Penalties for Failure to Report Foreign Financial Accounts
The Financial Crimes Enforcement Network (FinCEN) has announced the inflation-adjusted penalty amounts for a failure to report an interest in a foreign financial account by filing a Report of Foreign Bank and Financial Accounts (FBAR). The increased penalty amounts apply to penalties assessed on or after February 19, 2020.
Background—FBAR. A U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, must file an FBAR (FinCEN Form 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. (FinCEN.gov)
A U.S. person means a U.S. citizen (including a child), an individual who is a resident alien under Code Sec. 7701(b) of the U.S the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the U.S., and an entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories and Insular Possessions or Indian Tribes. (FBAR, electronic filing instructions)
A “foreign financial account” is a financial account located outside the U.S. The U.S. includes the states, the District of Columbia, territories and possessions of the U.S., and certain Indian lands. An account maintained with a branch of a U.S. bank that is physically located outside of the U.S. is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the U.S. is not a foreign financial account. (FBAR, electronic filing instructions)
A U.S. person has a financial interest in a foreign financial account if: (1) the U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person; or (2) the owner of record or holder of legal title is one of certain listed entities, which include (a) an agent, a nominee, attorney, or a person acting in some other capacity on behalf of the U.S. person with respect to the account, or (b) any of certain entities controlled by the U.S. person. (FBAR, electronic filing instructions)
Civil penalties for a non-willful violation can range up to $10,000 per violation, as adjusted for inflation. (31 USC 5321(a)(5)(B)(i)) Civil penalties for a willful violation can range up to the greater of $100,000 as adjusted for inflation or 50% of the amount in the account at the time of the violation. (31 USC 5321(a)(5)(C)) These penalties are adjusted for inflation by amending 31 CFR §1010.821.
Inflation adjustments. For penalties assessed after February 19, 2020, the maximum FBAR penalty for a non-willful failure to report a foreign financial account increases to $13,481, and the penalty range for a willful failure to report a foreign financial account now begins at $134,806.
References. For penalties for failure to meet FBAR reporting requirement, see FTC 2d/FIN ¶V-1813.4.