Foreign Bank and Financial Accounts

This is another reminder of how important it is to report and file a Report of Foreign Bank and Financial Accounts (FBAR). Every U.S. person with a financial interest in, or signature or other authority over one or more foreign financial accounts with an aggregate value of more than $10,000 must annually report the accounts to the Treasury Department.

            The Federal 5th Circuit Court of Appeals (CA-5) has recently ruled in U.S. vs. Bittner that the penalty applies on a per account basis and not on a FBAR Form basis. CA-5 is the Federal Appeals Courts that apply to Texas. This increases the potential magnitude of the penalty. In the referenced Bittner case, if the penalty were applied on a per FBAR form basis, the penalty would have been $10,000 for each year a FBAR Form was not filed. Instead, because it was applied on a per account basis, the penalty was $2.72 million ($10,000 for each unreported account for each year).

            The $10,000 penalty is the maximum for a non-willful failure to file a FBAR which applied in the referenced case. The penalty is adjusted for inflation annually and is $13,640 after January 27, 2021 for non-willful failure to file.

            The penalty for willful failure to file is substantially more. The willful failure to file penalty can be up to the greater of $100,000 which is now $136,399 after January 27, 2021 when adjusted for inflation or 50% of the aggregate account balance for all years under examination. The penalty will not exceed 100% of the highest aggregate balance of all unreported accounts during the years under examination. Criminal penalties may also apply to willful failure to file.

            If you have any foreign accounts or assets, it is important to inform your tax preparer so that the filing requirement can be properly determined.