A Per-Account & Per Form FBAR Penalty Comparison (Example)

The Per-Account & Per Form FBAR Penalties

The Per-Account & Per Form FBAR Penalties 

When it comes to civil FBAR penalties, there are two main categories: there are willful FBAR violations and non-willful FBAR violations. The two most common types of non-willful civil FBAR violations are per-form or per-account — in other words, a single penalty representing the incomplete or missed form for the year (aka per-form) or a penalty based on the number of accounts per year for the statutory period (aka per-account). With the per-form penalty, then even if the Taxpayer had 15-to-20 accounts the total penalty would only be $10,000 (adjusted for inflation).  If on the other hand, the penalty is a per account penalty, then the penalty can go up to $10,000 per account, per year –– but generally will not exceed the willfulness penalty of 50% of the maximum account(s) value.  As you can see, there can be a huge disparity in penalties for a person who is penalized per-form as opposed to per-account penalty. Let’s take a look at 5 key facts:

First, Example by Illustration

Let’s look at a very basic example: Kimberly has four foreign accounts and has had four accounts for each of the past 10 years. Each account has $150,000. Therefore, Kimberly has an annual reporting requirement for FBAR to disclose her four accounts. For each account, she will report the Foreign Financial Institution’s address and maximum account value throughout each year – using the applicable exchange rate for the year.

FBAR Penalties in General

Since Kimberly did not report the FBAR in prior years, she may become subject to FBAR penalties going back 6-years (the statutory maximum). Let’s presume Kimberly was non-willful and therefore would not become subject to willful civil or criminal FBAR penalties.

Non-Willful FBAR Penalties are New

The penalty is based on there being an FBAR violation – the problem is, what is considered a violation?

While Willful FBAR Penalties have been around for a long time (noting, the FBAR dates back 50 years), non-willful FBAR penalties are relatively new (about 20 years). 

Per- Form Penalty Per Year

Some circuits (such as Boyd in the 9^th Circuit) take the position that in situations in which the Taxpayer was non-willful and submitted accurate (late or delinquent) FBARs — penalties are limited to a $10,000 per year FBAR Penalty ($10,000 adjusts for inflation) —

Per- Account Penalty Per Year

Other circuits (Such as Bittner in the 5^th Circuit), take the position that non-willful FBAR Penalties are limited to a per account, per year basis. So for example, in the case example above, Kimberly could get assessed penalties of $40,000 per year, for 6-years, resulting in $240,000 in penalties. Noting, the maximum FBAR non-willful civil FBAR penalty should not exceed 50% of the total value of the penalty for the compliance period (so as to not exceed willfulness penalties).

Agents/Examiners Have Discretion

While these penalties reflect the maximum penalties, IRS agents do have the discretion to reduce and even eliminate penalties. And, if the Taxpayer can prove reasonable cause and not willful neglect, all penalties should be avoided.

Supreme Court, Bittner

In 2022, the U.S. Supreme Court agreed to hear the case of Bittner to determine the issue of non-willful FBAR penalties.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.