IRS memo on failure to file FBAR describes penalties

bigstock-Tax-Evasion-Offshore-Account-73912750Regular readers of our Cleveland tax blog will undoubtedly recall recent references to the FBAR (Report of Foreign Bank and Financial Accounts). It's essentially a report to the Internal Revenue Service on amounts of $10,000 or more in any overseas accounts.


Not long ago, the IRS sent out a memo outlining the range of penalties it can assess on two groups of people who fail to file the FBAR: willful and nonwillful. If you willfully failed to file, there is a set of large potential penalties available for examiners to assess against you when looking over statements from foreign banks. If your failure to file was nonwillful, the potential penalties might be substantially smaller. Let's take a look.

In the memo, the IRS says penalties are largely up to the examiners and their supervisors. In "most cases" of willful FBAR violations, your penalties "will be limited to 50 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination." So if you willfully did not file for a year in which you held $100,000 in a foreign account, you would likely face a fine of up to 50 percent of that balance, totaling $50,000.

However, the IRS notes that fines for willful violations can be even higher, depending on circumstances. The fines can also be lowered, it states in the memorandum.

For a nonwillful violation, the terms are less harsh. The maximum penalty for any one year of willful violation is $10,000, no matter how many years you are determined to be in nonwillful violation.

Many people facing large FBAR-related fines will take financial records and IRS documents to a Cleveland tax attorney experienced in negotiating on behalf of clients favorable terms with the agency. Matters can then be resolved and the client and IRS can both move on.

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