Many Americans living abroad must file a Foreign Bank Account Report (FBAR) each year—but not everyone realizes this obligation, leading to unintentional violations and potential penalties. This article takes a deep dive into the various FBAR penalties you could face and provides clear, practical steps for staying compliant and avoiding these costly repercussions.
Key Takeaways
- Who Must File: U.S. persons (citizens, residents, or entities) with combined foreign account balances over $10,000 must file an FBAR.
- Penalties: Failing to file can lead to civil or criminal penalties—but prompt action can often minimize them.
- Amnesty Programs: The Streamlined Filing Compliance Program and Delinquent FBAR Filing Procedures let you fix past oversights and reduce or avoid penalties.
What Is the FBAR?
The FBAR is an informational form required annually by the U.S. Treasury Department. It must be filed by U.S. persons, including green card holders, who had more than $10,000 in total across any foreign financial account at any point during the calendar year. The FBAR does not assess taxes—it’s strictly for reporting purposes. The FBAR is due on April 15 of each year, with an automatic extension to October 15 if needed. The report must be filed electronically through FinCEN’s BSA E-Filing System.
Filing an FBAR doesn’t create a tax liability, but failing to file when required can result in significant penalties. Staying compliant is simple and helps you avoid unnecessary risks.
Want to learn more about the FBAR and its filing requirements? Click here for a detailed guide on FBAR compliance.
What Are the Penalties for Failure to File the FBAR?
Failing to file an FBARcan lead to significant penalties, depending on whether the violation is classified as non-willful or willful. The Financial Crimes Enforcement Network enforces these penalties under the Bank Secrecy Act to ensure compliance with FBAR reporting requirements.
Non-Willful FBAR Penalties
Non-willful violations occur when a U.S. person fails to file an FBAR unintentionally, resulting in an FBAR penalty of up to $10,000 per FBAR form, as clarified by the Supreme Court in the Bittner v. United States ruling. This decision limits penalties to per form rather than per account, significantly reducing potential fines. Criminal penalties do not apply to non-willful violations, and the IRS may waive the penalty entirely if you can demonstrate reasonable cause, such as misunderstanding the FBAR filing requirements or your legal duty to report.
Willful FBAR Penalties
Willful violations occur when a taxpayer knowingly fails to file an FBAR or intentionally disregards FBAR filing requirements, resulting in a severe FBAR penalty. Governed by the Civil Penalty Authority under 31 USC 5321(a)(5)(C), individuals who willfully fail to file can face substantial financial consequences. As specified in 31 CFR 1010.821, the civil penalty for a willful violation can be as high as $100,000, or 50% of the balance in the foreign account at the time of the violation—whichever is greater. This dual-criterion underscores the seriousness with which the U.S. government treats willful non-compliance in foreign financial account reporting.
These penalties may be assessed per year, leading to steep fines. Criminal penalties can also apply, including fines of up to $250,000 and 5 years in prison for serious cases involving tax evasion or false reporting.
Reasonable cause may reduce or eliminate civil penalties if the failure to file was unintentional and properly explained to the IRS.
IRS Enforcement and FBAR Penalties
The IRS takes FBAR non-compliance seriously, and failure to file can result in severe penalties. Under the Foreign Account Tax Compliance Act (FATCA), financial institutions worldwide are required to report details about your foreign bank accounts and financial accounts directly to the IRS. This global reporting network makes it easier for the IRS to identify unreported foreign financial accounts and enforce FBAR filing requirements.
Missed the FBAR Deadline? Here’s How to Fix It
If you missed the FBAR deadline, don’t panic—there are IRS amnesty programs designed to help you get back on track and avoid penalties for failing to report foreign bank accounts. The key is to act quickly and file as soon as possible.
Delinquent FBAR Submission Procedures
For those who failed to file FBARs but were otherwise compliant with their U.S. tax obligations, the Delinquent FBAR Submission Procedures may be the best option for reporting any foreign financial account. This program allows you to submit late FBARs without facing penalties, as long as you have no unreported income and can certify that your failure to file was non-willful.
Streamlined Foreign Offshore Compliance Program
If you haven’t been compliant at all—meaning you didn’t file FBARs or U.S. tax returns—the Streamlined Foreign Offshore Compliance Program is a better fit. This program is designed for taxpayers whose failure to report was non-willful and helps you catch up on both FBARs and tax returns while minimizing penalties.
No matter your situation, if you discover you should have filed an FBAR, file it as soon as possible. When filing, you can simply check the box indicating you didn’t know you had to file, which may help demonstrate reasonable cause and reduce the likelihood of penalties. Acting quickly shows good faith and can make a big difference in resolving the issue without fines.
How Common Are FBAR Penalties?
FBAR penalties can sound intimidating, but in reality, they are not as common as many people fear—especially for those who take quick steps to correct their mistakes.
The IRS typically focuses on cases involving willful violations, where taxpayers intentionally concealed foreign financial accounts or knowingly ignored their FBAR filing requirements. For non-willful violations, taxpayers who file late FBARs and provide a reasonable explanation—such as misunderstanding their legal duty—often avoid penalties entirely.
Based on my experience, clients who voluntarily came forward to fix their filings have not faced FBAR penalties. Acting quickly and using programs like the Delinquent FBAR Submission Procedures or the Streamlined Foreign Offshore Compliance Program can help you become compliant and reduce or eliminate penalties.
Have questions about your FBAR filing or how to stay compliant? Contact us today for a free consultation! Our experienced Enrolled Agents and international tax preparers are happy to answer your questions and help you find the best path forward—at no cost to you. Let us simplify the process so you can focus on enjoying life abroad while staying compliant.
Common Mistakes in FBAR Preparation for US Expats
US expats often make errors when preparing their Foreign Bank and Financial Accounts Report (FBAR), which can lead to penalties for failing to report foreign bank accounts. Awareness of these mistakes is essential for accurate and compliant FBAR filings.
- Unreported Accounts: Expats frequently fail to report all foreign bank accounts, including those with minimal balances. If the total balance exceeds $10,000 at any point during the year, all accounts must be reported.
- Confusion with Tax Returns: Filing federal tax returns is not the same as filing an FBAR. The FBAR specifically reports foreign account holdings, separate from federal tax returns.
- Aggregate Account Balance: Misunderstanding the aggregate balance requirement is common. If the combined balance of all foreign accounts exceeds $10,000, an FBAR is necessary.
- Account Authority: Expats must report accounts over which they have signatory authority, even if they do not own them.
- Negligent Failure: Inaccuracies or late filings due to negligence can incur penalties. Thoroughness and professional advice are crucial.
By avoiding these common errors and ensuring accurate reporting, US expats can maintain compliance and avoid penalties. Regularly reviewing FBAR and tax filing requirements is key to staying compliant while living abroad.
Related: How Many Years Back Do You Need To File FBAR?
At 1040 Abroad, we believe in making U.S. tax compliance as straightforward as possible for Americans living overseas—without resorting to scare tactics. Our dedicated team of international tax preparers has spent nearly a decade assisting expats with their FBAR (Foreign Bank Account Report) filings and overall tax obligations. Whether you’re worried about FBAR penalties or simply unsure about the latest reporting requirements, we’re here to guide you at every step. Contact us today!
