FBAR Violations – IRS Offshore Examinations | Board Certified in Tax

FBAR Violations - IRS Offshore Examinations | Board Certified in Tax - Golding & Golding

FBAR Violations – IRS Offshore Examinations | Board Certified in Tax – Golding & Golding

FBAR Violations:  An FBAR Violation occurs when a person has undeclared foreign accounts — which may result in an FBAR Violation Penalty. The FBAR Late filing penalty varies extensively (see below). And, while the IRS may (and does) issue extensive fines and penalties for non-compliance, you have several Amnesty options available to you to avoid harsher penalties for an FBAR Violation.

FBAR Violations

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.

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 citationCivil Monetary Penalty DescriptionCurrent 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 TransactionGreater 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

The Willful FBAR Penalty is typically more severe. An FBAR Willful Penalty is penalty for acting willful, willfully blind, or with reckless disregard in not filing the FBAR. 

U.S. Code citationCriminal Violation & DescriptionCriminal Penalty
31 C.F.R. §103.59(b) Willful – Failure to File FBAR or retain records of accountUp 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 lawsUp 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 StatutesSee Statutes

A few important considerations:

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 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 program.

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?

Like (almost) anything in life, it is better to put out the fire when it is small — before it becomes a blazing inferno.

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.

How to Reduce or Avoid FBAR Violation Penalties

There are 5 main versions of the program. In addition, there is an “illegal” version of Voluntary Disclosure as well, which is referred to as “Quiet Disclosure” or “Silent Disclosure.”

Here are the 5 Main Options:

(New) Updated Traditional IRS Voluntary Disclosure Program

When OVDP (Offshore Voluntary Disclosure Program) ended back in September 2018, the Internal Revenue Service was unclear as to whether a New “Offshore” Voluntary Disclosure Program would be introduced. Instead of a “new program,” the traditional voluntary disclosure program was expanded.

You can use the disclosure program to submit FBARs for your Foreign Bank Accounts, FATCA, PFIC, along with your Domestic Income

Resource: Summary of the Traditional IRS Voluntary Disclosure Program

Resource: Golding & Golding’s 8-Step Guide to See if you Qualify

SFCP – IRS Streamlined Filing Compliance Procedures

IRS Streamlined Filing Compliance Procedures are a stand-alone “streamlined” version of the traditional OVDP. The “stand-alone” streamlined filing procedures were created in 2014 by the Internal Revenue Service.

The purpose of the procedures are to assist taxpayers who were noncompliant with offshore reporting requirements – but were also non-willful.

If the Taxpayer can certify under penalty of perjury of being non-willful, the IRS reduces the penalty structure, and even waives the penalty for applicants who qualify as foreign residents.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Filing Compliance Procedures

SDOP – IRS Streamlined Domestic Offshore Procedures

SDOP is the Streamlined Domestic Offshore Procedures, and it is the program designed for for U.S. persons residing in the United States (or do not meet the technical “Foreign Resident Test”) 

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Domestic Offshore Procedures

SFOP – IRS Streamlined Foreign Offshore Procedures

SFOP is the Streamlined Foreign Offshore Procedures. These are the Procedures for U.S. persons residing outside the United States is referred to as the Streamlined Foreign Offshore Procedures.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Foreign Offshore Procedures

DIRP – Delinquency Procedures for Offshore & Foreign Accounts and Assets

If you do not have any unreported income resulting in having to amend your tax returns — and all you have is unreported foreign assets, accounts or investments with no unreported income, you may be in luck. In these instances, in which you do not otherwise need to file for traditional offshore disclosure or the Streamlined Filing Compliance Procedures — you may qualify for the Delinquency Procedures and avoid any penalties.

Resource: Golding & Golding’s IRS Summary of Delinquent International Informational Return Submission Procedures

RC – Reasonable Cause for Offshore & Foreign Accounts and Assets

Reasonable Cause may be an option for some taxpayers. Specifically, if you were completely non-willful in your failure to disclosure, and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd.

Resource: Golding & Golding’s Summary of IRS Reasonable Cause for Offshore & Foreign Accounts & Assets

Fixing Lesser Experienced Law Firm mistakes.

IRS Voluntary Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

We know, because those cases usually end up on our door-step. 

Resource: Examples of recent cases we had to takeover from less experienced Attorneys can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

IRS Offshore “Potential” Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

How to Find Experienced & Reputable Offshore Voluntary Disclosure Counsel

Nearly all the experienced Attorneys in this field will have 5 Main Attributes:

  • Board Certified Tax Law Specialist
  • Master’s of Tax Law (aka LL.M.)
  • Dually Licensed as an Enrolled Agent or CPA
  • Around 20-Years of Private Practice experience
  • Extensive Litigation, Trial and related high-stakes experience

Understanding How Tax Prep & Legal Fees Work in Offshore Disclosure

A summary of Offshore Disclosure Lawyer and Tax/Accountant Fees.

Offshore Disclosure — Flat-Fee, Full-Service

All Non-Willful cases should be Flat-Fee, Full-Service for both Tax and Legal.

*If you were willful in not submitting the FBAR, the submission and analysis is much different depending on whether the IRS has contacted you yet, if you are under investigation, etc. — and you should speak with experienced counsel.

Need a Second Opinion about Streamlined Domestic Offshore Procedures?

Lately, with rumblings of the Streamlined Disclosure Program, aka Streamlined Voluntary Disclosure aka Streamlined Filing Compliance Procedures coming to an end, some younger and inexperienced attorneys are in disarray — and handing out terrible advice to make a quick buck — and putting clients at risk. 

If you are unsure about advice you received about the Streamlined Disclosure program, let Golding & Golding offer you a second opinion, with a reduced-fee initial consultation.

Contact Us Today; Let us Help You.

International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

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, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC