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FBAR Violations - Willful vs. Non-Willful

FBAR Violations – Willful vs. Non-Willful

The penalty for willfully failing to file the FBAR is the greater of $100,000 or 50% of the account balance at time of violation.  The penalty for a non-willful violation is up to $10,000. 31 U.S. Code § 5321(a)(5).

Factors supporting a willful FBAR penalty:

  • Opened the foreign bank account
  • Owner of, or a financial interest in, the foreign account
  • Tax non-compliance
  • Did not seek advice, or relied upon the advice of a promoter, foreign banker, or other unqualified tax professional.
  • Violations persist after notification of FBAR reporting requirements
  • Foreign account not disclosed to return preparer
  • No business reason for the foreign account
  • No family or business connection to the foreign country
  • An offshore entity owns the account
  • Previously-filed FBARs do not include all foreign accounts
  • Illegal income in the foreign account
  • Participated in an abusive tax avoidance scheme

Factors not supporting a willful FBAR penalty:

  • Inherited the foreign bank account
  • Only signature authority over the foreign bank account
  • Tax compliance
  • Relied upon the advice of a tax return preparer, a CPA, an attorney, or another qualified tax professional
  • Full compliance after notification of FBAR reporting requirements
  • Foreign account disclosed to return preparer
  • Business reason for the foreign account
  • Family or business connection to the foreign country
  • Person owns the account in his name

 

Increased Focus on Foreign Bank Accounts by Congress and IRS

Foreign Bank Account Reporting (“FBAR”) requirements are not new.  They date back to 1995, when an individual failing to file Form 5471 – for U.S. individuals who are officers, directors or shareholders of a foreign corporation, would cost you a penalty of $1,000.  In 1996, the IRS turned its attention to penalties for foreign trusts.  In 1998, the penalties increased to $10,000 per offense.  In 2003, in an effort to raise the FBAR compliance rate (estimated to be less than 20 percent in the year 2001), the Financial Crimes Enforcement Network (“FinCEN”) delegated its enforcement authority for the FBAR to the IRS by means of a Memorandum of Agreement between FinCEN and the IRS, ushering in a new era of enhanced regulation and enforcement of foreign bank accounts, and foreshadowing the changes under Foreign Account Tax Compliance Act (“FATCA”).

Then, in 2005, these penalties were first applied to FBARs.

Today, it is possible to owe $70,000 of penalties per account, per violation, together with criminal consequences, depending on the nature of your foreign holdings.

Additional Reading:

http://intltax.typepad.com/.a/6a00e54fb13f51883401b8d16f262e970c-pi

http://money.cnn.com/2015/04/01/pf/taxes/irs-penalties/