FBAR Penalties: What You Need to Know About Fines and Violations

Failing to report foreign bank accounts can lead to serious financial consequences. The U.S. government requires certain individuals to disclose their overseas holdings through the Foreign Bank Account Report (FBAR). Ignoring this requirement, whether intentionally or not, can result in hefty fines.

Understanding FBAR penalties helps individuals with foreign accounts avoid costly mistakes. These fines vary based on intent and frequency of violations. Knowing what triggers penalties and how they are enforced can prevent unnecessary financial and legal trouble.

Who Must File

U.S. persons with financial interests in or signature authority over foreign accounts must determine if they meet the FBAR filing threshold. This requirement applies to citizens, residents, and certain entities, including corporations, partnerships, and trusts. If the combined balance of all foreign accounts exceeds $10,000 at any point during the calendar year, filing is mandatory.

Foreign accounts include more than just traditional bank accounts. Brokerage accounts, mutual funds, and certain insurance policies with cash value also count. Even accounts that do not generate income must be reported. Joint accounts require disclosure, and each account holder may need to file separately.

Signature authority can also trigger the obligation to file. This applies when an individual has control over an account’s transactions, even if they do not own the funds. For example, employees managing corporate accounts may need to report them. Some exceptions exist, such as officers of publicly traded companies who qualify for specific exemptions under FinCEN regulations.

Non-Willful Penalties

Non-willful FBAR violations occur when an individual unintentionally fails to report foreign accounts. While these infractions lack deliberate intent, they can still result in financial penalties. The IRS has the discretion to impose fines of up to $10,000 per violation, adjusted for inflation. As of 2024, this amount is approximately $15,611 per unreported account.

Determining whether a violation is non-willful depends on the circumstances. Factors such as lack of knowledge, reliance on incorrect professional advice, or misunderstanding of reporting requirements influence how the IRS assesses penalties. While ignorance of the law does not automatically exempt someone from fines, demonstrating reasonable cause—such as receiving misleading guidance from a tax preparer—can sometimes lead to penalty relief.

The IRS may calculate non-willful penalties in different ways. It can apply a single penalty for the entire FBAR violation or assess fines on a per-account basis. This distinction is significant, as individuals with multiple unreported accounts could face substantial financial consequences. For example, failing to disclose five accounts could result in a penalty exceeding $75,000 if fines are applied separately to each account.

Willful Penalties

Intentional failure to comply with FBAR reporting requirements carries much harsher consequences. When the government determines that an individual knowingly disregarded their obligation to disclose foreign accounts, penalties become severe. The IRS identifies willful violations based on evidence of conscious efforts to conceal accounts, such as structuring transactions to avoid detection, providing false information on tax returns, or failing to seek clarification despite clear awareness of reporting obligations.

Financial penalties for willful violations are steep. The IRS can impose a fine equal to the greater of $100,000 or 50% of the highest balance in the unreported account during the year of noncompliance. This means that if an account held $500,000 at its peak, the penalty could reach $250,000 for that single violation. If multiple years of noncompliance are involved, penalties can quickly escalate, potentially exceeding the total account balance. These fines are adjusted for inflation, and for 2024, the minimum willful penalty is approximately $161,954 per violation.

Beyond monetary consequences, willful violations can lead to criminal prosecution. Individuals found guilty of willfully failing to file an FBAR may face up to five years in prison and additional fines of up to $250,000. If the violation is linked to other financial crimes, such as tax evasion or money laundering, penalties can increase to ten years of imprisonment and fines reaching $500,000. Prosecutors often rely on email correspondence, account opening documents, and testimony from financial institutions to establish intent.

Repeat Violations

Repeated FBAR violations significantly increase financial exposure and legal risks. When an individual or entity fails to report foreign accounts across multiple years, penalties compound, often exceeding the account balance itself. The IRS and the Financial Crimes Enforcement Network (FinCEN) consider repeated failures an aggravating factor, which can influence both penalty assessments and potential criminal referrals.

Courts have upheld the imposition of cumulative penalties, with some cases resulting in multi-million dollar fines due to repeated noncompliance. In United States v. Schwarzbaum (2022), a taxpayer faced penalties exceeding $12 million after failing to disclose offshore holdings for several years. The government successfully argued that each year of noncompliance constituted a separate violation, reinforcing the precedent that penalties are assessed per violation, not per taxpayer.

Penalty Collection Process

Once FBAR penalties are assessed, the U.S. government employs various methods to collect outstanding amounts. The collection process can be aggressive, particularly for willful violations, as the IRS and the Department of Justice (DOJ) have broad authority to enforce payment. Unlike standard tax liabilities, FBAR penalties are not subject to the same procedural safeguards, making it more difficult for taxpayers to challenge or negotiate reductions.

The IRS typically begins collection efforts by issuing a demand for payment. If the penalty remains unpaid, the government may file a civil lawsuit to obtain a judgment, which can lead to wage garnishments, bank levies, or property liens. In cases of willful violations, the DOJ may initiate litigation to enforce collection, as seen in United States v. Toth (2022), where the court upheld a multi-million dollar penalty despite the taxpayer’s objections. The government can also seize assets held domestically, including real estate and investment accounts, to satisfy the debt.