Last updated March 30, 2023.
Whether you’ve filed multiple FBARs in previous years or are just hearing about it for the first time today, the FBAR is a common source of frustration for US expats. It’s often difficult to find detailed but digestible information on the topic — including on potential FBAR penalties.
The vast majority of FBAR violations are non-willful. That said, FBAR penalties can be steep. So, it’s important to understand how they’re incurred and what to do if you’re faced with one.
With years of experience helping US expats navigate their taxes, the professionals at Bright!Tax are FBAR experts. Read on to learn what the FBAR is, what triggers FBAR penalties, how to handle an FBAR penalty and more.
What is an FBAR?
FBAR is an acronym that stands for Foreign Bank Account Report. Any American with over $10,000 in foreign accounts (such as foreign bank accounts, pensions, investment accounts, etc.) at any point in a given tax year must complete an FBAR by filing FinCEN Form 114. Because the FBAR is an annual report, it must be filed every single year that a person qualifies for it.
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.
The FBAR applies not only to account holders but also 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. This often leads to stress and frustration.
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.
Unlike federal tax returns, which are submitted to the IRS, the FBAR is submitted to the Financial Crime Enforcement Network (FinCEN). As a separate entity, 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
As we mentioned earlier, 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
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 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.
FBAR: Frequently asked questions
Still confused about the FBAR or FBAR penalties? Read on to find answers to a few of the most commonly-asked questions.
What if I file late?
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.
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.
Read More: US Expats Getting It Right – FATCA And FBAR Explained
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. This opens you up to much more severe penalties than non-willful violation does. There’s really no reason not to file an FBAR, as the form itself doesn’t carry any tax implications. It’s just for informational purposes. Stay on top of your filing responsibilities to avoid any penalties and remain in good standing with the federal government.
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.
What if I need to catch up on US tax returns in general?
If you’re behind on not just your FBARs but your federal tax returns in general, 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.
IRS Amnesty Program: 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.
Confidently file US tax returns, including FBARs, with Bright!Tax
It’s not uncommon for expats to have doubts about their tax and financial reporting obligations. If you want to pursue the Streamlined Procedure or the Delinquent FBAR Submission Procedures, or just want to learn more about how US expat taxes work, don’t hesitate to contact the team at Bright!Tax.
Reach out today to schedule a free consultation with one of our highly-qualified expat tax professionals!