IRS Penalties For Not Filing FBAR

While there are many forms U.S. taxpayers must fill out to abide by the law, the FBAR is one of the most notorious. Up until early 2023, Americans were subjected to a penalty of $10,000 per year, per account for noncompliance. For taxpayers with several unreported accounts, this was simply too much. Luckily, the Supreme Court intervened and slashed the IRS penalties, limiting the non-willful FBAR penalty to only one $10,000 annually regardless of the number of unreported accounts. 

That said, what happens if you’ve missed FBAR filings for previous years, and what are the penalties taxpayers risk for noncompliance?

Keep reading.

Types of FBAR Penalties

  • Willful FBAR Penalties

Just as the name suggests, willful FBAR penalties apply to taxpayers who knew or reasonably should have known that they should file their FBAR. According to the IRS, the standard amount this kind of noncompliance attracts is $100,000 or 50% of one’s foreign account balance at the time of the violation, whichever is higher. This applies to each of the years an FBAR wasn’t filed. 

In extreme cases, willfully failing to file your FBAR can attract a prison sentence. This also applies to anyone who knowingly files a fraudulent or false FBAR.

  • Non-Willful FBAR Penalties

Non-willful FBAR penalties apply to taxpayers who failed to file FBAR because they didn’t know or reasonably couldn’t be expected to know. This kind of noncompliance attracts a penalty of approximately $12,000 annually, for all the years an FBAR wasn’t filed. 

It’s worth noting that the penalty is per account, per year. That means, if you have seven foreign accounts and you fail to file an FBAR for all of them, you’ll be penalized for each one of them separately. 

Is it Possible to Avoid FBAR Penalties By Any Means?

Before you pay any FBAR penalty, you would want to know if there’s something to do to avoid those hefty charges. If you can prove that your non-compliance was due to a reasonable cause, the IRS might not penalize you. So you’d still get a chance to go tax-free. 

What Should You Do If You Fail To File an FBAR Report?

Looking at the penalties, you might freak out if you’ve not filed your FBAR in a long time. However, if the IRS hasn’t contacted you yet, you might still be able to go penalty-free. The IRS provides two voluntary disclosure programs to U.S. citizens living abroad filing late taxes – the Delinquent FBAR Submission Procedures and Streamlined Compliance Procedures. 

With these tax amnesty programs in place, expats who non-willfully violate tax regulations can catch up on their FBAR filing obligations without facing any penalty. 

The Streamlined Compliance Procedures program applies to Expats who have failed to file their annual income taxes and possibly their required FBARs. Here’s what you should do if you qualify for this program:

  • Prove that you didn’t willfully fail to file your taxes
  • File the last three late income tax returns and pay the taxes you owed during this time together with accrued interest
  • File all FBARs for the last six years

On the other hand, expats who have been filing and paying annual income taxes qualify for the Delinquent FBAR Submissions Procedures. Here’s what you should do in this case:

  • Prove that you didn’t willfully fail to file your taxes
  • File all late FBARs

With that, you should be able to comply with the IRS regulations.

Final Thoughts

FBAR penalties are crazy. If you’ve not been filing your FBARs, it’s time to work your way towards complying with IRS standards. Reach out to an expat tax professional to catch up on your filing obligations.

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