FBAR Penalties: The IRS has significantly increased the assessment and enforcement of foreign bank and financial account penalties. The FBAR Penalty is one of the most dreaded offshore penalties the Internal Revenue Service can asses. Unlike other fines that a Taxpayer can dispute in tax court, the FBAR cannot be litigated in Tax Court. Rather, since the FBAR does not refer to a Tax, but instead ia an AML (Anti-Money Laundering) reporting requirement — the Taxpayer does not have the opportunity to fight the FBAR Penalty in Tax Court. Therefore, it is very important for Filers to get into compliance before the IRS discovers the unreported accounts — and levies fines and penalties against the Taxpayer.
A. Civil FBAR Penalties
The most frequently type of FBAR Penalty is the Civil FBAR Penalty.
Since the penalty is a civil penalty and not a criminal penalty, imprisonment is not an issue.
The Civil FBAR penalty can be further broken down into willful and non-willful penalties.
While the non-willful penalty is the most common, the IRS has significantly increased enforcement of willful penalties as well. In addition, Courts across the country have confirmed the issuance of willful penalties.
Non-Willful FBAR Violation Penalty
When a person is non-willful, the penalties can range extensively.
The different penalty tiers, include:
- Warning Letter in Lieu of Penalty
- $10,000 Penalty to encompass penalties for all years and accounts
- $10,000 Penalty per year
- $10,000 Penalty per account, per year
*The $10,000 adjusts for inflation.
Willful Violation FBAR Penalties
The willful penalties for FBAR violations are tough.
Essentially, the person is penalized $100,000 or 50% against the aggregate total maximum balance of unreported accounts — whichever is higher.
Therefore, the $100,000 is actually the minimal penalty or the floor.
*The $100,000 adjusts for inflation.
B. Criminal FBAR Penalties
Criminal FBAR Penalties are governed by U.S.C. 5322. The IRS does not refer criminal FBAR penalties nearly as often as it enforces civil penalties.
The IRS does not handle the criminal enforcement; it is referred out for prosecution.
Section 31 U.S.C. § 5322
“(a) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315 or 5324 of this title or a regulation prescribed under section 5315 or 5324), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.
(b) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315 or 5324 of this title or a regulation prescribed under section 5315 or 5324), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 10 years, or both.
(c) For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.
(d) A financial institution or agency that violates any provision of subsection (i) or (j) of section 5318, or any special measures imposed under section 5318A, or any regulation prescribed under subsection (i) or (j) of section 5318 or section 5318A, shall be fined in an amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000.”
FBAR Penalties & IRS Standard of Proof
The standard of proof for proving FBAR varies between Civil and Criminal enforcement.
Civil FBAR Standard of Proof
For civil enforcement, all the IRS has to prove is Preponderance of the Evidence.
Preponderance of the evidence is generally thought of as equating to more than 50%.
Criminal FBAR Standard of Proof
As with any crime, the U.S. government is required to prove the defendant’s acts we Beyond a Reasonable Doubt, and equates to proof of 95%.
The standard is so high, because a person’s their freedom is at stake.
FBAR Penalty Amnesty Programs are Available
Our FBAR Lawyers Represent Clients Worldwide
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance with getting compliant.