International Tax Penalties | Non-Willful Failure | OH IN KY

Foreign Tax Penalties – Raising the FBAR

Published on by Emily Riechman in International Business, Tax Services

Foreign Tax Penalties – Raising the FBAR

International tax penalties are steep and they can add up fast, as we outlined in our International Tax Penalties – and How to Avoid Them video. But a recent Supreme Court ruling may provide some relief. Here’s what you need to know.

What’s the FBAR?

The Bank Secrecy Act requires any U.S. person with a financial interest in, or signature or other authority over, at least one foreign financial account whose aggregate value exceeds $10,000 at any point during the calendar year to file a Report of Foreign Bank and Financial Accounts (FBAR).

Failure to file the FBAR can result in a steep penalty, which varies depending on the nature of the conduct. Previously, willful failure to file, or filing an incomplete or incorrect FBAR, subjected a taxpayer to a penalty of the greater of $100,000 or 50% of the account balance at the time of the violation. A non-willful failure to file constituted a penalty of $10,000 per account/violation. Either way, the penalties added up fast.

Supreme Court Ruling

In November 2022, the Supreme Court heard a case arguing whether this $10,000 maximum penalty for non-willful conduct should apply per year or account. Because it was previously being assessed on a per-account basis, taxpayers with multiple foreign accounts were subjected to substantial penalties.

On February 28, 2023, the Supreme Court ruled in favor of taxpayers, holding that the non-willful failure to file applies on a per-report, not per-account, basis. This means the failure to file is now considered one violation and can only subject a person to one maximum penalty of $10,000 per year – dramatically reducing the potential penalties and providing taxpayers a little breathing room.

International tax strategies and solutions

If you have any questions on the impact of your international activity, the Barnes Dennig team of top international tax pros is here to help. Get in touch for a conversation, and start your path to a better, brighter future.

While you’re here – catch up on the latest in transfer pricing, insights into international tax penalties and how to avoid them, and an exclusive on-demand virtual event – the Keys to International Expansion in 2023 and Beyond. In the international arena, the Barnes Dennig team of top international tax and assurance pros is here to help.


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