What is the Limit on Penalties for Willful FBAR Violations?

What is the Limit on Penalties for Willful FBAR Violations?

The Limit on Penalties for Willful FBAR Violations

These days, and especially with the foreign accounts compliance case of Bittner making its way all the way to the Supreme Court of the United States, the issues involving FBAR tend to revolve around non-willfulness and how non-willful civil penalties should be assessed. But, not all civil foreign bank and financial account penalties are limited to non-willfulness. Some taxpayers (unfortunately) will be assessed willfulness penalties by the IRS, which can be significantly higher than non-willfulness penalties. A common question we receive is whether the willfulness penalty is limited to $100,000 per account or $100,000 per year.

Willful FBAR Penalty Violation

As recent cases have shown, civil willful FBAR penalties are not limited to $100,000 per year and can be assessed at $100,000 per account.

As provided by the U.S.C., Title 31 (Money and Finance):

31 USC 5321 (5)(C)

(C)Willful violations.—

      • In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—

      • (i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—

        • (I) $100,000, or

        • (II) 50 percent of the amount determined under subparagraph (D), and (ii)subparagraph (B)(ii) shall not apply.

$100,000 is Not the Maximum FBAR Penalty

In prior years, there has been a conflict between the FBAR regulation and the statute involving willful FBAR penalties. This led some practitioners to take the position that willful FBAR penalties were limited to $100,000 (either per year or per compliance scenario). Unfortunately for Taxpayers, several courts struck down that argument, with most courts holding that civil willful FBAR penalties are not limited to $100,000 a year. Likewise, the regulation was updated to reflect that the limitation for civil willful FBAR Penalties should not be limited to $100,000.

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 of the Streamlined Procedures. 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

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.