The FBAR penalty explained

Or, who put the F in FBAR? And the answer to that question is, Congress, of course.

 

But before we talk about the FBAR penalty, we need to know what the FBAR is. "FBAR" stands for "Report of Foreign Bank and Financial Accounts."

 

Residents, or citizens or people doing business in the United States are required to keep records and report the existence of foreign accounts to the IRS.

 

Or else.

 

Schedule of penalties for failing to file an FBAR

I.R.M. 5.21.6.3 Penalties

1. Failure to file the required report or maintain adequate records is a violation of Title 31. For each violation a penalty may be asserted. 
2. Violations Occurring Prior to October 23, 2004 (Willful). 31 U.S.C. §5321(a)(5)authorizes a civil monetary penalty for any person who willfully violates (or willfully causes any violation of) 31 U.S.C. §5314 not to exceed the greater of:
   1. an amount equal to the balance in the account at the time of the violation up to $100,000, or
   2. $25,000
3. Violations Occurring on or after October 23, 2004 (Not Willful):

    

   • 31 U.S.C. §5321(a)(5)(A) authorizes a civil monetary penalty for any person who violates (or causes any violation of) 5314 in an amount not to exceed $10,000.
   • The penalty may be waived for reasonable cause.

    

4. Violations Occurring on or after October 23, 2004 (willfully):

    

   31 U.S.C. §5321(a)(5)(C) authorizes a civil monetary penalty for any person who willfully violates (or willfully causes any violation of) 5314 not to exceed the greater of:

   1. an amount equal to 50% of the balance in the account at the time of the violation, or
   2. $100,000.

       

      Note:

      The penalty can be for each violation.

       

 

These regulations are so vague we can drive a truck or large RV through them.

 

There are some really serious questions that will be answered only through lots of contested FBAR penalty litigation over the next several years. There are numerous unforeseen questions we have been asked to find out like:

• Who exactly must file an FBAR?
• Can taxpayers take advantage of normal procedural protections in defending against FBAR penalties? That is, the regular penalty abatement procedures? What if someone relies on the advice of a professional? An IRS employee?
• Can taxpayers with no actual knowledge of the FBAR requirements take refuge in their ignorance?
• Is it feasible to meet the “reasonable cause” exception?
• When precisely does an FBAR violation occur?

 

These questions and more will be answered…stay tuned.

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If you are concerned about any unfiled or misfiled FBARs, contact us. We can help.