The Consequences of FBAR Non-Compliance

A judge's hammer and a dollar sign, FBAR

Offshore account holders who fail to comply with Foreign Bank and Financial Accounts Reporting (FBAR) regulations could be facing significant penalties including massive fines and even prison time. The Internal Revenue Service (IRS) is warning anyone who has a financial interest in, or signature authority over foreign bank accounts that, in total, are valued at more than $10,000 to get into compliance before it’s too late.

In 2010, the Foreign Account Tax Compliance Act (FACTA) was passed, which requires foreign governments and banks to hand over private information about depositors. The act spans the globe and more than 100 countries have already agreed to the law. Global efforts to control tax avoidance mean that it is extremely unlikely that offshore accounts will stay under the radar forever.

Penalties for Not Coming Clean with the IRS

The consequences of not complying with the law can be significant. Those who fail to disclose their foreign assets could be facing:

  • $10,000 for each account per year for non-willful FBAR noncompliance.
  • The greater of 50 percent of account balances or $100,000 every year for willful FBAR noncompliance. Individuals could face criminal penalties as well.
  • Criminal penalties and up to $10,000 for failing to file the Statement of Specified Foreign Financial Assets (form 8398), and another $10,000 for every 30 days of not filing after receiving a notice from the IRS, up to a maximum of $60,000.
  • Up to 75 percent of tax underpayment in civil penalties for tax fraud in addition to any tax already owed.
  • Criminal penalties that may include up to 5 years in prison and financial penalties of up to $250,000 for individuals and $500,000 for corporations.

Options for FBAR Compliance

Complying with disclosure regulations can be intimidating- especially if one has remain non-compliant in the past. Here are some options for getting into compliance.

Offshore Voluntary Disclosure Program (OVDP)

While the penalties associated with the OVDP can be steep (up to 50 percent of the account’s highest value), they are still better than willfully failing to disclose foreign assets, and those who participate can receive amnesty from criminal prosecution. This program is not available to those who are already under investigation.

Streamlined Program

Easier and less expensive, the Streamlined Program is available to individual taxpayers who can certify that their noncompliance was not willful. Like the OVDP, individuals who are already under investigation are not eligible.