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FATCA and BSA Compliance: What Happens If You Don’t Report Your Offshore Assets to the U.S. Government?

February 29, 2024


High-income and high-net-worth taxpayers who have assets offshore must report these assets to the U.S. government annually. For most, this means filing both IRS Form 8938 to comply with the Foreign Account Tax Compliance Act (FATCA) and a Report of Foreign Bank and Financial Accounts (FBAR) to comply with the Bank Secrecy Act (BSA). As Texas offshore tax lawyer Lawrence Brown explains, failing to comply with FATCA or he  (or both) can have serious consequences:

When FATCA and BSA Compliance Are Required

While FATCA and the BSA both apply to U.S. taxpayers with offshore assets, they apply under different circumstances. However, there is also a significant amount of overlap, which means that taxpayers will need to file IRS Form 8938 and file an FBAR with respect to the same offshore assets in many cases.

FATCA requires that U.S. taxpayers report “foreign financial assets” that exceed certain aggregate value thresholds during the tax year. Reportable foreign financial assets under FATCA include most types of offshore accounts—which are the sole focus of the BSA. There are minimum account value thresholds for triggering BSA compliance as well, though most high-income and high-net-worth taxpayers’ holdings will easily exceed the thresholds under both statutes.

For more information on FATCA and BSA compliance are required, you can read: Do I Need to File an FBAR for FY 2023 (and What Happens If I Don’t)?

Penalties for Noncompliance with FATCA

The penalties for noncompliance with FATCA depend on several factors. The most important of these factors is whether the inquiry leading to the imposition of penalties is civil or criminal in nature. The Internal Revenue Service (IRS) and U.S. Department of Justice (DOJ) can pursue both civil and criminal enforcement actions under FATCA—and the procedures, defenses and penalties that apply during civil and criminal enforcement cases under FATCA are very different.

Civil enforcement actions under FATCA generally target non-willful violations of the statute. This includes both non-willful failure to file and non-willful underreporting of a taxpayer’s foreign financial assets. Civil violations of FATCA carry a $10,000 civil monetary penalty (CMP), with an additional $10,000 CMP applied every 30 days following the receipt of a notice of noncompliance from the IRS—subject to a maximum aggregate penalty of $60,000 per violation.

Criminal FATCA enforcement actions generally target willful violations. In criminal cases, DOJ prosecutors can pursue charges under various provisions of the Internal Revenue Code as well as other federal criminal statutes. The potential penalties under these statutes include:

  • Federal Tax Evasion (26 U.S.C. Section 7201) – Up to a $100,000 fine for individuals and five years of imprisonment.
  • Willful Failure to File a Tax Return (26 U.S.C. Section 7203) – Up to a $25,000 fine for individuals and one year of imprisonment.
  • Filing a False Tax Return (26 U.S.C. Section 7206) – Up to a $100,000 fine for individuals and three years of imprisonment.
  • Making a False or Misleading Statement to the Federal Government (18 U.S.C. Section 1001) – Up to a $250,000 fine for individuals and five years of imprisonment.

All of these penalties apply on a per-violation basis. If a U.S. taxpayer is accused of willfully failing to file IRS Form 8938 in multiple tax years or making multiple false statements to the IRS, the taxpayer could face multiple charges and exposure to the aggregate penalties that these charges collectively carry. Additionally, while these are some of the most common charges we see in criminal FATCA enforcement cases, prosecutors can (and often do) pursue a wide range of other charges as well.

Penalties for Noncompliance with the BSA

Similar to FATCA violations, violations of the BSA can present risks for civil or criminal enforcement depending on the circumstances involved. In civil enforcement actions under the BSA, U.S. taxpayers face CMP that are adjusted annually for inflation—and that range from $69,733 to $278,937 as of January 2024. Penalties on the lower end apply when a violation is deemed non-willful, while penalties on the higher end apply when a violation is deemed willful (but does not warrant criminal prosecution under the circumstances at hand).

In addition to including provisions for civil enforcement, the BSA includes criminal enforcement provisions as well. Thus, when pursuing criminal enforcement actions, federal prosecutors do not need to rely on other statutes—though they can (and often will) pursue charges for multiple statutory offenses. In criminal enforcement cases under the BSA, individual U.S. taxpayers can face up to a $250,000 fine and five years of imprisonment.

What To Do if You Have Concerns About FATCA or BSA Compliance

With these potential penalties in mind, what should you do if you have concerns about FATCA or BSA compliance? As with all potential federal tax controversies, it is important to consult with experienced tax counsel as soon as possible. When you have concerns, failing to address them promptly has the potential to increase your risk, as the IRS and DOJ may view this as evidence of willfulness.

If you are behind on your filing obligations under FATCA or the BSA, coming into compliance will typically involve submitting either a streamlined filing to the IRS or a voluntary disclosure to IRS CI. Both of these are options in different circumstances, and it is imperative that you choose the correct option based on the specific circumstances you are facing.

For more information about how to handle FATCA and BSA compliance issues, you can read: Resolving Offshore Account Disclosure Violations in 2024: Key Insights for Taxpayers in the U.S. and Abroad.

Request an Appointment with Texas Offshore Tax Lawyer Lawrence Brown

If you are a high-net-worth or high-income U.S. taxpayer and you need to know more about FATCA or BSA compliance, we invite you to get in touch. With offices in Fort Worth, we represent clients throughout Texas, across the United States and worldwide. To request an appointment with Texas offshore tax lawyer Lawrence Brown, please call 888-870-0025 or send us a message online today.