Manny Trelles, CPA
Recently, the US Supreme Court held that the $10,000 penalty for a non-willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) for foreign accounts accrued per report, not per account. (Bittner, No. 21-1195 [U.S. 2/28/23]).
In the past, you may have been assessed a $10,000 penalty per account. For example, if a taxpayer failed to disclose 5 foreign bank accounts on the FBAR report, the penalty assessed may have been $50,000 ($10,000 per account). With the US Supreme Court ruling, a taxpayer may only be assessed a $10,000 penalty per report. This is favorable case for non-willful violations, however, the importance of filing timely FBAR reports is still significant due to the $10,000 penalty.
Who Must File
A United States person must file an FBAR if that person has a financial interest in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.
A “United States” person is:
- United States citizen or resident
- United States entity including a corporation, partnership, and limited liability company.
- United States trust
- United States estate
Signature Authority is:
- The authority to control the disposition of assets held in foreign financial accounts by direct communication (whether in writing or orally).
Financial accounts includes the following types of accounts (but not limited to):
- Bank accounts such as savings accounts, checking accounts, and cryptocurrency,
- Securities accounts such as brokerage accounts and securities derivatives,
- Commodity futures or options accounts,
- Insurance policies with a cash value,
- Mutual funds or similar pooled funds
Some civil and criminal penalties for not complying with FBAR reporting include:
|Violation||Civil Penalties||Criminal Penalties||Comments|
|Negligent Violation||Up to $500||N/A||31 U.S.C. § 5321(a)(6)(A) 31 C.F.R. 103.57(h) Does not apply to individuals.|
|Non-Willful Violation||Up to $10,000 for each negligent violation||N/A||31 U.S.C. § 5321(a)(5)(B)|
|Pattern of Negligent Activity||In addition to penalty under § 5321(a)(6)(A) with respect to any such violation, not more than $50,000||N/A||31 U.S.C. 5321(a)(6)(B) Does not apply to individuals.|
The IRS has several programs available for taxpayers who have missed the FBAR reporting requirement and to help them become compliant such as streamlined filing compliance procedure: Streamlined Filing Compliance Procedures | Internal Revenue Service (irs.gov). The available IRS programs can help mitigate assessed penalties.
Contact a tax advisor here at WFY to discuss FBAR filing requirements or if you need to come into compliance with all necessary tax filings related to foreign accounts. You can sign-up for our newsletter here to receive more updates like this.
Wright Ford Young & Co. is headquartered in Irvine, CA and is the largest single office CPA firm in Orange County. WFY is a full service corporate accounting firm offering audit, tax, estate and trust, and business consulting services to closely held company and family business owners. More information about our Firm can be found at www.cpa-wfy.com.