It’s rare these days to get good news about international tax compliance from the Internal Revenue Service, but the IRS recently did recently add a little common sense to the egregious FBAR penalty regime.
As most people are now aware, any US citizen or resident who owns or can sign for foreign accounts with aggregate balances over $10,000 must file an annual report of foreign bank accounts (FBAR) with the U.S. Treasury. This report, also known by its form number FinCEN 114, is due by June 30 each year and does not currently allow for extensions of time to file (more on due dates in a future post).
In years past, failure to file an FBAR timely could result in penalties of 50% of the highest annual value of each account for each year filed late. This could have absurd results. For example, if a taxpayer owned a foreign account worth $100,000 and willfully failed to file an FBAR for three years, the resulting penalty could be up to $150,000 or 150% of the actual account balance! Even non-willful non-filers were subject to a $10,000 penalty per account, per year, for up to six years. Thankfully, the IRS recently changed this draconian penalty regime under interim guidance issued in May 2015.
Even under the new guidance, the penalties are nothing to scoff at: the willful penalty will generally be a one-time 50% charge on the highest aggregate account value, so in the example above the maximum penalty would be $50,000. Examiners can increase the penalty, but never over 100% of the highest balance. The non-willful penalty is going to be limited to $10,000 per year, regardless of the number of accounts, and will be capped at a maximum of 50% of the highest balance. Willfulness and non-willfulness are determined by the facts and circumstances of each case.
Even with the penalty change foreign account and asset reporting continues to be a hot item for the IRS enforcement division. If you have foreign bank or securities accounts and haven’t filed an FBAR or aren’t sure if you’re fully compliant, Saville’s Global Tax and Advisory Group can help you and your business stay on the right side of the IRS. Contact us today.
Written by Mike Frank, CPA, Partner