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Learn about the guidelines governing penalties for noncompliance with the Foreign Bank Account Registration (FBAR) rules and regulations. Discover when penalities are issued, various types of penalties and how fees are assessed. Key information includes:
- The IRS has been delegated authority to assess FBAR civil penalties.
- There are civil penalties for negligence, pattern of negligence, non-willful, and willful violations.
- Whenever there is an FBAR violation, the examiner will either issue the FBAR warning letter, Letter 3800, or determine a penalty.
- Penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future.
- FBAR civil penalties have varying upper limits, but no floor. The examiner has discretion in determining the amount of the penalty, if any. Examiner discretion is necessary because the total amount of penalties that can be applied under the statute can greatly exceed an amount that would be appropriate in view of the violation.
- Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted and the total amount of penalties to be asserted. Because FBAR penalties do not have a set amount, IRS has developed penalty mitigation guidelines to assist examiners in the exercise of their discretion in applying these penalties. The mitigation guidelines are only intended as an aid for the examiner in determining an appropriate penalty amount. The examiner must still consider whether a warning letter or a penalty amount that is less than what would be called for under the mitigation guidelines would be more appropriate given the facts and circumstances of a particular case. For example, if an individual failed to report the existence of five small foreign accounts with a combined balance of $20,000 for all five accounts but the income from each account was properly reported and the taxpayer made no effort to conceal the existence of the account, it may be more appropriate to issue a warning letter rather than assert penalties under the mitigation guidelines.
- FBAR penalties are determined per account, not per unfiled FBAR, for each person required to file. Penalties apply for each year of each violation. As noted above, however, examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted and the total amount of penalties to be asserted.
- There may be multiple FBAR civil penalty assessments arising from one account. FBAR civil penalties can apply to each person with a financial interest in, or signature or other authority over, the foreign financial account. Thus there may be multiple penalty assessments if there is more than one account owner or if a person other than the account owner has signature or other authority over the foreign account. Each person can be liable for the full amount of the penalty.
Source: irs.gov