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Connect on LinkedInFBAR late-filing penalties can quickly accumulate when you’re a US expat. Officially known as the Foreign Bank Account Report, this administrative form is a common source of frustration for US expats for numerous reasons.
Firstly, it’s often difficult to find detailed but digestible information on the topic, including whether or not you need to file an FBAR. If you rev the search engine and start digging in beyond the filing requirements, alarming information about FBAR penalties can quickly surface.
It’s important to note that the vast majority of FBAR violations are non-willful. This means that the FBAR amnesty program is an option for many US taxpayers facing fines for non-compliance.
That said, FBAR penalties can be steep, and it’s important to be aware of the latest information around filing requirements so that you can rectify your situation in the most timely and cost-efficient manner possible if you find yourself facing an FBAR penalty.
In the following article, we’ll break down how to understand FBAR penalties in the context of what an FBAR is and whether FBAR penalties apply per account. We’ll also review how to file an FBAR, discuss options for how to file FBARs for previous years, and more.
What is an FBAR?
The FBAR is an annual report submitted by US taxpayers to the Financial Crimes and Enforcement Network (FinCEN). Its submission serves the administrative purpose of registering all foreign bank accounts held (fully or jointly) by an American taxpayer with FinCEN.
Do all US taxpayers with foreign accounts need to file an FBAR?
No. The FBAR filing requirement applies to any American with over $10,000 in foreign accounts at any point in a given tax year. This threshold may be crossed by holding $10,000 in a single foreign account, or when the sum of holdings in different foreign bank accounts held by the US taxpayer equal $10,000 or more.
If you have only one foreign financial account and the account never contains more than $9,999.99, then you do not need to file an FBAR. Similarly, if you hold multiple foreign financial accounts and the sum of those holdings results in a number below $10,000, then you are exempt from filing an FBAR.
A foreign account includes the following: foreign bank accounts, pensions, and certain foreign investment accounts.
Note that the $10,000 minimum is per person, not per account. So, someone with ten offshore financial accounts each containing $1,001 dollars at any given point in a tax year would exceed the threshold with $10,010 in total offshore accounts. Therefore, they would be obligated to report those accounts.
Pro tip:
The FBAR applies not only to account holders but also to anyone who has the ability to control funds from such an account or accounts. So, even if the account isn’t in their name, an American who serves as a signatory for a foreign account or accounts totaling more than $10,000 during the tax year is still responsible for filing an FBAR.
For many US expats — especially those who hold or exercise control over multiple accounts — it can be confusing to determine whether or not they are subject to FBAR reporting requirements.
Although this is stressful and frustrating, typically a quick call to your US expat tax-specialized CPA can provide you with clarity.
2023 FBAR filing deadline
For a long time, the FBAR filing deadline for any given tax year was June 30th of the following year. Since 2016, however, the FBAR filing deadline has been aligned with the federal tax return filing deadline of April 15th. Americans abroad, however, are granted a free automatic two-month extension until June 15th for both their tax return and FBAR.
Note: This extension can also be extended until October 15th upon request.
FBAR penalties and violations
As mentioned earlier, the FBAR is submitted to the Financial Crime Enforcement Network (FinCEN). As a separate entity from the IRS, FinCEN imposes more severe penalties for FBAR violations than the IRS does for tax return violations. There are several levels of penalties, depending on whether someone’s failure to file or incorrect filing is deemed willful or non-willful.
Non-willful FBAR violations
We really can’t stress this enough: The vast majority of cases where someone failed to file an FBAR or filled it out incorrectly are non-willful. Non-willful failures to report may occur when US expats aren’t aware they met the FBAR reporting threshold, or because they didn’t know about FBAR reporting obligations at all.
In these cases, FinCEN is a bit more lenient — but not completely forgiving. The lowest-level penalty for non-willful failure to file or incorrect filing is $10,000 for each year that it occurred. This makes even low-level fines prohibitively expensive for many expats.
Willful FBAR violations
If someone’s failure to file or incorrect filing is considered to be willful, the consequences can be much more severe. A couple of circumstances in which somebody might be found to have willfully committed an FBAR violation:
- Someone failed to file an FBAR for one year but filed one in the past — indicating that they were aware of FBAR obligations
- Somebody who didn’t file an FBAR sent emails mentioning the FBAR, again indicating that they were aware of their obligations but intentionally skirted them
The penalty for a willful FBAR violation is $100,000 or 50% of the balance of the account at the time it occurred. A possible prison sentence may also apply.
2023 SCOTUS ruling on FBAR penalties, and what it means for late-filers
For many years, FBAR penalties were accrued per unreported account, not per tax year.
This meant that someone with three foreign financial accounts who missed filing FBARs at the non-willful assessment for three years would be fined $10,000 per account per year, for a staggering total of $90,000.
In recent years, however, the assessment of the penalty per account was challenged in courts. Ultimately, a particular case, Bittner v. United States, went all the way to the Supreme Court.
The case asked the judges to conclusively determine whether non-willful penalties should be applied per account or per report. In late February of 2023, they upheld an earlier ruling by the Ninth Circuit Court that FBAR penalties should be applied per FBAR report (which lists all foreign accounts) rather than per account.
Under the final interpretation, the same person who non-willfully missed filing FBARs for three different accounts for three years would have their financial penalty reduced from $10,000 per account per year for a total of $90,000 to $10,000 per year, for a total of $30,000. While still a significant financial penalty to incur for a non-willful violation, this decision is still a win for taxpayers.
Obtaining FBAR amnesty via the Delinquent FBAR Submission Procedures
Technically, there is no FBAR late filing penalty. However, there is a penalty for not filing an FBAR, which you could be hit with if you go long enough without filing. It’s best to err on the side of caution and get your FBARs in on time.
But, what if you made an honest mistake? If you’re searching for information such as “how to file FBAR for previous years,” then the Delinquent FBAR Submission Procedures could be your FBAR lifeline.
Delinquent FBAR Submission Procedures
If you realize that you owe FBARs from years past, don’t panic just yet. There is a program called the Delinquent FBAR Submission Procedures, which helps those who unwittingly fell behind on their FBARs to catch up without additional penalties. In order to qualify, you must:
- not currently be under investigation by the IRS
- take advantage of the program before the IRS contacts you about missing FBARs. By the time they reach out to you, it’s unfortunately too late to benefit.
Under the program, you must file all outstanding FBARs and include a statement describing why they are being submitted late.
How does the IRS find out if I don’t file an FBAR?
The FBAR was originally introduced in 1970 as part of the Bank Secrecy Act, which was implemented to prevent Americans from evading taxes by hiding their wealth abroad. For decades, however, it wasn’t always easy for the government to enforce it, as obtaining Americans’ account information from foreign institutions posed a challenge.
That largely changed when the Foreign Account Tax Compliance Act (FATCA) was passed in 2010, later coming into effect in 2014. Under FATCA, all foreign financial institutions must report information on American account holders to the US government, making it much easier for them to monitor expats’ foreign accounts and enforce FBAR penalties if warranted.
Catching up on US taxes more broadly
If you’re behind on both your federal tax returns and your FBARs, you’ll want to get caught up as soon as possible. Fortunately, you may be able to do so without even incurring any additional penalties thanks to a special program from the IRS.
Streamlined Filing Procedures
The Streamlined Procedure is an amnesty program that helps people who weren’t aware of their filing obligations to catch up on past filings (both for tax returns and FBARs) and pay any back taxes owed without facing penalties.
Just as with the Delinquent FBAR Submission Procedures, you must not be currently under IRS investigation and take advantage of the program before the IRS reaches out to you regarding overdue filings. Under the Streamlined Procedure, all you need to do is file your last three returns and last six FBARs (if applicable) and self-certify that your prior non-compliance was non-willful.
Penalty for not declaring foreign bank account - FAQ
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What if I should file an FBAR but just decide not to?
If you know you need to file an FBAR but choose not to, you’re in willful violation of FBAR reporting, opening you up to much more severe penalties than non-willful violation charges.
You may not be a fan of FBAR reporting requirements, but failing to file risks significant financial penalties. These penalties are often described as draconian and would hugely (and negatively) affect most taxpayers. That said, many expats feel passionately that the imposition of filing a US tax return and submitting an FBAR is an overreach of the US government. If you feel this way, a constructive way to push back would be to join tax advocacy groups for expats. Examples of such groups include the Association of American Residents Overseas or American Citizens Abroad.
