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How Can FBAR Non-Willful Penalties Reach into the Multi-Millions?

How Can FBAR Non-Willful Penalties Reach into the Multi-Millions? (Board Certified Tax Specialist)

How Can FBAR Non-Willful Penalties Reach into the Multi-Millions? (Board Certified Tax Specialist)

How Can FBAR Non-Willful Penalties Reach into the Multi-Millions?

By now, you may have come to terms with the fact that there is something called an “FBAR” — and, the IRS requires that you file the FBAR each year (if you meet the threshold requirements).

If you do not file the FBAR timely, you may end up in trouble with the U.S. Government.

We can help.

Multi-Million FBAR Non-Willful Penalty

In a recent case, the IRS hit a Taxpayer, with $3M in non-willful FBAR penalties.

While this is an anomaly (and beyond absurd) — one important question, is simply “how” can the IRS do this, especially in light of the fact that Taxpayer owed less than $1,000 in tax?

Let’s explore.

Non-Willfulness and the FBAR

When a person is non-willful, they may be subject to non-willful FBAR Penalties.

For purposes of this exercise, we will presume that Taxpayer is non-willful. If you want to review the differences between willful vs. non-willful, we have many other resources available on our website.

There are 4 types of non-willful FBAR penalties:

  1. Penalty Waiver
  2. One $10,000 Penalty for the total non-compliance
  3. One $10,000 Penalty per year, for the non-compliance period
  4. One $10,000 Penalty per account, per year, for the non-compliance period

*For reference, the FBAR penalty increases incrementally for inflation. The current penalty is +$12,000. The maximum penalty for a willful failure to report has increased to +$129,200.

$10,000 Per Account, Per Year is Not Common

Generally, presuming a person does not qualify for a waiver (or other mitigating factors) — and had not submitted to the Streamlined Program or a successful Reasonable Cause submission– the non-willful FBAR Penalty will fall into category 2 or 3 above — with the total non-willful FBAR penalty usually averaging between $10,000 – $60,000.

Multi-Million Dollar Non-Willful FBAR Penalty?

A $3MM Non-Willful FBAR penalty is ludicrous — and demonstrates the importance of making a timely voluntary disclosure using tax amnesty.

Of special note is that in this case Taxpayer had upwards of 50 accounts per year. Therefore, if he was hit with a $10,000 penalty, per account, per year, that would reach in the vicinity of $50,000 per year.

When multiplied by 6 Years, that is roughly $3M dollars.

While this is not common, it is plausible under the FBAR non-willful rules and regulations.

Importance of Tax Amnesty 

If the IRS finds a Taxpayer before the Taxpayer has a chance to submit to Voluntary Disclosure/Tax Amnesty, the follwing may occur:

  1. The IRS gets wind of peters situation and issues in audit/examination notice. As a result, Taxpayer is disqualified from submitting to IRS tax amnesty/voluntary disclosure.
  2. The IRS launches a special agent investigation to dig deeper into Taxpayer’s finances.
  3. The IRS refers the matter to the Department of Justice for its own investigation.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

IRS Offshore Voluntary Disclosure Specialist

IRS Offshore Voluntary Disclosure Specialist

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 is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Sean and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

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.
IRS Offshore Voluntary Disclosure Specialist