The IRS requires FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR), to be filed annually by every U.S. person that has ownership of, a financial interest in, or signature or other authority over a financial account or accounts in a foreign country with an aggregate value in excess of $10,000.The IRS defines a U.S. person as a citizen or resident of the United States, a domestic partnership, a domestic corporation, any domestic estate, any domestic trust, or any other person that is not a foreign person.
The penalties for non-filing are incredibly steep. The penalties are dependent upon whether violations are non-willful or willful. Non-willful violations currently are limited to civil penalties of $13,481 per violation, but may be waived if the taxpayer can show the violation was due to reasonable cause and properly reports the associated account. Civil penalties for willful violations are currently maximized at $134,806 or 50% of the amount in the account at violation, whichever is greater. However, criminal penalties can also be imposed for willful violations at up to $250,000 or imprisonment of up to five years. Additionally, willful violations that are in conjunction with any other illegal activity consisting of more than $100,000 during a year can be subject to criminal penalties of up to $500,000 and/or imprisonment of up to ten years.
Federal and district courts in the United States have upheld varying views on IRS penalty enforcement for FBAR violations.An example of this involves the Fifth Circuit FBAR case for Alexandru Bittner.The Fifth Circuit ruled that a $10,000 civil penalty for non-willful FBAR violations would apply to each of Bittner’s bank accounts that should have been reported on the related FBAR.However, the Ninth Circuit and some district courts have ruled that civil penalties relating to non-willful FBAR violations apply per form rather than per account.
On June 21, 2022, the Supreme Court agreed to hear an appeal by Bittner.This case will be extremely important for penalty enforcement on future FBAR violations and is worth following.More details and progress on the Supreme Court case can be found at supremecourt.gov.
Author: Amy Lafontaine, CPA | [email protected]
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