What are the Penalties for Failure to File an FBAR (and How Can You Avoid Them)?
U.S. taxpayers who own foreign financial accounts worth $10,000 or more are required to file a Report of Foreign Bank and Financial Accounts (FBAR) on Tax Day each year. Those whose foreign assets exceed $50,000 in aggregate value may also have to file Internal Revenue Service (IRS) Form 8938. So, what are the consequences if you didn’t file an FBAR or IRS Form 8938 on April 18, 2022? Washington D.C. international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:
Penalties for Failure to File an FBAR
The penalties for failure to file an FBAR depend on whether the IRS determines that the taxpayer’s failure was negligent, non-willful or willful. For non-willful violations, for example, the IRS can impose a civil penalty in excess of $10,000 per violation per year. A “violation” is a failure to report an offshore account, not a failure to file. So, if a taxpayer non-willfully fails to report three offshore accounts in a single tax year, the taxpayer will be at risk for more than $30,000 in penalties.
For willful violations, the IRS can impose a civil penalty of up to 50% of the account value or $100,000, whichever is greater (subject to a maximum penalty of 100% of the account value). This penalty is also imposed on an annual, per-violation basis. When the IRS decides to pursue criminal charges, taxpayers can face fines of $250,000 and up to five years of imprisonment.
Penalties for Failure to File IRS Form 8938
U.S. taxpayers who fail to file IRS Form 8938 face a $10,000 failure-to-file penalty. If a taxpayer owes tax on an unreported offshore account (or other “specified foreign financial asset”), the IRS can also impose a failure-to-pay penalty calculated at 40% of the taxpayer’s underpaid tax liability.
Avoiding FBAR and IRS Form 8938 Penalties
While the penalties for FBAR and IRS Form 8938 violations can be substantial, U.S. taxpayers will be able to avoid (or at least minimize) their liability in many cases. For example, depending on a taxpayer’s individual circumstances, the taxpayer’s options for avoiding (or minimizing) these penalties may include:
- Automatic Extension – FBAR filers receive an automatic extension to October 15. If you failed to file your FBAR on April 18, 2022, you can avoid penalties by meeting this extended deadline.
- “Reasonable Cause” for Delinquency – If you are behind on your FBAR filings from prior years, you may be able to avoid penalties by submitting a statement of “reasonable cause.” The IRS has strict requirements for establishing reasonable cause for delinquent FBARs.
- Streamlined Filing – If your failure to file was non-willful, you may qualify to take advantage of the IRS’ streamlined filing procedures.
- Voluntary Disclosure – If you cannot make a valid certification of non-willfulness, your best option may be to submit a voluntary disclosure.
Request an Appointment with Washington D.C. International Tax Attorney Kevin E. Thorn
If you need to know more about the options for avoiding (or minimizing) FBAR or IRS Form 8938 penalties, we encourage you to contact us promptly. Please call 202-349-4033, email firstname.lastname@example.org or contact us online to request an appointment with Washington D.C. international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.