FBAR Violations – What is an IRS FBAR Violation Penalty?
FBAR Late filing penalties vary extensively (see below). And, while the IRS may (and does) issue fines and penalties for FBAR non-compliance — you have several Tax Amnesty options available to you.
Before understanding FBAR Violations, here’s a quick summary on FBAR.
What is FBAR Filing Deadline?
The FBAR is due in April, the same time your taxes are due. Currently, the FBAR is on automatic extension until October. That means you do not need to request and extension or file any forms to receive the extension (these rules are subject to change).
Learn what happens if you miss the FBAR Filing Deadline and have to file late.
FBAR – What is it?
An FBAR is the annual reporting of foreign accounts on an “FBAR” (Report of Foreign Bank and Financial Account Form aka FinCEN 114). It is filed online, electronically, with the Department of Treasury.
Who has to file an FBAR?
Any U,S, Person who meets the filing requirements – whether they reside in the U.S. or abroad, and whether they have to file a Tax Return or not.
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FBAR Violation Penalty
The penalties can range from a civil penalty waiver, all the way up to a 100% willful, multi-year penalty — in addition to possible criminal penalties. An FBAR Violation is when a person either does not file an FBAR, files the FBAR late, or files an incomplete FBAR.
FBAR Penalties are broken down into categories:
Non-Willful FBAR Violation Penalties
These FBAR Penalties are typically the least severe penalties. An FBAR non-willful penalty is a “lower-level” penalty for not filing the FBAR. The non-willful penalties can be high, BUT, typically they are not as high as willful penalties.
Civil Violation of Filing the FBAR
Civil FBAR Penalties are limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.
You may be subject to civil monetary penalties and/or criminal penalties for FBAR reporting and/or recordkeeping violations.
Assertion of penalties depends on facts and circumstances. Civil penalty maximums must be adjusted annually for inflation.
Current FBAR Violation maximums are as follows:
|U.S. Code citation||Civil Monetary Penalty Description||Current Maximum|
|31 U.S.C. 5321(a)(5)(B)(i)||Foreign Financial Agency Transaction – Non-Willful Violation of Transaction||$12,921|
|31 U.S.C. 5321(a)(5)(C)||Foreign Financial Agency Transaction – Willful Violation of Transaction||Greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D)|
|31 U.S.C. 5321(a)(6)(A)||Negligent Violation by Financial Institution or Non-Financial Trade or Business||$1,118|
|31 U.S.C. 5321(a)(6)(B)||Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business||$86,976|
Criminal Violation of Filing the FBAR
Criminal FBAR Penalties may include monetary penalties and incarceration.
This is when the IRS refers the matter to the Department of Justice (DOJ) or other 3 letter government factions for criminal investigation and possible prosecution. These are not very common, but unfortunately they are on the rise.
Willful FBAR Violation Penalties
|U.S. Code citation||Criminal Violation & Description||Criminal Penalty|
|31 C.F.R. §103.59(b)||Willful – Failure to File FBAR or retain records of account||Up to $250,000 or 5 years or both|
|31 C.F.R. §103.59(c)||Willful – Failure to File FBAR or retain records of account while violating certain other laws||Up to $500,000 or 10 years or both|
|31 C.F.R. §103.59(c)||Knowingly and Willfully Filing False FBAR||$10,000 or 5 years or both|
|Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d).||See Statutes||See Statutes|
A few important considerations:
- Most courts have held that the maximum annual FBAR willful penalty is not limited to $100,000.
- If the court believes you acted with Reckless Disregard, they can still penalize you full Willful FBAR Penalties.
- If the court believes you acted with Willful Blindness, they can still penalize you full Willful FBAR Penalties.
- Even in a non-willful setting, the court can issue $10,000 per account, per year penalty
Who is Subject to an FBAR Violation?
Any person who is considered a U.S. person can become subject to an FBAR Violation.
Can you Avoid FBAR Violation Penalties?
Yes, you can generally use one of the approved IRS Offshore Account Amnesty programs to avoid FBAR Violations.
Everyone makes mistakes. If at some point you discover that you should have been reporting your foreign income, accounts, assets or investments, the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure programs.
FBAR Violation Statute of Limitations
Section 5321 is the basis for FBAR Penalties.
Time for Assessment & Commencement of Civil Actions
When it comes to FBAR penalties, there are two main aspects to it:
Assessment of FBAR Penalty
The time the Secretary of Treasury has to actually assesses you have penalty for not properly filing the Form.
Civil Action FBAR Penalty
The time the Secretary has to commence the civil action against you, which is essentially filing the court case to enforce penalties that have been assessed, but not paid.
(1) Assessments.— The Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty is assessed.
(2) Civil actions.—The Secretary may commence a civil action to recover a civil penalty assessed under subsection (a) at any time before the end of the 2-year period beginning on the later of—
– the date the penalty was assessed; or
– the date any judgment becomes final in any criminal action under section 5322 in connection with the same transaction with respect to which the penalty is assessed.
What is a Transaction?
Unfortunately, the IRS has not pinned down specifically what the definition of a transaction is – but, it is generally considered as the time in which the filing is supposed to be made. In other words the time to assess is based on the date of the transaction and the date of the transaction would be the date of filing is due — so that the IRS has 6 Years from when the filing was due to assess penalties.
What Can You Do?
The best thing you can do to avoid monstrous FBAR penalties is to safely get into compliance before the IRS finds you. The IRS has various programs available, which are referred to as amnesty programs or voluntary disclosure programs, which you can use to safely get into compliance.
Depending on the facts and circumstances of your situation, you may be able to minimize become a limit and even avoid penalties altogether.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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