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May 6, 2016


Limits on FBAR penalties

Have you recently moved from China or India to the United States for a new career opportunity? Are you an American living abroad? You need to report all foreign bank accounts, if at any point in the 2015 the aggregate value of your accounts exceeded $10,000.

Failing to report overseas accounts electronically on a “Report of Foreign Bank and Financial Accounts” (FBAR) can lead to hefty penalties. Last summer, the IRS issued interim guidance limiting these penalties. In this post, we will discuss what these are for willful and non-willful violations.

Whether willful or not, penalties can be assessed for each year you did not report the accounts. Even a nonwillful failure comes with a statutory civil penalty of $10,000 per year. Going back several years, this quickly adds up.

Willful violations

These accusations carry stiff civil penalties and even prison time. The statute says that the civil penalty is $100,000 or 50 percent of the balance of an unreported account, whichever is greater. This amount could be assessed each year, up to six years.

The new IRS guidance limits the willful penalty to no more than 100 percent of the highest balance of unreported accounts during the years examined. This is a change, because some past willful penalties have exceeded the value of accounts.

Nonwillful violations

The IRS guidance provided that in cases of multiple nonwillful violations the penalty cannot be more than 50 percent of the aggregate balance of foreign accounts. Depending on the circumstances, an examiner could recommend a single penalty of $10,000.

In some cases, the penalty may be waived when an examiner finds a reasonable cause for the violation and the taxpayer later files complete and correct FBARs.

Taking part in the IRS Offshore Voluntary Disclosure Program or Streamlined Filing Compliance Procedures can avoid FBAR penalties. To learn more about these programs and whether they could help you come into compliance, contact an experienced tax attorney.

Offshore Accounts/International Tax Disputes