FBAR penalties are among the most severe in the US tax system. A single missed filing can result in penalties equal to 50% of the unreported account balance - per year. The IRS distinguishes between willful and non-willful violations, and the difference in consequences is enormous.
Willfulness does not require intent to violate the law. The Supreme Court confirmed in Bittner v. United States (2023) that a non-willful penalty is assessed per form, not per account - limiting the IRS's ability to multiply penalties across dozens of accounts. However, for willful violations, the IRS can still assess penalties on a per-account, per-year basis. Courts have found willfulness based on "reckless disregard" of a known legal duty - checking "no" on Schedule B (Form 1040) when you have foreign accounts has been treated as evidence of willfulness even without proof of intentional concealment.
An FBAR violation occurs when a US person who has a financial interest in, or signature authority over, one or more foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year fails to timely file FinCEN Form 114 by the April 15 deadline (auto-extended to October 15). Each year of non-filing is a separate violation. 31 USC §5314; 31 CFR §1010.350.
| Account Type | Reportable? | Notes |
|---|---|---|
| Foreign bank accounts (checking, savings) | Yes | All accounts where aggregate exceeds $10,000 |
| Foreign brokerage / investment accounts | Yes | Including foreign mutual funds |
| Foreign pension accounts (with savings component) | Yes | If taxpayer has financial interest or signature authority |
| Foreign life insurance (cash value) | Yes | Only if policy has cash surrender value |
| Signature authority only (no financial interest) | Yes | Employee account access at foreign employer counts |
| Purely governmental pension (no individual account) | Generally No | Depends on structure; verify with qualified CPA |
| Foreign real estate (held directly) | No | Real property not reportable unless held through entity |
For US residents with non-willful violations. Requires filing amended returns for 3 years, FBARs for 6 years, and payment of a 5% miscellaneous offshore penalty on the highest aggregate foreign account balance. No accuracy-related penalties, no FBAR penalties beyond the 5%. IRM 4.26.16.7.
For US persons living outside the US who meet a non-residency test (330 days outside the US in any one of the 3 years covered). Same amended return and FBAR requirements - but zero offshore penalty. IRM 4.26.16.6.
For potentially willful violations. The taxpayer proactively discloses before the IRS initiates a civil examination or criminal investigation. Protects against criminal prosecution in most cases. Requires full cooperation, payment of taxes, interest, and penalties. IRM 9.5.11. VDP does not provide immunity but significantly reduces criminal risk. Attorney involvement is strongly recommended before any VDP submission.
For taxpayers who are current on all other tax obligations and simply failed to file FBARs - with no unreported income. File the delinquent FBARs with a statement explaining why they were late. The IRS has removed its Delinquent FBAR Submission Procedures webpage; under IRM 4.26.16.3.11, a penalty will not be asserted for an account if the failure to report on a timely FBAR was not willful, was due to reasonable cause, and the account is properly reported on the delinquent FBAR.
Bittner v. United States, 598 US 85 (2023): The Supreme Court held 5-4 that non-willful FBAR penalties accrue per form (per year), not per account. A taxpayer with 50 accounts who failed to file for 5 years faces maximum non-willful penalties of 5 × $16,536 = $82,680 (inflation-adjusted amount; $10,000 statutory), not 250 × $16,536 = $4,134,000. This significantly limits IRS penalty exposure for non-willful violations with many accounts.
Willful penalty calculation: For willful violations, the 50% penalty is computed on the balance in the account at the time of the violation (31 USC §5321(a)(5)(D)(ii)), which for 2016 and later years the IRS treats as the end of the day on April 15 of the following year (IRM 4.26.16.5.2(2)(b)) - not the average or peak balance during the year. An account with a $500,000 balance on that date could trigger a $250,000 willful penalty for that year.
Schedule B as evidence of willfulness: Part III of Schedule B (Form 1040) asks "Did you have a financial interest in or signature authority over a financial account in a foreign country?" Answering "No" when foreign accounts exist has been cited by courts as evidence supporting a willfulness finding. United States v. McBride, D. Utah (2012).
The IRS has 6 years from the date of the FBAR violation (the filing deadline) to assess FBAR penalties. 31 USC §5321(b)(1). For a 2020 FBAR (violation date April 15, 2021 under IRM 4.26.16.5.2(2)(b)), the six-year period ends April 15, 2027. The statute of limitations for criminal FBAR violations is five years from the date the offense is committed (IRM 4.26.17.3.1).