One FBAR Penalty Per Form
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How Many FBAR Penalties For Account Violation is Enough?
Courts Do Not Agree on One FBAR Penalty Per Form: FBAR Penalties are a key enforcement priority for the IRS. The Internal Revenue Service has turned up the heat on US taxpayers for undisclosed offshore accounts, assets and investments. What’s so infuriating, is that the FBAR is not even a tax form. In fact, a person may have a zero tax liability, and owe no taxes at the time they file their late FBAR — but still get hit with a monstrous foreign bank and financial account penalty.
The question is: how many FBAR penalties for account violation is enough?
Non-Willful FBAR Penalties
When it comes to civil FBAR penalties, there are various levels of penalty that the IRS can pursue.
It starts at a warning letter in lieu of penalty, and goes all the way up to a $10,000 per account per year penalty — up to 50% maximum account balance for all accounts in that year.
Whether or not this penalty framework is enforceable is still up for debate. While the IRS has been known to issue per violation/per year penalties — courts are not always amenable to enforcing these penalties.
In fact, in a recent FBAR case decision in Connecticut (U.S. v. Kaufman), the court found that the FBAR penalty should be limited to one non-willful penalty per form, per year.
In other words, if a person files a late FBAR, and they had 15 different accounts with a total value of $1,000,000 — the maximum non willful FBAR penalty should still be $10,000 (adjusted for inflation).
Not all courts agree and some courts are more than willing to issue multiple penalties.
Willful FBAR Penalties
When it comes to willful FBAR penalties, it can get a lot worse. The penalty is essentially $100,000 (adjusted for inflation) or 50% penalty on the total maximum value of all the unreported accounts — whichever is greater.
This standard essentially makes the $100,000 the floor or least amount of penalty.
Some taxpayers have argued that the maximum penalty should be $100,000 — and nearly all courts disagree with that position.
FBAR Mitigation
One thing to keep in mind is no matter what penalty has been issued, the IRS agents and examiners have authority and discretion to reduce the penalty. The $10,000 and $100,000 values are the maximum values that can be issued per violation. And, while it is commonplace for the IRS to issue penalties based on the maximum allowable value — there is always room for negotiation.
FBAR Penalties are in a State of Flux
In conclusion, courts around the country disagree on how FBAR penalties should be enforced. While some courts will limit the amount of non-willful penalties to $10,000 per year, other courts agree with the IRS that the FBAR penalty is based on the number of violations in a given year — up to a certain cap.
Even if a Taxpayer has been issued penalties by the Internal Revenue Service, the examiners have discretion to reduce or abate the penalties.
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