What Is the FBAR Penalty?

2025-08-12 14:38:34

 Missed your FBAR filing? Learn about penalties for non-willful and willful violations — and how the IRS enforces them today.

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The Foreign Bank Account Report (FBAR) might seem like just another form in a long list of U.S. tax filings, but missing it can be costly — sometimes devastatingly so. Every year, U.S. persons with foreign bank accounts totaling over $10,000 must file FinCEN Form 114. Those who don’t could face penalties ranging from a few thousand dollars to more than half their account balance. In this article, we break down exactly what FBAR penalties are, how they’re applied, and why it’s become one of the most aggressively enforced compliance tools in the IRS’s toolkit.

FBAR Basics: What Triggers the Requirement?

Before diving into penalties, it's worth repeating who must file an FBAR.

You're required to file if:

• You're a U.S. person (citizen, green card holder, resident, or U.S.-based entity), and
  
  

• You have a financial interest in or signature authority over foreign financial accounts
  
  

• The aggregate value of those accounts exceeds $10,000 at any point during the calendar year
  
  

This includes bank accounts, investment accounts, and even things like foreign pension or insurance policies with cash value.

The Penalty Structure: Non-Willful vs. Willful

FBAR penalties are divided into two major categories:

1. Non-willful violations
   
   

2. Willful violations
   
   

The distinction is critical. The IRS treats an innocent mistake very differently from an intentional decision to hide assets.

Non-Willful FBAR Violations

A non-willful violation occurs when a taxpayer fails to file an FBAR but didn’t mean to break the law — for example, they didn’t know about the requirement.

Penalty:
Up to $10,000 per year, as clarified by the U.S. Supreme Court in Bittner v. United States (2023). Before this ruling, courts were split on whether the penalty applied per account or per form. The Supreme Court sided with the taxpayer, limiting non-willful penalties to $10,000 per year, regardless of how many accounts were unreported.

This was a major win for taxpayers and brought consistency to FBAR enforcement for non-willful cases.

Willful FBAR Violations

A willful violation occurs when someone intentionally fails to file an FBAR. This includes:

• Knowingly not filing the form
  
  

• Recklessly ignoring your FBAR obligations
  
  

• Filing false or incomplete information
  
  

Penalty:
The IRS can impose a penalty of the greater of $100,000 or 50% of the account balance at the time of the violation, per year.

That means if you had $1 million in an unreported account and didn’t file for two years, your penalty could be up to $1 million (50% each year). These are no longer hypothetical numbers — they’ve been enforced in many high-profile cases.

Criminal Penalties

In extreme cases, criminal charges may apply.

• Willful failure to file an FBAR can result in up to 5 years in prison
  
  

• If the violation is part of a pattern of illegal activity (like tax evasion or money laundering), the sentence could go up to 10 years and include criminal fines of up to $500,000
  
  

Most criminal cases are reserved for egregious, high-dollar violations — but they do happen. The Ty Warner case (Beanie Babies founder) and other public examples prove the government takes FBAR fraud seriously.

Real-Life Examples of FBAR Penalties

• Ty Warner: Paid over $53 million in penalties for failing to report a Swiss account worth $93 million
  
  

• Zwerner Case: A Florida man was initially penalized $3.5 million on a $1.5 million account for three years of willful violations. The case was eventually settled for less, but it demonstrated the IRS’s aggressive stance
  
  

• Monica Toth Case: A Supreme Court appeal raised the question of whether a $2.1 million FBAR penalty was unconstitutional under the Excessive Fines Clause. The court declined to hear the case, leaving the penalty intact.
  
  

These examples underscore how penalties can snowball quickly — and how taxpayers are often caught off guard by the severity of enforcement.

How the IRS Determines Willfulness

Willfulness doesn’t require actual intent to hide money — reckless disregard for the rules is enough.

For example, the IRS may claim willfulness if:

• You signed a tax return that asked about foreign accounts and answered "no"
  
  

• You failed to ask your tax preparer about reporting obligations
  
  

• You closed or moved accounts when learning about FBAR
  
  

The government doesn’t need a smoking gun. It often builds willfulness cases using indirect evidence, such as patterns of transactions or communications showing knowledge of foreign accounts.

Penalty Mitigation Guidelines

While the penalties on paper are steep, the IRS does have internal mitigation guidelines — especially for first-time offenders. For example:

• If the taxpayer cooperates and has no criminal history, penalties may be reduced
  
  

• Non-willful penalties may be waived or dropped altogether with a reasonable cause explanation
  
  

• In some cases, the IRS allows “cautionary letters” instead of fines
  
  

That said, these are not guaranteed. Each case is evaluated individually, and once an audit starts, your leverage shrinks.

Options for Fixing Past FBAR Mistakes

If you’ve failed to file FBARs in past years, there are IRS programs that allow you to come into compliance and potentially avoid massive fines:

1. Delinquent FBAR Submission Procedures:
   For people who didn’t file but owe no tax and weren’t willful
   
   

2. Streamlined Filing Compliance Procedures:
   For non-willful taxpayers. Requires amended tax returns and back FBARs (last 6 years). Penalty is 5% of the highest balance across accounts
   
   

3. Voluntary Disclosure Program (VDP):
   For willful taxpayers seeking to avoid criminal prosecution. Involves full disclosure and significant penalties, but avoids jail time
   
   

The earlier you act, the better your options typically are.

Can You Contest an FBAR Penalty?

Yes — but it’s not easy.

You can:

• Respond to the IRS audit findings
  
  

• File a petition in federal court to challenge the penalty
  
  

• Raise constitutional defenses (e.g., Toth case tried to invoke Eighth Amendment)
  
  

However, litigation is expensive and uncertain. Most people settle with the IRS through appeals or negotiation before it gets to court.

Key Takeaways

• Non-willful FBAR penalties are capped at $10,000 per year (not per account)
  
  

• Willful violations can result in penalties up to 50% of the account balance, per year
  
  

• Criminal penalties are rare but possible — up to 5 years in prison
  
  

• The IRS uses indirect evidence to establish willfulness
  
  

• Remedial programs exist to help non-compliant taxpayers come clean
  
  

Final Thought

The FBAR isn’t just paperwork — it’s a high-stakes compliance tool used to detect and deter offshore tax evasion. Whether you missed a filing by mistake or were unaware of the requirement, the key is to act early and understand your options. With the right strategy, even large penalties can often be reduced — but ignoring the problem rarely ends well.

M.Daniyal