FBAR Willful Standard & Civil Penalties Explained

Was Your Failure to File the FBAR Willful, What to do Next?

Did You Willfully Miss Filing FBAR?

When a US person fails to timely report the FBAR (aka FinCEN Form 114) in order to disclose their foreign accounts, assets, and investments, almost all of the time it will be considered a civil violation and not a criminal violation. When a person commits a civil FBAR violation, it is broken down further into two categories –– willful vs non-willful. If a person is willful, then they may become subject to extensive fines and penalties reaching upwards of 50% of the maximum value of the unreported foreign money. In years past (since the FBAR statute is six years), the total maximum penalty amount could literally be 300% value of the money, but in recent years this has been modified to reduce the total penalty to 100% of the maximum value of the money. Since there is so much bad and inaccurate information on the Internet by “self-proclaimed experts” involving willful FBAR, here are five important facts to keep in mind.

Most Violations Are Non-Willful

In general, when the taxpayer commits an FBAR violation, most of the time it is considered a non-willful violation. There are many, many scenarios in which a person would be considered non-willful, so taxpayers should not take the immediate position that any missed reporting will be considered willful or that their 20/20 hindsight means they must be reckless (see below).

You Are Not Presumed Willful

There is some inaccurate literature online which alleges that the Internal Revenue Service takes the automatic position that all noncompliance is willful, but this is incorrect. In fact, the Internal Revenue Service has developed several FBAR Amnesty Programs to assist taxpayers who are non-willful with getting into compliance, because even the Internal Revenue Service acknowledges that most mistakes are non-willful.

FBAR Willfulness: Reckless Disregard and Willful Blindness

It is important to note that for the US government to prove a taxpayer is willful, they do not need to show that the taxpayer acted with intent or even actual knowledge. There are lower standards of willfulness such as reckless disregard and willful blindness. Thus, taxpayers who find themselves lurking in the grey area will want to consult with an experienced Board-Certified Tax Law Specialist that specializes exclusively in this area of international tax compliance law.

Willful FBAR Is Not Limited to $100,000 Per Year

Recently, some taxpayers have taken the position that based on an ambiguity between the FBAR statute and the regulation — penalties were limited to $100,000 per year or even $100,000 in total, but that is not the case. Recently, the regulations for civil FBAR were updated to clarify this point.

You May Want to Consider Offshore Voluntary Disclosure

If you believe you were willful in failing to report the annual FBAR to the US government, you may want to consider the IRS Voluntary Disclosure Program (which is the only program that supports willful taxpayers with getting into IRS compliance), before the IRS contacts you (which could issue much higher penalties).

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