)); see also Brawner v. Scott Cnty., 14 F.4th 585, 594 (6th Cir. 2021).

    • As the Fourth Circuit has noted, “civil recklessness contrasts with criminal recklessness and willful blindness” because “both of those concepts incorporate a subjective standard.” Horowitz, 978 F.3d at 89 (citing Farmer, 511 U.S. at 836–37). Still, civil recklessness requires proof of more than negligence. Brawner, 14 F.4th at 596–97 (citations omitted).

    • Thus, in the context of a civil FBAR penalty, the government can establish a willful violation “based on recklessness” by proving that “the defendant (1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed and [that] (3) he was in a position to find out for certain very easily.” Horowitz, 978 F.3d at 89 (internal quotation marks omitted); see also Bedrosian, 912 F.3d at 153; Rum, 995 F.3d at 889–90.

U.S. v Reyes (New York District Court)

Similar to the case above, in a recent case in the Eastern District of New York, the District Court came to the same conclusion that an FBAR reckless violation amounts to willfulness. The court summarizes the specific facts as argued by the government on the issue of reckless behavior:

Allegations of Recklessness

• • • The government argues that the evidence supports a conclusion that Defendants willfully failed to file an FBAR because recklessness is sufficient to establish willfulness and the undisputed evidence shows that Defendants acted recklessly.⁵ (Gov’t Mem. 1-2, 16-18). In support, the government argues that the “evidence amassed to date establishes that the Defendants’ conduct is consistent with, and exceeds, the indicia of recklessness established in the FBAR case law,” because:

      • • • (1) Defendants submitted federal income tax returns that falsely stated they had no foreign financial accounts during the relevant tax years;

          • (2) they failed to ask their accountant about their responsibilities as to the Lloyds Account;

          • (3) they understood that interest income from a domestic bank is taxable under U.S. law;

          • (4) they instructed the foreign bank to hold mail related to the Lloyds Account and not invest in U.S. securities;

          • (5) the Lloyds Account was a significant percentage of their net worth during the years at issue; and

          • (6) Defendants are sophisticated taxpayers, part-owners in real-estate ventures, and individuals surrounded by professionals who “were in positions to either advise them about the implications of the foreign account, or at the very least point them in [the] right direction.” (Gov’t Mem. 1-2, 16-18).

Is Recklessness a Form of Willfulness?

The District Court in Eastern New York concluded that a reckless FBAR violation amounts to willfulness.

• • • “Although the Second Circuit has not yet addressed the meaning of “willful” in the context of Section 5321(a)(5), the Supreme Courthas stated that “where willfulness is a statutory condition of civil liability,” it will generally be construed to include “not only knowing violations of a standard, but reckless ones as well.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007) (collecting cases).

    • The Second Circuit has also held that, for the purposes of 26 U.S.C. §6672, which provides penalties for willful failure to collect and pay withholding tax, an “individual’s bad purpose or evil motive in failing to collect and pay the taxes ‘properly play[s] no part in the civil definition of willfulness.’” Lefcourt v. United States, 125 F.3d 79, 83 (2d Cir. 1997) (alteration in the original) (quoting Hochstein v. United States, 900 F.2d 543, 548 (2d Cir. 1990)).

    • Other courts in this Circuit have thus concluded that willfulness for purposes of Section 5321(a)(5) includes both knowing and reckless violations. See United States v. Katholos, No. 17-CV-531, 2022 WL 3328223, at *8 (W.D.N.Y. Aug. 10, 2022) (“[W]illfulness includes recklessness.”); Schik, 2022 WL 685415, at *5 (“The Court agrees with the decisions of almost every court, including those in this Circuit, that have considered the issue and now holds that a ‘willful violation’ includes reckless violations for purposes of a civil FBAR penalty.”); United States v. Gentges, 531 F. Supp. 3d 731, 743 (S.D.N.Y. 2021) (“[F]or purposes of the civil penalties provision in [Section] 5321(a)(5)(C)(i), a willful violation of the FBAR reporting requirement includes both knowing and reckless violations of the statute.”); United States v. Bernstein, 486 F. Supp. 3d 639, 647 (E.D.N.Y. 2020) (noting that in the context of a failure to file an FBAR, “recklessness is a subset of, or an alternative to, willfulness” (citing Safeco Ins., 551 U.S. at 57)).”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.