FBAR Voluntary Disclosure Penalty Structure Explained

The FBAR Voluntary Disclosure Penalty Structure changed in 2018 and 2019. This was the result of the IRS closing OVDP (Offshore Voluntary Disclosure Program.) Under OVDP, the FBAR penalty was 27.5% on the maximum aggregate value of applicable unreported accounts.  If a “bad bank” was involved, the penalty jumped up to 50%.

The new penalty formula for FBAR under revised voluntary Disclosure Penalty for Willful Violations is set by the code, which is 50% maximum value or $100,00, whichever is greater.

The new FBAR voluntary Disclosure Penalty Calculations are explained and summarized below.

FBAR voluntary Disclosure Penalty Calculations Explained

FBAR voluntary Disclosure Penalty Calculations Explained

Revised IRS Voluntary Disclosure Penalty for FBAR

Under the new version of the Voluntary Disclosure Program, the IRS sets the penalty to amount in the code, and enforcement procedures follow the IRM, which is the Internal Revenue Manual.

As provided by the IRS:

“iv. Willful FBAR penalties will be asserted in accordance with existing IRS penalty guidelines under IRM 4.26.16 and 4.26.17.

v. A taxpayer is not precluded from requesting the imposition of accuracy related penalties under I.R.C. § 6662 instead of civil fraud penalties or non-willful FBAR penalties instead of willful penalties.

Given the objective of the voluntary disclosure practice, granting requests for the imposition of lesser penalties is expected to be exceptional.

Where the facts and the law support the assertion of a civil fraud or willful FBAR penalty, a taxpayer must present convincing evidence to justify why the civil fraud penalty should not be imposed.

vi. Penalties for the failure to file information returns will not be automatically imposed. Examiner discretion will take into account the application of other penalties (such as civil fraud penalty and willful FBAR penalty) and resolve the examination by agreement. vii. Penalties relating to excise taxes, employment taxes, estate and gift tax, etc. will be handled based upon the facts and circumstances with examiners coordinating with appropriate subject matter experts. viii. Taxpayers retain the right to request an appeal with the Office of Appeals.”

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