by Brian Mahany
A reader of our blog recently asked for a simple to understand summary of the penalties for failing to file a Report of Foreign Bank and Financial Accounts, more commonly referred to as an FBAR. Foreign bank and brokerage accounts must be reported annually on an FBAR form, TD-90-22.1. This report must be filed by June 30th of each year and is independent of one’s income tax returns.
A willful failure to file an FBAR may carry a criminal penalty of up to $250,000 and / or up to 5 years in prison. Each missing FBAR is a separate crime.
Criminal penalties are in addition to any civil penalties the IRS may impose. For willful violations after October 2004, the civil penalties are the greater of $100,000 per account or 50% of the highest balance in each unreported account for that year.
If the taxpayer can demonstrate the failure to file an FBAR was not willful, the penalties are much lower, often just $10,000.
Unlike traditional IRS penalties which are based on the amount of the unreported income, FBAR penalties are based on the size of the account. That means a $200,000 brokerage account that goes unreported for 2 years could have penalties of $200,000 even though the account only generated a profit of $1000. While this is an extreme example, the IRS does calculate the FBAR penalty on the size of the account and not the tax loss.
There may be additional penalties that the IRS can impose including a penalty for failing to file a FATCA form if required. The FBAR penalty provisions are so onerous that one should seek counsel if they have missing FBARs. The IRS recently warned that simply quietly filing any missing FBARs would not simply make the penalties go away. Luckily, there is presently an amnesty program available that will help most taxpayers avoid audit, avoid criminal prosecution and in most instances, save a tremendous amount of penalties.
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore tax reporting problems including missing FBARs, penalty abatements, criminal tax investigations and the offshore voluntary disclosure program (tax amnesty). For more information, contact attorney Bethany Kroes at firstname.lastname@example.org or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon San Francisco, California. Services available worldwide.
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