Foreign Bank Account Report (FBAR) violations can result in serious penalties. However, there is a large gray area when its time for the IRS examiner to determine the exact amount of a penalty assessment.
Some factors that could impact your penalty assessment include:
- Whether the violations were willful or non-willful.
- Whether you had multiple unreported accounts or multiple years of violations.
- Mitigation guidelines that allow for reduced penalties in some cases.
- The examiner’s discretion.
Non-Willful Violations
The penalty for non-willful FBAR violations is generally $10,000 per violation. Technically, this penalty can be assessed for each unreported account for each year.
The IRS examiner has the discretion to assess only one FBAR penalty per year, even when there are several undisclosed foreign accounts. The examiner also has the option to assert only one FBAR penalty when there are multiple years of violations, but the Operating Division FBAR Coordinator must be consulted in these cases.
There’s also an absolute cap of 50% of the highest aggregate account balance during the years under examination.
Willful Violations
The penalty for willful FBAR violations is up to $100,000 or 50% of the highest aggregate account balance during the year. The examiner has the option to assess a separate penalty for each year when there are several years of non-disclosure.
However, in some cases examiner will limit the total penalty to 50% of the highest aggregate balance, even when there are multiple years of violations. This effectively makes the penalty calculation based only on the year with the highest account balance.
The examiner can recommend a higher penalty, but the absolute cap is 100% of the highest aggregate account balance during the years under examination.
Mitigation Guidelines
The mitigation guidelines give the examiner even more discretion to reduce FBAR penalties. Before the mitigation guidelines can be used, certain threshold conditions must be satisfied, including cooperation by the taxpayer and a lack of a criminal tax history.
If the threshold conditions are met, the examiner can assess lower penalties based on the highest aggregate account value. For example, non-willful violations can result in a $500 penalty per violation if the account value did not exceed $50,000 during the examination period. The mitigation guidelines can also be used in cases involving willful violations.
Contact a tax attorney if you need help dealing with an FBAR penalty assessment or disclosing your unreported offshore accounts.
The Gartzman Law Firm can evaluate your case to determine your best offshore disclosure option. Use our contact form to request a consultation with an Atlanta tax resolution attorney.